STT, BK to Charge for Deposits - Analyst Blog
October 09 2012 - 1:25PM
Zacks
According to Bloomberg, State Street
Corporation (STT) and The Bank of New York Mellon
Corporation (BK) will begin to charge depositors for
holding Danish kroner and Swiss francs deposits. This move is a
part of these banks’ strategy to re-establish a decent profit
margin between what has been paid for deposits and what has been
earned on investments.
State Street plans to put a negative interest rate of 0.75%
annually on Danish kroner commencing from November 1, 2012. This
implies that big institutional depositors like money managers,
insurance companies and pension funds will have to pay a certain
amount to the bank to hold their deposits. Further, the bank plans
to charge a 0.25% interest rate on Swiss franc deposits.
Customers with accounts in these two currencies exceeding the
minimum levels will have to bear these charges. At current exchange
rates, the minimum levels are fixed at 225,000 kroner ($39,000) and
100,000 francs ($107,000).
BNY Mellon has levied a charge on Danish kroner deposits, but has
still not imposed any negative interest rate on Swiss francs. This
was done to recover the cost of managing these deposits.
Last year, BNY Mellon announced a charge of 0.13% interest on
deposits of $50 million or more to dissuade customers from stashing
more and more money into their accounts. However, this was not
implemented, as a marked change was witnessed in the deposit habits
of clients and due to the settlement of the debt-ceiling crisis at
that time.
Since the Euro Zone crisis is deepening, investors have started
drifting to other safer currencies deserting the volatile Euro.
European nations, namely Denmark and Switzerland, have slashed
interest rates below zero levels to stop their currencies from
rising. Therefore, the Danish kroner and Swiss francs offer less
risk compared to Euro.
Moreover, the Triple A ratings of these two countries, combined
with a current account surplus and a government debt burden that is
less than half the Euro zone’s average, make these currencies very
appealing. Therefore, big financial institutions have resorted to
applying negative interest rates on Danish kroner and Swiss francs
deposits.
The application of negative interest rates will definitely
discourage big institutional clientele from stashing more deposits
into the banks. For banks, this will reduce the deposit levels as
well as the cost of managing these deposits. Further, it will
relieve them of the trouble to mobilize the cash into the economy
as the loan demand is slowing down.
State Street and BNY Mellon currently retain Zacks #3 Ranks, which
translates to short-term Hold ratings. Considering the
fundamentals, we also maintain a long-term Neutral recommendation
on both stocks.
BANK OF NY MELL (BK): Free Stock Analysis Report
STATE ST CORP (STT): Free Stock Analysis Report
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