London: The wealthy have for centuries stashed their gold in Swiss vaults. But Swiss bankers are now reluctant to accept the world’s bullion in the same old way as they seek to reduce the size of their balance sheets.
UBS and Credit Suisse, which dominate the powerful Zurich-based physical gold market, have raised the fees they charge for holding the precious metal, according to clients and people familiar with the banks.
The move is an attempt to persuade their biggest clients — including other banks, hedge funds and institutional investors — to take direct ownership of their gold in so-called “allocated” accounts, with the bank simply acting as a custodian.
Under more common “unallocated” gold accounts, depositors’ bullion appears on the banks’ balance sheets, forcing them to increase their capital reserves. Like their global peers, UBS and Credit Suisse are under pressure from regulators to reduce capital-intensive activities ahead of the introduction of new Basel III global banking rules.
People familiar with the banks’ thinking said the move to raise fees was part of a broader attempt to reduce the size of their balance sheets. “When it’s on balance sheet, it does create costs,” a person with knowledge of the banks’ strategy said. “If there’s an additional cost in terms of liquidity, it should be shown transparently.”
Variance in fees
Fees vary for different clients, and traders said that the increase had not been uniform but that it was generally in the order of about 20 per cent. Vaulting fees are typically about 0.05-0.1 per cent of the value of the gold.
Credit Suisse declined to comment on the fee hikes, but confirmed that it was “adjusting its charges for precious metal accounts for financial institutions”. UBS declined comment.
Higher vault fees are the latest sign of strain in Switzerland’s banking industry as investors in search of a haven for their wealth pile money into the country. Last month, UBS and Credit Suisse imposed negative interest rates on short-term cash deposits in an attempt to stem inflows from investors seeking a haven from the Eurozone crisis.
The move has caused a stir among traders, given Switzerland’s significance as a hub for physical gold trading, and is also opening up opportunities for rivals. Non-Swiss banks are considering building new vaults in the country to take advantage of the move by UBS and Credit Suisse, according to industry executives.
Some gold investors began shifting their holdings from unallocated to allocated accounts — which are generally more expensive — at the beginning of the financial crisis. While holders of allocated gold are protected if a bank goes bankrupt, holders of unallocated gold could lose their investment.
“Banks have been keen for clients to move out of unallocated gold positions into allocated gold positions,” said Philip Klapwijk, head of metal analytics at Thomson Reuters GFMS, a precious metals consultancy. “We had a phase where it was driven by perceived credit risks [after the bankruptcy of Lehman Brothers]. But this is being driven by banks themselves saying to customers, ‘Move this gold to allocated accounts so it’s not on our balance sheet’.”
UBS has in recent months urged clients to place their gold in “collective pool custody” accounts — vehicles that maintain direct ownership of gold bars on behalf of several clients. By grouping clients’ gold deposits, banks can avoid the logistical headaches involved in accounting for individual investors’ bars.