With negative interest rates now firmly a fixture on the financial landscape, successful companies are in effect being punished by the banks. Dieter Müller, chief executive of the hotel chain Motel One, knows all about it. Last year the firm generated revenues of €322 million (about $360 million), and profits of €77 million. That kind of success left the company with around €133 million in liquid assets at the end of the year. But it also created a problem: Motel One’s bank is now charging companies which have more than €20 million in their accounts. Mr. Müller was left scrambling to find a solution.
There have been a lot of awkward phone calls made recently by banks to their clients, telling them them that negative interest rates are going to be imposed on their deposits: in other words, the bank will charge the company to deposit money. Commerzbank is already doing it. So is Deutsche Bank. Even some of Germany’s large publicly-owned savings banks, known as Sparkassen, are doing it. “They already charge negative interest rates, between -0.3 percent and -0.5 percent, on accounts with an average balance of more than €5 million,” said Georg Ehrhart, a partner at Schwabe, Ley and Greiner, a consulting firm specializing in wealth management.
The banks don’t like the term 'negative interest rate': they prefer 'administration charge' or 'balance fee.'
The reason for all this is the monetary policy of the European Central Bank. Instead of receiving interest for deposits with the central bank, which was the historical norm, it now costs banks around 0.4 percent to deposit money with the ECB. And banks are trying to pass the cost on to their customers. Individual customers have so far been spared the “punishment rates,” but companies are already being hit hard.
The chief executive of one food production factory told Handelsblatt that he already had to address the issue, after his main bank told him they would impose negative interest rates. The food executive is now trying to move money around, sharing it out among different institutions to keep the company’s balances under the negative rate threshold. Negotiations are ongoing with the various banks, which is why he asked for anonymity. Mr. Müller, of Motel One, said he was doing something similar: “We are already spreading our money around a large number of banks,” said the hotelier.
Nikolaus von Bomhard, chairman of reinsurers Munich Re, has already gone a step further. His company says it will keep a small proportion of its funds in the form of physical cash, some even in gold. Of course, “small” for this company means tens of millions of euros: a symbolic protest against current ECB policy. Storing cash in vaults can mean savings, as long as the costs work out lower than negative interest rates.
The head of one medium-sized plastics company said he has inquired about keeping excess cash outside of the euro zone. “There may be no other way to avoid paying negative interest rates,” he said. The company was already taking any cash not immediately needed and converting it into 3-month or 6-month term investments, which at least still pay out some interest.
For now, there seems little hope of change. Mario Draghi, the president of the ECB, has indicated that interest rates will remain low for a very long time. More than half of 200 corporate treasurers surveyed by Schwabe, Ley und Greiner said they expected interest rates to go even lower. Specifically, they are expecting the 3-month inter-bank loan to drop to -0.5 percent by the end of 2016, maybe even further. Currently, the rate stands at -0.2 percent.
Banks have been charging negative rates for at least 18 months, but now the number of those affected is growing. The banks don’t like the term “negative interest rate”: they prefer “administration charge” or “balance fee.” The ECB first introduced negative rates on overnight bank deposits in June 2014.
The first to be hit with the charges were institutional customers with very high liquid balances – insurance companies, investment funds and large corporations. But now negative rates are gradually spreading down through the system, and are beginning to hit smaller firms too.
A few weeks ago, for example, Commerzbank began charging mid-sized companies an “individual balance fee,” if they hold too much money in their accounts. Zero-percent interest rates on demand accounts would amount to giving customers a “subsidy,” said Martin Blessing, chairman of Commerzbank.
Financial institutions know very well that customers hate negative interest rates. Their goal is to avoid charging the fees, says Commerzbank: they want to help customers to develop alternative investment strategies.
Helaba – the state-owned regional bank for the German states of Hesse and Thuringia – said something similar last week. In the long term, banks cannot and should not protect customers from ECB policies, said Helaba boss Hans Grüntker. But the bank was trying to help customers avoid negative interest rates, Mr. Grüntker said. They were working with commercial and institutional customers to find “individual solutions,” he added.
“We are already spreading our money around a large number of banks.”
Mr. Ehrhart, the financial advisor, pointed out that companies could be hit twice by negative rates, if variable rate loans are taken into account. It can happen that companies have to pay higher margins on loan interest than originally agreed. Even though the ECB’s rate is now negative, he said, some banks continue to calculate loan interest based on a zero-percent rate. That base rate may go further into negative territory, but the benefits won’t show up in rates paid by companies borrowing from the bank.
For the moment, private customers have been spared negative rates. Banks do say they will try to protect individuals from ongoing below-zero interest rates. But it is probably only a matter of time. Bernhard Uppenkamp, the head of one of Germany’s larger communal savings banks, recently refused to rule out negative rates for new customers with seven-figure balances.
When below-zero rates do come, the first to be hit will be individuals with large sums on deposit. No wonder that some banks are seeing an upsurge in strong-box rentals – customers may soon prefer to keep their cash in a safe at the bank, rather than in an actual bank account.
Elisabeth Atzler is Handelsblatt’s banking correspondent. Martin Dowideit covers media for Handelsblatt online and is head of the companies and markets section. Joachim Hofer covers the high-tech industry and IT sector for Handelsblatt. To contact the authors: email@example.com, firstname.lastname@example.org and email@example.com.