Big Banks Start Charging Clients for Euro Deposits
So, in the end, instead of making interest rates on loans smaller and being able to sell a loan, they figured outr that it is easier to simply make us pay for keeping our money in the banks. The end of such banks behavior is obvious to everybody except to the morons working in the banks
Will Our Private Savings Be Sacrificed To Pay Down The Public Debt?
Recently, an article by Daniel Amerman caught our attention. Titled Is There A “Back Door” Method For The Government To Pay Down The Federal Debt Using Private Savings?, it details the process known as financial repression, where sovereign debts are slowly paid off by syphoning private savings from an unaware populace.
In this week's podcast, Chris discusses the mechanics of the process, as well as its probability, with Dan:
To understand financial repression, we have to understand that we've been there before. Many nations have gone through periods in the past where they've had very high levels of government debt. And there are four traditional ways of dealing with that.
One of them is austerity. Everyone understands that. You raise the tax rates. You lower the government spending. This is a painful choice. It can last for decades. And what do you think the voters think about that?
There is another option and this we can call this the Argentina option. And that's defaulting on government debts. It’s radical. Everybody understands it. How do the voters feel about it?
There is a third option is rapidly destroying the value of currency. Creating high rates of inflation that very quickly wipe out the true value of a national debt. But that also wipes out the true value of everyone else’s savings and salaries and so forth. It is such an obvious process you can’t really hide it. So how do the voters feel about that?
Those first three – they all work. They've all been done before. But they're all very painful and make the voters very angry.
Now there is a fourth way of doing this. There's nothing controversial about its existence; it's not the slightest bit controversial for professional economists or people who have studied economics extensively. It's financial repression. And it works. It's what the advanced western nations did after World War II. It was a process that took 25 to 30 years, depending on the country. The West went from an average debt as a percentage of national economy from over 90% to under 30%. So we know it works in practice.
To understand what this fourth alternative is where governments like to go is that there are no political repercussions. It's actually just as painful for the population as a whole. You've got to get the money one way or another. But financial repression is, for most people, just complex enough that the average voter never gets it. And because they don’t get it, they're paying the penalty, but they don’t realize it. And they don't see anyone to blame. That's really good if you want to stay in office.
The key is a concept called negative real interest rates. If the rate of inflation is higher than the interest payments you are taking in, savers are losing purchasing power every year. Remember, this is a zero sum game between the borrower and the saver -- with the saver funding the borrower. Every dollar in purchasing power that the savers, which are you and I, are losing every year -- that goes to the benefit of the borrower, which in this case is the Federal government.
They are doing all that they can do to shift the money from our pocket theirs. It was always so, but in the last couple of years it became a "games without frontiers" and they are doing it now shielded by the law that they changed in the mean time. Plain and simple robing - banks and central banks, all in the name of politics
J.P. Morgan to start charging big clients fees on some deposits
J.P. Morgan Chase & Co. is preparing to charge large institutional customers for some deposits, citing new rules that make holding money for the clients too costly, according to a memo reviewed by The Wall Street Journal and people familiar with the plan.
The largest U.S. bank by assets is aiming to reduce the affected deposits by billions of dollars, with a focus on bringing the number down this year, these people said.
The move is the latest in a series of steps large global banks have been discussing in recent months to discourage certain deposits due to new regulations and low interest rates.
J.P. Morgan’s steps are among the most detailed and widespread. Specifics are likely to be unveiled Tuesday by J.P. Morgan executives at the bank’s annual strategy outlook with investors, these people said. Among other points, the bank is expected to stress alternatives customers affected by the deposit moves can use for their excess cash.
The plan won’t affect the bank’s retail customers, but some corporate clients and especially an array of financial firms, including hedge funds, private-equity firms and foreign banks, will feel the impact, according to the memo.
J.P. Morgan is making the moves because certain deposits are less profitable to handle than they used to be. New federal rules essentially penalize banks for holding deposits viewed as prone to fleeing during a crisis or a stressed environment.
“We are adapting to a changing regulatory environment across our company,” according to the J.P. Morgan memo sent Monday and signed by the bank’s asset-management, commercial-bank and corporate and investment-bank heads.
J.P. Morgan is one of the most affected by new capital and liquidity rules, in part because it is one of the largest banks and has a variety of complex businesses, including trading and serving hedge funds. The memo notes that the changes are necessary to deal with clients deemed more interconnected and risky by regulators. In addition to J.P. Morgan’s relationships with hedge funds, foreign banks and private-equity firms, its dealings with central-bank clients could be also affected.
Under the bank’s new push, those clients will be asked to adjust certain deposits viewed as more temporary by either paying a new fee or moving the proceeds to a similar J.P. Morgan product such as a money-fund sweep account. In some cases, the bank will likely ask clients to hold these so-called nonoperational deposits at a different firm.
The Wall Street Journal reported in early December that J.P. Morgan and several other banks, including Citigroup Inc., HSBC Holdings PLC, Deutsche Bank AG and Bank of America Corp., had spoken privately with clients in recent months that new regulations are making some deposits less profitable, in some cases telling clients they would charge fees or work to find alternatives for some of the deposits.
The moves have thrown into question a cornerstone of banking, in which deposits have been seen as one of the industry’s most attractive forms of funding.
Since the financial crisis, new rules have been put into place that require banks to maintain enough high-quality assets that could be converted into cash during a crisis to cover a projected flight of deposits over 30 days. Because large, uninsured deposits would be expected to leave most quickly, the rules will now require that banks maintain reserves for those deposits that they cannot use for profitable activities like making loans. That makes it much less efficient or profitable for banks to hold these deposits.
Certain proposals put the largest banks in an even tougher spot. Proposed global guidelines on systemically important banks include multiple categories requiring tougher capital rules as a bank gets larger, more connected and more reliant on short-term wholesale funding.
Some customers have already had to deal with new fees. J.P. Morgan’s commercial bank in the fall told some clients that it would begin charging monthly fees on deposit accounts, beginning Jan. 1 for U.S. accounts and later for international accounts, according to a memo viewed by The Wall Street Journal and people familiar with the matter.
The newest fees will likely vary by client, depending on a variety of factors, including their overall relationship with the bank and the size of the account.
In "Paranormal" Europe, Banks Will Pay You To Borrow, And Charge You To Save
A month ago, we wrote about a bizarre situation involving Denmark's now totally broken monetary system, where as a result of an unprecedented scramble to weaken the currency in order to preserve the peg to the Euro the central bank unleashed a historic rate-cutting scramble, where in 4 consecutive rate cuts its pushed the interest rate to an unheard of -0.75% (while at the same time being the first modern central bank to unveil what we dubbed "Bizarro Backdoor QE"). The culmination of this series of events was the surreal realization by some debtors that the bank would now pay them the interest on their new or existing mortgage.
The insanity was only compounded when one considers that in the vast majority of European countries, depositors are already (or will soon) pay for the "privilege" of providing banks with unsecured funds (in the US, JPM recently also started charging some customers - mostly corporate and hedge funds- for holding their deposits).
In short, this is what Europe has become: savers - those who diligently put away the fruits of their labor - are now forced to pay, using banks as an intermediary, and subsidize the the debtor: spenders, who live beyond their means, and who in increasingly more frequent situations are now paid to take out even more debt! Call it monetary socialism.
Which is probably why with a one month delay, none other than the NYT decided to cover precisely this topic with "In Europe, Bond Yields and Interest Rates Go Through the Looking Glass"
Here is the story in a nutshell, shown with pictures so even central bank idiots and other economist PhDs will get it:
A Denmark bank will pay Eva Christiansen, left, $1 a month for taking out a loan. Ida Mottelson's bank will charge her to hold her money:
The key highlights from the NYT story:
At first, Eva Christiansen barely noticed the number. Her bank called to say that Ms. Christiansen, a 36-year-old entrepreneur here, had been approved for a small business loan. She whooped. She danced. A friend took pictures.
“I think I was so happy I got the loan, I didn’t hear everything he said,” she recalled.
And then she was told again about her interest rate. It was -0.0172 percent — less than zero. While there would be fees to pay, the bank would also pay interest to her.
* * *
... some corporate bonds, which are generally deemed less creditworthy than government bonds, are falling into the negative territory, including some issued by Nestlé and Novartis, a Swiss pharmaceutical company. While they did not initially have negative yields, investors bid up their prices after they were issued. “This is obviously a once-in-a-lifetime and once-in-history phenomenon,” said Heather L. Loomis, a managing director at JPMorgan Private Bank, who specializes in bonds, “and it is hard to make sense of it.”
Ms. Christiansen, a sex therapist, took out a loan to finance a website called LoveShack that is part matchmaking site, part social network. For her, the full novelty of her loan didn’t sink in until a spokeswoman for the bank called her back.
“She said, ‘Hi, Eva, they have contacted us from TV 2’ — it’s a big station in Denmark, one of the biggest — ‘and they would like to talk to you because of this loan,’” Ms. Christiansen said. “Then I was really like, ‘O.K., this is big.’”
She said she was generally aware of what the Danish central bank was doing, but fuzzy on the specifics and had not paid close attention to the issue until she realized she might be asked about it in front of a camera.
“When I was contacted by the television, I was like, ‘O.K., I need to know something,’” she said, laughing, during an interview at her office, where two distant windmills were visible outside the windows. “So I actually called my bank adviser and said, ‘Can we please have a meeting?’ Because all these financial terms, I’m not used to them,” she said. “If I talk about something, I’d like to know something about it.”
* * *
Some other Danes are facing a related, if somewhat opposite, issue.
Last month, Ida Mottelson, a 27-year-old student, received an email from her bank telling her that it would start charging her one-half of 1 percent to hold her money. “At first I thought I had misunderstood this, but I hadn’t,” she said.
Ms. Mottelson is studying for a master’s degree in health sciences, and lives in Odense, a city about 100 miles west of Copenhagen. She said she had been following the news about the central bank, but called her own bank just to make sure she was reading the email correctly.
“I asked him supernaïvely, ‘Can you explain this to me?’ And he tried, but I got the feeling he was like, come on, just move the money and you’ll be fine.”
She does plan to move her money to another bank. “I’m not an expert,” Ms. Mottelson said, “but to me it sounds so weird that you have to pay to have your account at a bank.”
You are right, Ms. Mottelson: it is. And it will only get much weirder from here. Because we have now gotten so far past the looking glass into a world in which the central banks have broken every correlation and logical relationship so profoundly, that nothing makes sense any more; whoever, before the now inevitable grand reset when everything finally collapses under the unsustainable weight of the global house of cards, things will only going get even stranger.
And while we have been lamenting all of this years in advance, all of which we predicted would happen back in June 2012, we are delighted that even the mainstream media has once again, with the usual two to three year delay, caught up with what Zero Hedge readers knew long, long ago.
These are strange times for European borrowers, as if a wormhole has opened up to a parallel universe where the usual rules of financial gravity are suspended. Investors lent Germany nearly $4 billion this week, knowing they would not be fully repaid. Bonds issued by the Swiss candy maker Nestlé recently traded in the market for more than they will ever be worth.
Consumers loans and mortgages with interest rates that are outright negative remain rare, and Ms. Christiansen appears to be one of the few who actually received one while banks mull how to proceed. Some other Danes are getting charged to park their money in their bank accounts.
* * *
Such paranormal financial episodes are taking place all across Europe.
Indeed, call it the new "paranormal", and thank the central-planners for bringing the world to the edge, and beyond, of reason, where nothing makes sense any more. But don't worry, because this time it's different, and there will be a happy ending for everyone involved...
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Several global banks have begun charging large customers to deposit their money in euros, a rare move that could have costly implications for investors and companies that do business on the Continent.
The actions are driven by policies from the European Central Bank, which in June became the largest central bank to impose a negative interest rate on deposits—meaning banks are paying to park their money with the ECB. The effort is designed to encourage banks to instead use that money to lend. When the ECB dropped those rates further in September, some banks started pushing those costs—or costs related to the rate cuts—onto customers.
Now, instead of paying customers interest on their euro accounts, as they have done traditionally, some banks have started charging them. Bank of New York Mellon Corp. BK +0.55% recently started charging 0.2% on euro deposits, the bank said Friday, and Goldman Sachs Group Inc. GS +2.51% and J.P. Morgan Chase JPM +2.03% & Co. have also started charging clients, according to people familiar with the matter.
Meanwhile, Credit Suisse Group AG CSGN.VX +2.06% has told customers it will pass along negative interest rates on all currencies in which they apply, people familiar with the matter said, and has started charging on euro deposits.
Many bankers and their clients say the shift is the most sweeping of its kind they can recall. The clients most immediately affected are investment firms, such as hedge funds and mutual-fund companies. Multinational corporations with sizable operations in Europe also could face additional costs, according to bankers who work with them.
Negative rates reflect in part the paralysis that threatens to plague Europe’s economy. Households and businesses are so reluctant to spend or invest that banks are charging some customers merely to hold their cash. The recent moves appear to reflect a view from the banks that the negative rates are likely to persist for some time. They also could push customers with large deposits to put that money into other vehicles that are more risky.
The fees also underscore challenges institutional depositors such as hedge funds, mutual funds and corporations may face in finding a haven for their deposits. Banks have traditionally competed for institutional investors’ deposits. But new banking rules force them to set aside more capital against that cash, which earns little return these days, making such deposits unattractive.
HSBC Holdings HSBA.LN +1.09% PLC will soon start charging customers with more than roughly €10 million ($13 million) in deposits, according to a person familiar with the matter. The move is intended to discourage a flood of deposits from institutional investors fleeing competitors that already have started levying charges on euro deposits, the person said. An HSBC spokesman said Friday the bank was “monitoring the situation” regarding negative interest rates.
Several bankers said the changing regulatory landscape has made it harder to eat the cost, as they might have in the past. In 2011, BNY Mellon disclosed a move to charge some of its U.S. depositors for holding their cash, after investors poured money into the bank to escape gyrations in the market. The bank later aborted the plan.
A BNY Mellon spokesman said the 2011 situation “resolved itself” as deposit levels shrank. “The current euro situation is much more enduring and is likely to be the norm for some time,” he said.
The latest move by the banks is notable because so many of them are taking the step, giving customers fewer options for moving their money. Several people familiar with the matter said the fees could vary depending on the client and the bank.
“As we go through this period of low interest rates in the eurozone, our expectation is this is going to linger for a long time,” said Peter Yi, head of short-duration fixed income at Chicago-based trust bank Northern Trust Corp. “This isn’t something that’s going to go away in the next year.”
Mutual-fund firm Vanguard Group confirmed it is being charged for its euro balances. “That is being passed on,” said Vanguard spokesman David Hoffman. “It’s very recent.”
He declined to say which banks are instituting the charge or detail the firm’s euro cash exposure, but he said it was “very small.”
The new charges are setting off a search by some clients to try to avoid or minimize fees. Investors and bankers say some clients are looking for banks that haven’t yet started charging for euro deposits. Others are moving their balances into cash-like instruments such as money-market funds or repurchase agreements, also known as repos, which are short-term loans backed by collateral.
The BNY Mellon spokesman said the bank was working with clients who were looking for alternatives to cash deposits to find investment opportunities.
In an interview Friday, BNY Mellon Chief Financial Officer Todd Gibbons said the firm expects the fees to be imposed across the industry. He said 15% of BNY Mellon’s deposits are euro-dominated and that he expects most of the affected clients to be “savers on the institutional side,” including financial-services firms, corporations and pension funds.
The charges highlight the divergent paths central banks in the U.S. and Europe are taking. Although the Federal Reserve has kept interest rates low for years, it continues to pay banks on excess deposits and has signaled it hopes to raise rates relatively soon.
Relationships between banks’ prime-brokerage businesses, which execute and finance trades, and their clients are already feeling strains. Some banks have started squeezing clients such as hedge funds by increasing the cost of financing and, in some cases, dropping clients that don’t bring banks enough profit.
Not all big banks are following suit. Deutsche Bank AG DBK.XE +3.24% had not started levying charges on euro deposits as of Friday, according to people familiar with the matter.
State Street Corp. STT +1.80% said in a statement Friday it hadn’t started charging on euro deposits but that it had told clients it might do so in the future. “Continued persistence or deterioration of the current rate environment may require that we take action consistent with prudent financial management,” the statement said.
Anthony Carfang at Treasury Strategies, a Chicago-based consulting firm, said the prominence of the negative rates made such charges more palatable than they may have been in the past. “This looks like a pass-through,” he said. “That makes it a lot more acceptable in the customer’s mind.”
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