Two major Swiss banks nudge customers into allocated gold

Section:

Swiss Banks Lose Old Taste for Gold

By Jack Farchy
Financial Times, London
Tuesday, January 29, 2013

http://www.ft.com/intl/cms/s/0/46c25732-6a10-11e2-a7d2-00144feab49a.html

The wealthy have for centuries turned to Switzerland as a safe and convenient place to stash their gold. But Swiss banks are now demanding higher fees to accept the world's bullion, 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 hiked their charges for holding the 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.

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Under more common "unallocated" gold accounts, depositors' gold appears on banks' balance sheets, forcing them to increase their capital reserves. Like their global peers, UBS and Credit Suisse are under regulatory pressure to reduce capital-intensive activities ahead of the introduction of Basel III global banking rules.

People familiar with the banks' thinking said that the move to raise fees was part of a broader attempt to reduce the size of balance sheets. "When it's on balance sheet it does create costs," a person with knowledge of the banks' strategy said.

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. Vault fees are typically about 0.05-0.1 per cent of the value of the gold.

Credit Suisse declined to comment on the fee rises but confirmed that it was "adjusting its charges for precious metal accounts for financial institutions."

UBS declined to comment.

Higher vault fees are the latest sign of strain in Switzerland's banking industry, as investors in search of a haven 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.

Some gold investors began shifting holdings from unallocated to allocated accounts -- which are generally more expensive -- at the beginning of the financial crisis.

Unallocated holders can lose their investment if a bank fails, but holders of allocated gold are protected.

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