UBS Says Swiss Zero Rate Has Important Impact on Domestic Bank

(Bloomberg) — The prospect that the Swiss National Bank will keep its key interest rate at zero for an extended period is ushering in potentially lower profitability for the nation’s lenders, not least UBS Group AG.

The central bank held rates steady at its last meeting in June, and Bloomberg reported earlier this week that officials are likely to keep it at zero until the end of 2027 based on current inflation expectations and in the absence of any major shocks. Todd Tuckner, chief financial officer of UBS, said Wednesday he’s aware that assumptions on SNB moves are being pushed back.

“The zero rate environment does have an important impact on our Swiss business,” Tuckner said on a call with journalists after the bank posted second-quarter results. In a scenario of either higher rates or rates below zero, UBS would make more, he said. Banks can typically pass negative policy rates on to customers more easily.

“Movement would be accretive to the net interest income and the returns that we would produce in that business.”

Switzerland’s rate outlook is an outlier for UBS, which as the largest global wealth manager is exposed more broadly to the rising policy expectations in other major jurisdictions such as the US and the euro area. Revenue at the Swiss domestic bank slipped to 1.9 billion Swiss francs ($2.3 billion) in the second quarter, partly reflecting lower net interest income. Globally UBS expects interest income at wealth management to rise “modestly” in the third quarter.

Switzerland’s lower policy rate reflects controlled inflation and the effect of the country’s status as a haven for capital in times of elevated market volatility or geopolitical tension.

–With assistance from Bastian Benrath-Wright.

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