How Europe’s worst-hit banks hope to survive negative rates
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How Europe’s worst-hit banks hope to survive negative rates

A few big banks in Germany, Switzerland and France pay the majority of the charges their central banks now levy on their reserves – Euromoney looks at which ones are worst affected and asks how they can manage the pain and maintain a conservative approach to liquidity and risk.

As banks complain loudly about negative rates in Europe, they are also increasingly adapting to them, whether by lending more, boosting fee and trading income or charging depositors.

But there are growing worries about the long-term effects of strategies that could lead to shedding liquidity and taking on more risk than some banks can handle.

Are the worst-hit banks also the ones taking the most drastic and potentially most perilous actions?

Because of their domestic focus, banks such as Germany’s Commerzbank and Spain’s Bankia are often treated as the key stocks to short over concerns about the impact of negative rates on earnings. Both accept they are severely affected.

However, one of the clearest signs of being disadvantaged by negative rates is a low loan-to-deposit ratio. In what used to be seen as a sign of greater safety, previously banks would get paid – not charged – to park unused deposits at the central bank.

Kirt Gardner, UBS 160x186

Kirt Gardner, UBS

Bankia’s loans roughly balance its deposits. And although Commerzbank’s corporate business only partly offsets its excess retail banking liquidity, Deutsche Bank, Credit Suisse and UBS have lower loan-to-deposit ratios.

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