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Negative interest rates have a silver lining for some firms!

It’s a sign the world is getting used to negative interest rates when what once seemed bizarre starts looking like the norm.

Consider Switzerland, where more and more companies are taking out insurance policies to protect their cash hoards from theft or damage.

“Because of the low interest rate level, we note increasing demand for insurance solutions for the storage of cash,” said Philipp Surholt at Zurich Insurance Group AG, among underwriters reporting a surge in such requests. “We’re seeing demand for coverage for sums ranging from 100 million to 500 million francs.”
…
Helvetia Holding AG said it charges about 1,000 francs ($1,020) a year to insure 1 million francs, a fraction of the 7,500 francs a company would pay to park the same amount in a bank for a year — assuming the lender passes on the full charge. But that amount doesn’t include the cost of logistics such as transport or security features like reinforced walls, guards and alarm systems.

Companies need to save a lot on bank fees for cash storage to be economical because, in addition to insurance, they have to assume the costs of managing the money, said Roberto Brunazzi, a spokesman for Baloise Holding AG. He said the company has long offered such coverage “but there has been a noticeable increase and now it’s becoming more commonplace.”

Switzerland’s continued use of high-denomination banknotes adds to the appeal of self-storage: About 1 million francs worth of 1,000-franc bills can fit in a small box.

PerpetualDiscounts now yield 5.12%, equivalent to 6.66% interest at the standard equivalency factor of 1.3x. Long corporates yield a hair over 3.60%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 305bp, a slight (and perhaps spurious) widening from the 300bp reported August 31.

This entry was posted on Wednesday, September 7th, 2016 at 8:59 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.