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by JR8 » Wed, 11 Mar 2015 10:53 am
I wasn’t expecting to get an anecdote of a direct casualty quite that soon!
From the earlier/above article extracts, I think it’s fair to conclude that at least in the medium term, the writing is on the wall for the Euro.
Banks earn a lot from lending out their clients total aggregate ‘minimum account balance’. Indeed this is the main way a bank can still turn a profit from offering a headline ‘Free banking’ offering. That and selling fee-charging ‘premium products’ like gold cards, priority banking etc.
So right now the bank is faced with earning much less, if anything, on your euro min. balance. I.e. your account is not paying for itself at the level they require.
It might run deeper too. They likely don’t want large Euro exposure on their corporate balance sheet, given the risk it carries. That also probably feeds over into the banking regulator’s Capital Adequacy Requirements and the funding thereof. In short, Euro account holders are now costing them money.
You might have seen a 20% loss on the Euro to date, but you can see where that is probably heading; south. I don’t think you can count on it recovering any time soon, that hope would currently be a highly contrary view. That, and of course all my comments here are all IMVHO. It’s a bit like predicting the future path of a hurricane, dangerous.
I do think other local banks will follow suit, they won’t have a choice. At least on accounts that are similar to the one you have.
What would I do? Tricky, and I don’t envy your position. I might start with fine-tuning the cash-flow management. Limit holdings in Euro to that required for the near-term, xMonths? With any excess funds, ‘sweep’ out of Euro and into anything else that’s less doomed, either S$ and US$ might make sense. Preferably via a mechanism that isn’t going to whack you with large fees, or a stupidly fat FX spread. If your bank are 'kindly' offering you this service, look veeery closely at the gross costs, the headline ones, but also the cost of their 'retail' FX spreads, which are usually lousy esp. compared to the likes of Mustaffa, The Arcade, etc!
I wonder to what extent people in similar shoes as your own might begin billing in a harder currency. There surely must be legions of international SMEs facing precisely this problem. Maybe see if you can find any current articles on ‘euro cash-flow management’ from international SME-type business orgs/bureau/chambers-of-commerce etc...
--- My own bank back home have instituted a new min. a/c-bal. on my personal current account, £10k. They keep calling me any time I dip below it - any time I receive a sizeable receipt, they see the funds transfer out to my stock brokers and this clearly really inflames them... so much opportunity to scalp me with their own fee-packed $hitty products, all going at Mach2 right out of their front door.
That really sucks, since at the same time I’m paying ‘margin’ on borrowed/leveraged funding over at my stock-trading account. I could manage the current-account credit balance pretty well so it stayed above zero, since the cash-flow items are predictable and planned. So that £10k excess parked there is costing me the equivalent of what the brokerage account is charging in margin on that sum. Not huge in the scheme of things, but it is another example that highlights the ‘hidden fees’ derived from min. bals.
'Do it or do not do it: You will regret both' - Kierkegaard
