Mr. Baumgartner, interest rates continue to be very low, and negative interest rates are adversely affecting many companies' liquidity holdings. What advice do you have for businesses?
In principle, low interest rates are not a bad thing. We mustn't forget that they are allowing many companies to take advantage of very favorable financing, and this is also reflected in Switzerland's positive economic development. However, when companies have excess liquidity in the current environment, negative interest rates are leading to new kinds of costs that were not present in the past.
Will this situation continue in the future?
In the case of the dollar, Credit Suisse expects the US Federal Reserve to raise interest rates in 2022. In the euro zone, however, we believe that the European Central Bank will leave interest rates as they are for the time being. We therefore anticipate that monetary policy will remain unchanged in Switzerland as well. Interest rates are likely to remain at historically low levels, so companies will continue to be faced with the costs of negative interest rates on sizable liquidity holdings.
Investment Outlook 2022: The great transition
A detailed look at expected trends in national economies, currencies, and asset classes:
When it comes to interest rates, then, no improvement is in sight. So what action can clients take to address the problem of negative interest rates?
It is important to distinguish between owner-managed companies and publicly traded companies. In the case of companies with strong individual shareholders or shareholder families, it makes sense in the current situation to think about whether liquidity should be transferred from business to private ownership. Obviously, this can only be done in line with the company's liquidity planning and strategic objectives and with a thorough review of the tax implications. With the involvement of tax experts, Credit Suisse helps owner-managed companies to formulate a long-term withdrawal strategy that takes into account both personal and company needs.
What options do companies have if they are unable or unwilling to transfer excess liquidity to private ownership?
I recently visited an SME company in the Mittelland region that is planning to make a replacement investment of CHF 8 million in five years. Instead of seeking financing, however, the company wants to take advantage of its excess liquidity. In a situation like that, it can certainly make sense to invest the liquidity, in accordance with the company's time horizon and risk profile, to avoid negative interest rates.
What investment opportunities are available?
We work with our clients to develop a liquidity plan and adapt investment solutions to their liquidity needs. Possible intra-year solutions might include dual currency transactions, for example if a company is already in need of foreign currency for its operational business and also wants to earn a premium.
How can a company break even in the current environment?
I'm currently talking with many companies that are trying to break even and are willing to take manageable risks in that context. One option is Credit Suisse's Swiss Mortgage Fund. This fund provides investors with an opportunity – not subject to time limits – to invest in a short-term mortgage portfolio of existing Credit Suisse mortgage clients. Because of the portfolio's low level of interest sensitivity and high credit quality, the fund's performance has been very stable and positive, despite the negative interest rate environment.
Can you suggest specific products?
Yes, very often people invest in one of the four strategies of the Credit Suisse Privilege Fund. This fund is an actively managed, broadly diversified investment solution that conforms to the guidelines of the Federal Act on Occupational Retirement, Survivors' and Disability Pension Plans (BVG). Yet the Privilege Fund is available to all investors, allowing companies to invest as a pension fund does.
What experiences have clients had with investments in business assets?
Last year, we worked with numerous companies that were investing in business assets for the first time. Their experiences were consistently positive. At the beginning of the process, it is important to allocate funds to the appropriate investment solutions, in keeping with sound liquidity planning. This ensures that financial and entrepreneurial flexibility is consistently maintained, and that no unnecessary risks are taken.
What action do companies need to take?
We expect negative interest rates to continue over an extended period of time. Companies should take active steps to address this issue and review their options – assuming that they have not already done so – which will allow them to reduce costs while carefully considering the risks.