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Authorities' moves to avert a global banking crisis appeared to lift market confidence on Monday as investors welcomed emergency dollar liquidity from central banks and Swiss-backed UBS Group's landmark acquisition of troubled Credit Suisse.
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UBS AG will pay about $3.23 billion for 167-year-old Credit Suisse Group, paying a $5.4 billion loss. Major central banks, faced with the risk of rapidly losing confidence in the financial system, also scrambled on Sunday to boost cash flows around the world with a coordinated set of currency swaps to ensure banks have the dollars they need to operate. The Swiss banking marriage is backed by a massive government bailout that helped stave off what would have been one of the biggest bank collapses since the collapse of Lehman Brothers in 2008. Financial markets rallied in Asia on Monday but remained wary of a range of risks including contagion, the fragile state of U.S. regional banks and moral hazard.
“Policymakers are hoping that UBS’s weekend purchase of troubled Credit Suisse will draw a line under recent market pressures,” said Brian Martin, head of economics at ANZ G3 in London.
Pressure On UBS Helps Seal Sunday's Deal
Kelleher said that this is a historic day in Switzerland. Kelleher wanted to make it clear that even though they have not initiated discussions, they believe that this transaction will be financially attractive to UBS shareholders. Ralph Hamers, CEO of UBS, said that there are still many details to be worked out. He also added that he knows there are still many questions that cannot be answered, and he understands and apologizes for that.
In a global response not seen since the early days of the pandemic, the Fed said it had joined the central banks of Canada, Japan, the U.K., Switzerland and the EU in coordinating action to boost market liquidity. The European Central Bank pledged to support euro zone banks with needed loans, adding that the Swiss bailout from Credit Suisse was crucial to restoring calm.
Unresolved Issues
Problems remain in the U.S. banking sector, with bank stocks still under pressure despite moves by some major banks to inject $30 billion into First Republic Bank, an institution hit by the SVB failure. On Sunday, First Republic saw its credit rating downgraded to junk status for longer by S&P Global, which said the deposit infusion may not solve its liquidity problems. U.S. bank deposits have stabilized, with outflows slowing or stopping and in some cases reversing, a U.S. official said Sunday, adding that Credit Suisse’s problems were not related to recent deposits at U.S. banks and that U.S. banks have limited exposure to Credit Suisse.
The U.S. Federal Deposit Insurance Corp. (FDIC) plans to relaunch the sale process for Silicon Valley Bank, with regulators looking into a potential breakup of the lender, according to people familiar with the matter. There are also concerns about what comes next at Credit Suisse and what it means for investors and employees. UBS Chairman Kelleher told a media conference that it would close Credit Suisse’s investment bank, which has thousands of employees worldwide. UBS expects annual cost savings of about $7 billion by 2027.
The Swiss central bank said Sunday’s deal includes 100 billion Swiss francs ($108 billion) in liquidity support for UBS and Credit Suisse. Credit Suisse shares have lost a quarter of their value in the past week. The bank has been forced to tap $54 billion in central bank funding as it tries to recover from a scandal that has damaged confidence. Under the deal with UBS, some Credit Suisse bondholders are taking big losses. Swiss regulators ruled that Credit Suisse bonds with a notional value of $17 billion would be worth zero, angering some debt holders who thought they would be better protected than shareholders in the takeover deal announced Sunday.
($1 = 0,9280 franc Swiss)
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