U.S. banking stocks rose on Monday and Europe’s lenders recovered from a sharp early sell-off after UBS Group’s state-backed takeover of Credit Suisse appeared to close off one source of worry for the global banking sector.
UBS (UBSG.S) agreed to buy rival bank Credit Suisse (CSGN.S) on Sunday for 3 billion Swiss francs ($3.23 billion) and assume up to $5.4 billion in losses, in a shotgun merger engineered by Swiss authorities.
* In a global response not seen since the height of the pandemic, the Fed said it had joined central banks in Canada, England, Japan, the EU and Switzerland in a co-ordinated action to enhance market liquidity.
* Switzerland awoke to a new era with a considerable dent in the country’s long-held pride in its banking expertise.
* The Swiss Bank Employees Association said it was “deeply shocked” by the takeover and called on UBS to keep job cuts to an “absolute minimum”. Credit Suisse staff also fretted over the future amid “business as usual”.
* Under the deal, 16 billion Swiss francs ($17 billion) of Credit Suisse’s Additional Tier 1 debt will be written down to zero on the orders of the Swiss regulator. What is AT1 debt?
* Euro zone and UK banking supervisors England tried to stop a rout in convertible bank bonds, saying that owners of this type of debt would only suffer losses after shareholders have been wiped out.
* Switzerland’s two biggest political parties sharply criticised the takeover, saying multi-billion state support for the deal created enormous risks for the country.
MARKET REACTION
* Europe’s bank shares fought back from an early slump on Monday and a cross-asset scramble for safety looked to have eased.
* S&P, Dow gain as investors weigh bank risks, Fed rate-hike pause.
* Europe’s bank bonds battered after Credit Suisse debt wipeout.
ANALYSIS
* Credit Suisse rescue presents ‘buyer beware’ moment for bank bondholders
* UBS swallows doomed Credit Suisse, casting shadow over Switzerland
* Big money captivated by banking drama as investors brace for more turmoil
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* Four prominent U.S. lawmakers on banking matters said on Sunday they would consider whether a higher federal insurance limit on bank deposits was needed to stem a financial crisis marked by a drain of large, uninsured deposits away from smaller and regional banks.
* Did SVB break the Fed? Officials mull risks of more rate increases.
