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Bank shares rose on Monday, March 20th, after Swiss rival UBS Group made the first bailout of troubled state-backed lender Credit Suisse.
Source: Reuters
In a package brokered by Swiss regulators on Sunday, UBS Group AG will pay 3 billion Swiss francs ($3.23 billion) for the 167-year-old Credit Suisse group and face up to $5.4 billion in losses.
Threatened by a loss of confidence in the financial system, major central banks on Sunday scrambled to secure the dollar needed by central currency exchange banks to bolster money flows around the world. to do.
While those developments appeared to boost investor confidence in the former Asian business, the rally quickly evaporated as some Credit Suisse bondholders focused on the potential hit to the UBS acquisition.
Under the deal, the Swiss regulator has zeroed in on Credit Suisse’s additional tier-1 bonds – or AT1 bonds – worth $17 billion, angering some debt holders who say they are better off. The takeover deal was announced to shareholders on Sunday.
Worrying about what that might mean for AT1 bonds issued by other banks adds to the constant worry about a range of risks, including contagion, the fragile state of US regional banks and moral hazard.
Standard Chartered Pvt. MSCI’s index of financial shares in Asia ex-Japan fell 1.3%.
“After more than a week of bank panic and two interventions organized by the authorities, it should be clear that this problem will not go away. On the contrary, it has become global,” said Mike Aurier, a market strategist. , Jones Trading.
“Reports that UBS is acquiring Credit Suisse highlight Credit Suisse’s problems with moving to UBS.”
Integrated function
The shotgun is a massive government guarantee to help prevent the Swiss banking marriage from the worst banking collapse since the collapse of Lehman Brothers in 2008.
Pressure from UBS helped seal the deal on Sunday.
UBS Chairman Colm Kelleher told analysts on a conference call: “It’s a historic day in Switzerland, and one that we really hoped would never come.” “While we have not initiated discussions, we believe this transaction is financially attractive to UBS shareholders,” Kelleher said.
According to UBS CEO Ralph Hammer, there are still many details to be worked out.
Last month, Credit Suisse stopped accepting Adani bonds.
Credit Suisse bonds were worthless this month and the bank sold them for peanuts. pic.twitter.com/BjTChEjglz
– Gaurav Pradhan ��� (@OfficeOfDGP) March 20, 2023
I know there may still be questions we can’t answer. “And I understand that and I want to apologize for that.”
In a global response not seen since the outbreak of the pandemic, the Fed said it had joined central banks in Canada, the UK, Japan, the European Union and Switzerland in a concerted move to improve market conditions. The European Central Bank has promised to support euro zone banks with loans if necessary, saying that the Swiss Credit Suisse rescue is a “tool” to restore stability.
On Monday, Credit Suisse’s banking operations at its Asian headquarters appeared to be business as usual.
Monetary authorities in Singapore and Hong Kong, where Credit Suisse maintains large regional offices, said the Swiss bank’s business continued unabated.
Unsolved problems
Problems remain in the U.S. banking sector, where bank stocks are under pressure, despite several big banks taking on $30 billion to pump into First Republic Bank, an institution that has been reeling from the collapse of Silicon Valley and Signature Bank.
On Sunday, First Republic saw its credit rating downgraded to junk status by S&P Global, which said the deposit option would not solve its liquidity problems.
There are also concerns about what will happen next at Credit Suisse and what it will mean for investors, customers and employees.
Everyone is freaking out without you telling me that everyone is freaking out. pic.twitter.com/86ScFTZN6F
— Blake (@blakestonks) March 19, 2023
Credit Suisse said in a note to staff that once the raids are complete, wealth management clients may consider moving some assets to another bank if they are attracting attention.
The deal would make UBS Switzerland the only global bank and make the Swiss economy more dependent on a single lender.
“The Credit Suisse fraud will be of great importance to other Swiss financial institutions. A national reputation for strong financial management, proper supervision and investments has been lost,” said Octavio Marenzi, CEO of Opimas, in Vienna.
UBS Chairman Kelleher said at a media conference that it will liquidate the Credit Suisse investment bank, which has thousands of employees around the world. UBS said it expects annual cost savings of about $7 billion by 2027.
The Swiss central bank said Sunday’s deal included 100 billion Swiss francs ($108 billion) in liquidity support for UBS and Credit Suisse.
Credit Suisse shares lost a quarter of their value last week. The bank has been forced to seek a $54 billion central bank bailout as it tries to recover from confidence-shattering scandals.
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