Banking giant UBS is buying troubled rival Credit Suisse for almost £2.7bn – MICHAEL BUHOLZER/EPA-EFE/Shutterstock
Banking stocks on the FTSE 100 and oil prices have tumbled after the historic state-backed rescue of troubled lender Credit Suisse by Swiss rival UBS Group.
In a package orchestrated by Swiss regulators on Sunday, UBS Group will pay 3 billion Swiss francs (£2.7bn) for 167-year-old Credit Suisse and assume up to $5.4bn (£4.4bn) in losses.
However, banking stocks across the FTSE 100 and FTSE 250 plunged 6.2pc after the open, following falls on Asian markets as Credit Suisse bondholders took a massive hit.
Meanwhile, oil prices have sunk to their lowest level in two years as escalating investor concerns about the crisis in global banks eroded appetite for riskier assets such as commodities.
Brent crude, the international benchmark, has slumped 3.1pc already today towards $70 a barrel, where prices have not been since March 2021.
Under the Credit Suisse deal, the Swiss regulator decided so called additional tier-1 bonds – or AT1 bonds – with a notional value of $17bn will become worthless, creating new worries about the risks of high-yield debt issued by big banks.
Standard Chartered and HSBC shares each fell more than 6pc in Hong Kong to more than two-month lows, with HSBC facing the possibility of posting its largest one-day drop in six months.
Read the latest updates below.
Credit Suisse deal could mean ‘re-pricing of AT1 bonds in other banks’
Under the UBS takeover of Credit Suisse, $17bn of so-called additional-tier 1 (AT1) bonds have been written off.
Capital Economics’ chief Europe economist Andrew Kenningham said this is one of several concerns about the deal. He said:
First, [writing off AT1 bonds] is controversial given that the common equity – which is typically considered junior to AT1 in the capital structure – was not entirely wiped out.
That decision could result in a re-pricing of AT1 and other bail-in bonds of other banks – indeed it appears that the prices of other banks’ AT1 instruments have fallen in early trading this morning.
Second, there could be legal challenges to the agreement, prolonging the process and creating further uncertainty.
And third, further substantial losses in the legacy bank cannot be ruled out and this could affect confidence in the enlarged UBS and/or prompt demands for further state support.
So while the deal may yet prove to be a turning point in the current banking crisis, we will probably not know for certain for a while yet.
Hong Kong stocks end day with big losses
Hong Kong stocks closed sharply lower as banks were hammered by worries over the sector.
The Hang Seng Index sank 2.7pc, or 517.88 points, to 19,000.71.
The Shanghai Composite Index lost 0.5pc, or 15.64 points, to 3,234.91, while the Shenzhen Composite Index on China’s second exchange fell 0.3pc, or 6.54 points, to 2,053.65.
Bond markets gain after Credit Suisse deal
Government bonds rallied after a deal to quash the looming crisis of confidence in Credit Suisse failed to assuage concerns that stress in the banking system could spread.
Shorter-maturity bonds led the surge as investors bet that central banks would be more cautious in the face of strains in the banking sector.
The US and German two-year yields dropped over 20 basis points, while the US 10-year yield slumped to the lowest since September.
In Germany, 24 basis points was knocked off its two-year yield, which has fallen to 2.108pc. Its 10-year gilts are down 17 basis points to 1.604pc.
In the UK, the yield on two-year bonds fell 15 basis points to 3.064pc while 10-year Government bonds fell 13 basis points to 3.146pc.
French minister ‘delighted’ with Credit Suisse deal
French economy minister Bruno Le Maire welcomed a “good deal” for stricken bank Credit Suisse which is set to be acquired by fellow Swiss giant UBS.
Talking to the BFM TV channel, Mr Le Maire said:
I’m delighted with this deal. It’s a good deal.
At the same time… it’s a heavyweight in Europe, so we will remain extremely vigilant about the reaction of the markets.
Banks drag down stock markets
Traders are seeing red on their screens almost across the board as markets open following the UBS takeover of Credit Suisse.
UBS has plunged 13pc while Credit Suisse shares have fallen 58pc although that is in line with the £2.7bn deal price.
The FTSE 100 has fallen 1.3pc after falling 1pc on Friday.
In the eurozone, Frankfurt’s DAX index retreated 1pc to 14,617.00 points and the Paris CAC 40 lost 0.8pc to 6,868.51.
In London, HSBC and Standard Chartered were amongst the top decliners, falling 3pc and 4.8pc, respectively.
Energy majors Shell and BP lost 2.5pc and 2.2pc, respectively, while the broader oil and gas index dropped 1.7pc, tracking a decline of more than 2pc in oil prices.
The more domestically-focussed FTSE 250 midcap index also shed 1.7pc.
FTSE banking stocks drop
Markets have tumbled in London following the takeover of Credit Suisse by UBS, which has left some of the Swiss lender’s riskier bonds worthless.
The FTSE 100 has fallen 0.7pc after the open to 7,284.90 while the midcap FTSE 250 has dropped 1pc to 18,291.84.
Banking stocks across the two indexes have slumped 5.3pc.
Gold prices rise amid banking turmoil
Gold has risen above $2,000 an ounce for the first time in more than a year after the banking crises in the US and Europe triggered a return to haven buying.
Bullion surged 6.5pc last week in its biggest advance since the early days of the pandemic in March 2020 amid growing fears over Credit Suisse and as several regional American lenders collapsed.
It gave up some of those gains early today in the wake of an announcement that UBS had agreed to buy the Swiss lender in an emergency, government-brokered deal, but then started rising again later in the session.
Spot gold rose 0.6pc to $2,000.37 an ounce in Singapore. The last time bullion traded above the psychologically important $2,000 mark was on March 10, 2022.
Interest rate decisions in focus amid market turmoil
The Bank of England faces pressure over whether to push ahead with another increase in interest rates even as markets are roiled by the rescue of Credit Suisse.
The US Federal Reserve will set the tone on Wednesday when it announces its next move on interest rates. The Bank of England announces its decision on Thursday.
The European Central Bank decided to push ahead with a planned 50 basis point increase last week, taking its deposit rate to 3pc.
However, an ECB chief has said the bank must fight inflation until the job is done, while acknowledging the rising risk of pushing interest rates too high as the peak nears.
Governing Council member Martins Kazaks said price pressures remain too strong and warrant further action — assuming the market turmoil that saw off Silicon Valley Bank and rocked Credit Suisse does not worsen.
At the same time, after 350 basis points of hikes since July, officials must carefully weigh the implications of future moves, he said. Mr Kazaks added:
Inflation is still very high — rates, in my view, needed to go up.
And if the baseline scenario holds and market volatility calms down and does not derail the scenario, then with the current macro outlook and the outlook for inflation, more interest-rate increases will be necessary.
FTSE 100 on track to open lower
The FTSE 100 is expected to open lower after struggling bank Credit Suisse was sold to Swiss rival UBS.
London’s top index is on track to fall by around 1pc as it opens trading following a bruising session last week.
Markets in Asia were struggling earlier in the morning, with shares in Hong Kong falling by more than 3pc as the banking sector took a battering.
Michael Hewson, chief market analyst at CMC Markets, said:
With Credit Suisse shareholders and some bondholders taking a huge hit, banks in Asia have taken a hit on similar concerns about (some of their) bond-holding values.
While the weekend deal still presents the Swiss National Bank and Swiss Government with untold headaches, with the size of the newly merged bank set to dwarf the size of the Swiss economy.
The phrase too big to fail really does spring to mind here, and this morning’s weakness in Asia markets serves to reinforce concerns about these types of writedowns and any spillover effects on the rest of the banking sector.
Bond assets tumble in Asia after Credit Suisse writedown
Risky bank bonds tumbled in Asia, with some posting record declines after holders of Credit Suisse’s contingent convertible securities suffered a historic 16.3 billion franc (£14.4bn) loss.
The retreat was most pronounced in bonds designed to be among the first to face writedowns if an institution gets into trouble.
Bank of East Asia’s 5.825pc perpetual dollar note slumped 9.4 cents on the dollar to about 80 cents, according to data compiled by Bloomberg.
HSBC’s $2bn additional tier 1 bond fell much as 10 cents to around 85 cents on the dollar Monday, according to credit traders.
That drop would be its biggest daily drop since it began trading earlier this month.
UBS’s decision to buy rival Credit Suisse triggered a complete write down of the beleaguered lender’s convertible notes.
It was the biggest loss yet for Europe’s $275bn AT1 market, which was created after the financial crisis to ensure losses would be borne by investors not taxpayers.
Asian markets, including the Taiwan Stock Exchange in Taipei, were hit hard after the Credit Suisse deal – REUTERS/Annabelle Chih
Oil prices plunge as investors shift away from riskier assets
Oil prices have sunk to their lowest level in two years as escalating investor concerns about the crisis in global banks eroded appetite for riskier assets such as commodities.
Brent crude, the international benchmark, has slumped 3.1pc already today towards $70 a barrel, where prices have not been since March 2021.
US-produced West Texas Intermediate has plunged 3.2pc below $65 a barrel, its lowest level since December 2021.
The decline comes despite Swiss authorities orchestrating a rescue of Credit Suisse by UBS Group over the weekend.
In addition, the Federal Reserve and five other central banks announced coordinated action to boost liquidity in US dollar swaps.
Credit Suisse woes ‘don’t concern’ European banks, says French chief
France’s central bank chief has sought to distance European and French banks from the problems at Credit Suisse and banking woes in the United States.
Francois Villeroy de Galhau, a member of the European Central Bank’s governing council, told France Inter radio that Credit Suisse and the banking volatility in the US “don’t concern French and European banks”.
Credit Suisse – REUTERS/Tyrone Siu
Deutsche Bank has ‘near zero’ of worthless Credit Suisse bonds
Deutsche Bank has said its exposure to Credit Suisse’s Additional Tier 1 bonds was “near zero”.
Credit Suisse said on Sunday that 16 billion Swiss francs (£14bn) of the securities will be written down to zero on the orders of the Swiss regulator as part of its rescue merger with UBS.
Markets alarmed as risky Credit Suisse bonds to become worthless
Markets have been alarmed by policymakers’ decision to prioritise Credit Suisse’s equity investors over holders of additional tier 1 bonds.
Credit Suisse’s AT-1 notes – previously valued at about $17bn (£14bn) – will become worthless as a result of the use of public funds for the rescue, potentially sending the $275bn (£226bn) market for bank funding into a tailspin.
Creditors are frantically poring through the fine print for these AT-1 securities to understand if authorities in other countries could repeat what the Swiss government did on Sunday.
The Swiss National Bank is offering a 100bn-franc (£198bn) liquidity assistance to UBS while the government is granting a 9bn-franc guarantee for potential losses from assets UBS is taking over.
Shares in European lenders are expected to decline today, extending last week’s rout, as sentiment remains fragile even after UBS agreed to buy Credit Suisse in a government-brokered deal.
Futures of the Euro Stoxx Banks Index were 3.8pc lower in Paris amid thin volumes.
The wider benchmark slumped 12pc last week, wiping out about 111 billion euros (£97bn) of market capitalisation and almost erasing gains made so far this year.
Shares in Shanghai, Tokyo and Hong Kong declined after Swiss authorities arranged the takeover of troubled Credit Suisse.
Swiss authorities on Sunday announced UBS would acquire its smaller rival as regulators try to ease fears about banks following the collapse of US lenders Silicon Valley Bank and Signature Bank.
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What happened overnight
Asian stock markets fell overnight after Swiss authorities arranged the takeover of troubled Credit Suisse amid fears of a global banking crisis ahead of a Federal Reserve meeting to decide on more possible interest rate hikes.
Hong Kong stocks fell 3pc during afternoon trading as HSBC and other lenders tumbled, with traders fretting over the financial sector despite the UBS buyout of troubled Credit Suisse.
The Hang Seng Index slipped 3pc, or 586.66 points, to 18,931.93.
Tokyo shares ended lower, weighed by the concerns about the global banking sector as well as a stronger yen.
The benchmark Nikkei 225 index fell 1.4pc, or 388.12 points, to 26,945.67, while the broader Topix index lost 1.5pc, or 30.12 points, to 1,929.30.
Credit Suisse’s banking operations appeared to be running business as usual at its major offices in Asia.
Monetary authorities in Singapore and Hong Kong, where Credit Suisse hosts large regional offices, separately said the Swiss bank’s business continued without interruption.