The 3 billion Swiss franc ($3.2 billion) deal for the
troubled Swiss bank - which was once worth more than $90 billion
- was engineered by Swiss regulators and announced on Sunday.
European bank shares rebounded from recent losses,
while on Wall Street the S&P 500 banks index recovered
0.6%.
Regional U.S. lenders also rose. PacWest Bancorp jumped almost 11% after saying deposit outflows had stabilized
and its available cash exceeded total uninsured deposits.
Bonds issued by major European banks fell after some Credit Suisse bondholders were wiped out in the deal. But UBS shares closed up 1.3%, bouncing from a 16% slump triggered by concerns about the long-term benefits of the deal and the outlook for Switzerland, once considered a paragon of sound banking. A deal on Sunday for a unit of New York Community Bancorp to buy deposits and loans from the failed Signature Bank also boosted sentiment in U.S. banks. New York Community Bancorp shares surged 32%. The turmoil that gripped banks over the past week was triggered by the collapse of U.S. midsized lenders Silicon Valley Bank and Signature Bank, quickly ensnaring Credit Suisse as investors fretted about other ticking bombs in the banking system.
The Federal Deposit Insurance Corporation has decided to break up Silicon Valley Bank and hold two separate auctions for its traditional deposits unit and its private bank after failing to find a buyer for the failed lender last week. With worries around Credit Suisse easing, attention is now turning to the U.S. Federal Reserve, whose relentless rate hikes to quash inflation were seen as a trigger for the turmoil.
Traders have now increased their bets that the central bank will pause its hiking cycle on Wednesday to try to ensure financial stability, but on the whole remain split over whether the Fed will raise its benchmark policy rate.
COORDINATED ACTION
Policymakers from Washington to Europe have repeatedly
stressed that the current turmoil is different from the global
financial crisis 15 years ago, pointing to banks being better
capitalised and funds more easily available.
Still, top central banks promised at the weekend to provide
dollar liquidity to stabilise the financial system to prevent
the banking jitters from snowballing into a bigger crisis.
In a global response not seen since the height of the
pandemic, the Fed said it had joined central banks in Canada,
Britain, Japan, the euro zone and Switzerland in a co-ordinated
action to enhance market liquidity.
Investor focus in Europe shifted to the massive blow some
Credit Suisse bondholders will take, prompting euro zone and UK
banking supervisors to try to stop a rout in the market for
convertible bank bonds.
The regulators said owners of this type of debt would only
suffer losses after shareholders have been wiped out - unlike at
Credit Suisse, whose main regulators are in Switzerland.
The eleventh-hour Swiss rescue is backed by a massive
government guarantee, helping prevent what would have been one
of the largest banking collapses since the fall of Lehman
Brothers in 2008.
However, the Swiss regulator decided Credit Suisse's
additional tier-1 (AT1) bonds with a notional value of $17
billion will be valued at zero, angering some holders of the
debt who thought they would be better protected than
shareholders.
AT1 bonds - a $275 billion sector also known as "contingent
convertibles" or "CoCo" bonds - can be converted into equity or
written off if a bank’s capital level falls below a certain
threshold.
The deal will make UBS Switzerland’s only global bank. It
will also make the Swiss economy more dependent on a single
lender.
S&P said its outlook on UBS was revised to negative over
execution risk but affirmed its ratings.
Switzerland's two biggest political parties sharply criticised the takeover, saying huge state support - which could add up to $280 billion - created enormous risks for the country. "What has happened is terrible for the credibility of Switzerland," said Roger Nordmann, leader of the Social Democrats in the Swiss parliament. "It's a warning shot for Switzerland about having banks which are just too big."
($1 = 0.9280 Swiss francs)
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
EXPLAINER-Credit Suisse: How did it get to a crisis point EXPLAINER-Why markets are in uproar over a risky bank bond known
as AT1 TIMELINE-How Credit Suisse has evolved over 167 years Credit Suisse, UBS deal: What you need to know GRAPHIC-Credit Suisse goes off piste GRAPHIC-Credit Suisse outflow GRAPHIC-Short positions on Credit Suisse GRAPHIC-Bank exposure Tale of two banks GRAPHIC-Bank deposits turn lower GRAPHIC-Majority of Americans oppose a bank bailout ANALYSIS-UBS swallows doomed Credit Suisse, casting shadow over
Switzerland GRAPHIC-SVB, Signature Bank are first bank failures since 2020 ANALYSIS-Asset concerns weigh on U.S. regional bank deal talks ANALYSIS-As worries over banks swirl, investors seek protection
against market crash NEWSMAKER-Ralph Hamers, the Dutchman thrust in the driver's seat
at Swiss bank UBS ANALYSIS-Credit Suisse rescue presents 'buyer beware' moment for
bank bondholders BREAKINGVIEWS-Switzerland takes CoCos to point of non-viability GRAPHIC-Credit Suisse rescue Over $95 billion in market value wiped out in 2 weeks ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Reporting by Medha Singh, Shubham Batra, Amruta Khandekar and
Ankika Biswas in Bengaluru; John Revill in Zurich, Stefania
Spezzati, Oliver Hirt and John O'Donnell in London, and Noel
Randewich in Oakland, California; Additional reporting by
Reuters bureaus
Writing by Sam Holmes, Toby Chopra and Deepa Babington
Editing by Nick Zieminski and Matthew Lewis)
