Bank shares wobble after Credit Suisse buyout
Bank shares wavered in volatile trading on Monday after a UBS takeover of embattled Swiss rival Credit Suisse and actions by financial authorities aimed at calming investors fearing a broader crisis. UBS agreed to take over Credit Suisse for $3 billion Swiss francs ($3.25 billion) in a government-brokered deal over the weekend following days of market upheaval over the health of the banking sector.
Hours later, the US Federal Reserve and other major central banks announced a coordinated effort to improve banks’ access to liquidity. The broader stock markets fluctuated, with Asia closing lower while Wall Street opened mixed and European indices bounced after a starting the day in the red as investors pore over details of the deal. The Credit Suisse deal “may have some effect in reducing anxiety levels in financial markets, but it may only be short-lived, with traders left wondering which bank could be next to hit the headlines for all the wrong reasons,” said Tim Waterer, analyst at Kohle Capital Markets.
Shares in Credit Suisse and lenders worldwide had already sunk last week over concerns of contagion to the rest of the sector from the failure of US regional banks. The Swiss bank had been shaken by other scandals, including its exposure to the 2021 collapses of investment firms Archegos and Greensill. One concern from Sunday’s deal was the effect it could have on the high-risk debt market as holders of such bonds at Credit Suisse, known as AT1, will lose $17.3 billion after authorities required that they be written off. AT1 bonds, which offer high returns but also carry high risks, were created following the 2008 global financial crisis to put the burden of losses on investors instead of taxpayers. “Sentiment vis-a-vis the AT1 bond asset class will likely remain weak following last night’s deal,” said Stephen Innes, managing partner at SPI Asset Management. The sector’s Stoxx Europe 600 Banks index seesawed while UBS shares rose after falling as much as 12 percent earlier in the day. French banking giant BNP Paribas also recovered while Germany’s Deutsche Bank steadied.
Credit Suisse shares clawed back massive losses but were still down 51 percent. In the United States, troubled First Republic Bank shares continued their decline, plunging more than 19 percent after a coalition of US lenders injected $30 billion into their peer. Bigger US banks including JP Morgan, Bank of America and Citigroup opened higher.