LONDON (Reuters) – UBS has reached a deal to buy rival Swiss bank Credit Suisse in an effort to avoid further turmoil in the global banking market, Swiss officials said on Sunday.
The Swiss central bank will provide substantial liquidity to the merged bank, he told a news conference in the Swiss capital Bern. He said the deal marked a solution to ensure financial stability and protect the Swiss economy in an exceptional situation.
The head of the European Central Bank, Christine Lagarde, said she welcomed the swift action and decision taken by the Swiss authorities.
* The first traded euro prices suggested that the single currency was rising on the news. The euro was last quoted around $1.0674, slightly higher on the day.
* European banks fell nearly 12%, the biggest weekly drop in just over a year. Japanese banks are down nearly 11%, their biggest weekly drop since the COVID-induced market turmoil in March 2020. US bank stocks have posted double-digit losses for two consecutive weeks.
* Two-year US Treasury yields fell 74 bps, their biggest weekly drop since 1987. German two-year bond yields fell 64 bps – their biggest weekly drop since 1992.
BRIAN JACOBSEN, SENIOR INVESTMENT STRATEGIST, ALLSPRING GLOBAL INVESTMENTS, USA
“It looks like a very big and decisive intervention. As long as the markets don’t sniff out other lingering problems, I think this should be quite positive. Governments intend to douse the spark of contagion before the flames get out of control.”
“The CS/UBS deal should be good enough to improve sentiment, but there will still be questions about regional banks in the US and whether there are hidden risks in European banks. There’s always something to worry about.”
MICHAEL ROSEN, DIRECTOR OF INVESTMENTS, ANGELEZ INVESTMENTS, SANTA MONICA, CALIFORNIA
“The UBS-CS deal is the best solution the market could hope for. CS shareholders are essentially eliminated and some bondholders (AT1) will be eliminated, but the basic functioning of the banking system has been protected.
“Bank stocks should rise on the news, but it is premature to signal that all is clear. Monetary tightening has eviscerated banks’ margins and a reversal of tight monetary policy is not possible with inflation significantly and stubbornly above target. broader, and, more importantly, tight monetary policy and banking system fragility heighten recession risks, thereby contributing to greater banking sector fragility.”
“Markets may celebrate the rescue of CS, but it will be a short celebration.”
OCTAVIO MARENZI, CEO, OPIMAS, VIENNA
“Switzerland’s position as a financial center is shaken – the country will now be seen as a financial banana republic.
“The Credit Suisse disaster will have serious ramifications for other Swiss financial institutions.
“This deal is bound to generate legal and political resistance. First, the Federal Council used emergency powers to force this merger. .
“UBS shareholders, for their part, may revolt against this deal, seeing the risk that Credit Suisse could become a millstone around UBS’s neck that will drag both banks down. pledges will be politically contested through Switzerland’s system of direct democracy – getting the 100,000 signatures needed to put this deal to a popular vote will happen in a matter of days.”
MARCHEL ALEXANDROVICH, EUROPEAN ECONOMIST, SALTMARSH ECONOMICS, LONDON:
“Central banks are stepping in and the SNB is offering to provide liquidity if needed. There’s also fiscal policy, so policymakers are doing their part.
“The ECB is hoping this draws a line under the events of the last 10 days and concerns about funding conditions will start to stabilize and subside.
“If you go in and see that the markets have taken this well, we should see a price of further rate hikes.
“If they don’t take it well then views on the ECB will not change and potentially if the crisis continues the focus will be on what the ECB can alleviate that.”
HOLGER SCHMIEDING, CHIEF ECONOMIST, BERENBERG, LONDON
“They (Swiss authorities) have seen a problem, they are dealing with it and that is a very positive signal for the markets.
“That doesn’t mean it’s all over, but there’s no need to panic. The relief for the market is that systemic risk has been contained.”
MICHAEL BROWN, STRATEGIST, TRADERX, LONDON
“Early signs are that things are stabilizing a bit, as you would expect. The FX price is starting to filter through and – while it’s the most illiquid market in the world and probably just Wellington in New Zealand trading – the pound and the Australian dollar is a bit firmer.
“The yen is weaker to a similar degree, so the currency market is singing a bit of a ‘risk-elimination’ song.”
“So I think… we’re probably going to see some instinctive risk-taking when the futures market opens later, just because the markets are going to take a big sigh of relief. But there are a couple of other things. One is the risk of contagion in Europe and the another is the mess of regional banks in the United States.”
BRIAN JACOBSEN, SENIOR INVESTMENT STRATEGIST AT ALLSPRING GLOBAL INVESTMENTS
“It looks like a very big and decisive intervention. As long as the markets don’t pick up any other lingering issues, I think this should be quite positive. Governments aim to douse the spark of contagion before the flames get out of control.
“The key now will be consistency: Your actions set a precedent. The inconsistent handling of Lehman Brothers versus Bear Stearns has fueled the financial crisis. Now we have to wait and see how US officials treat regional banks.”
“The CS/UBS deal should be good enough to improve sentiment, but there will still be questions about regional banks in the US and whether there are hidden risks in European banks. There is always something to worry about.”
MAX GEORGIOU, ANALYST, THIRD BRIDGE, LONDON:
“Today is one of the most significant days for the European banking sector since 2008, with far-reaching repercussions for the sector. These events could alter the course not only of the European banking sector, but also of the wider wealth management industry.”
(Reporting by Markets and Finance Team; Compiled by Dhara Ranasinghe, Editing by Tommy Reggiori Wilkes)