(Reuters) – UBS agreed to buy rival bank Credit Suisse for 3 billion Swiss francs ($3.23 billion) and assume up to $5.4 billion in losses, in a shotgun merger engineered by Swiss authorities.
But banking stocks and bonds plummeted on Monday as confidence in the sector remained fragile.
DEVELOPMENTS
* In a global response not seen since the height of the pandemic, the Fed said it had joined central banks in Canada, England, Japan, the EU and Switzerland in a co-ordinated action to enhance market liquidity.
* Credit Suisse told staff its wealth assets are operationally separate from UBS for now, but once they merged clients might want to consider moving some assets to another bank if concentration was a concern.
* The Swiss Bank Employees Association said it was “deeply shocked” by the takeover and called on UBS to keep job cuts to an “absolute minimum”. Credit Suisse staff also fretted over the future.
* Under the deal, 16 billion Swiss francs ($17 billion) of Credit Suisse’s Additional Tier 1 debt will be written down to zero on the orders of the Swiss regulator, angering some bondholders who thought they would be better protected than shareholders.
* UBS Chairman Colm Kelleher said the bank wants to keep Credit Suisse’s Swiss unit, calling it a “fine asset”.
* The European Central Bank said on Sunday a Swiss rescue of Credit Suisse was “instrumental” for restoring calm on financial markets but it remained ready to support euro zone banks with loans if needed.
MARKET REACTION
* European stocks fell with the banking index hitting its lowest in three months. Shares of Credit Suisse dived more than 60% while UBS was down almost 13%.
* Prices of Additional Tier 1 (AT1) bonds from European banks fell sharply.
* Safe-haven currencies the yen and U.S. dollar recovered from early steep declines and the risk-sensitive Australian and New Zealand dollars flipped to losses.
QUOTES
ROB CARNELL, ING REGIONAL HEAD OF RESEARCH, ASIS-PACIFIC:
“Early this morning, I thought that we might be looking at a small relief rally, a tentative one ahead of the Fed meeting (but) that doesn’t seem to be what’s going on at all. It seems we’re still worrying about the financial sector.”
OCTAVIO MARENZI, CEO, OPIMAS, VIENNA
“The Credit Suisse debacle will have serious ramifications for other Swiss financial institutions. A country-wide reputation with prudent financial management, sound regulatory oversight, and, frankly, for being somewhat dour and boring regarding investments, has been wiped away.
ANALYSIS
* Credit Suisse rescue presents ‘buyer beware’ moment for bank bondholders
* UBS swallows doomed Credit Suisse, casting shadow over Switzerland
* Big money captivated by banking drama as investors brace for more turmoil
RELATED NEWS
* The U.S. Federal Deposit Insurance Corp (FDIC) is planning to relaunch the sale process for Silicon Valley Bank, with the regulator seeking a potential break-up of the failed lender, according to people familiar with the matter.
* Four prominent U.S. lawmakers on banking matters said on Sunday they would consider whether a higher federal insurance limit on bank deposits was needed to stem a financial crisis marked by a drain of large, uninsured deposits away from smaller and regional banks.
(Compiled by Reuters editors)