Credit Suisse (CS)
Russ Mould, investment director at AJ Bell, said: “Everything is moving so quickly in the banking sector that as soon as you think the main issue is sorted, along comes another worry. The takeover of Credit Suisse by UBS was done fast and should have provided reassurance to the market that we haven’t had another bank collapse. However, what it has done is exposed the issues around AT1 bonds, also known as additional tier-one bonds.”
The Swiss financial regulator ordered that Credit Suisse’s AT1 bonds be written down to zero which appears to have “spooked investors” and led to a sell-off in other bank debt which has weighed on share prices.
“It means the banking crisis we’ve seen over the past few weeks has started a new chapter rather than reaching its ending,” Mould added.
Shares in UBS tumbled on Monday by more than 10% following its rescue of Credit Suisse with investors concerned the move will damage returns.
The deal involves UBS assuming $5.4bn in losses, which reflects the fact that Credit Suisse’s problems had been building for some considerable time ahead of the current crisis of confidence, according to Richard Hunter, head of markets at Interactive Investor.
“There was also a coordinated response from major central banks such as the Federal Reserve, the ECB, the Bank of England and also those of Japan, Canada and Switzerland in enhancing market liquidity,” Hunter said.
“The banks also suggested that loans could be available if needed to other ailing groups and the combined actions of the central banks and the UBS purchase should mitigate some of what could otherwise have been an ugly investor reaction.”
The all-share deal valued Credit Suisse at $3.25bn, less than half the bank’s market capitalisation at the close of trading on Friday, according to the Financial Times.
UK bank stocks also took a hit on Monday. Barclays stock was down by 6.7% in early London trade.
Despite the wider market concerns in the banking sector, the Bank of England (BoE) sought to reassure investors.
“We welcome the comprehensive set of actions set out by the Swiss authorities today in order to support financial stability. We have been engaging closely with international counterparts throughout the preparations for today’s announcements and will continue to support their implementation,” the BoE said.
“The UK banking system is well capitalised and funded, and remains safe and sound.”
Those concerns and stock losses also extended to NatWest on Monday with its share price falling 1.16% in late morning trade.
The UK was mirroring the US theme, according to Hunter.
“Banks were significantly weaker across the board, suggesting that the scale of investor concerns within the global banking environment have yet to find a bottom,” he said.
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“While miners made a decent effort to shore up the FTSE100, the exposure of the index to financial stocks easily took the upper hand and leaves the premier index down by 2.5% in the year-to-date, erasing the promising gains of the last few months.”
Shares in Standard Chartered (STAN.L), HSBC (HSBA.L) and Lloyds (LLOY.L) also fell about 5% in early trade on the FTSE, as the Credit Suisse rescue deal failed to calm nerves in the sector across the board.