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Central banks try to calm markets after UBS deal to buy Credit Suisse

Published 03/18/2023, 11:36 PM
Updated 03/19/2023, 07:37 PM
© Reuters. FILE PHOTO: A logo is pictured on the Credit Suisse bank in Geneva, Switzerland, March 15, 2023. REUTERS/Denis Balibouse/File Photo
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By Stefania Spezzati, Oliver Hirt and John O'Donnell

(Reuters) -Some of the world's largest central banks came together on Sunday to stop a banking crisis from spreading as Swiss authorities persuaded UBS Group AG (SIX:UBSG) on Sunday to buy rival Credit Suisse Group AG in a historic deal.

UBS will pay 3 billion Swiss francs ($3.23 billion) for 167-year-old Credit Suisse and assume up to $5.4 billion in losses in a deal backed by a massive Swiss guarantee and expected to close by the end of 2023.

Soon after the announcement late on Sunday, the U.S. Federal Reserve, European Central Bank and other major central banks came out with statements to reassure markets that have been walloped by a banking crisis that started with the collapse of two regional U.S. banks earlier this month.

S&P 500 and Nasdaq futures were each up 0.4%, both giving back some earlier gains. New Zealand dipped at the open and Australian shares opened with a 0.5% loss. The safe-haven dollar lost ground against Sterling and the euro but was up versus the yen.

Pressure on UBS helped seal Sunday's deal.

"It's a historic day in Switzerland, and a day frankly, we hoped, would not come," UBS Chair Colm Kelleher told analysts on a conference call. "I would like to make it clear that while we did not initiate discussions, we believe that this transaction is financially attractive for UBS shareholders," Kelleher said.

UBS CEO Ralph Hamers said there were still many details to be worked through. 

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"I know that there must be still questions that we have not been able to answer," he said. "And I understand that and I even want to apologize for it." 

In a global response not seen since the height of the pandemic, the Fed said it had joined with central banks in Canada, England, Japan, the EU and Switzerland in a coordinated action to enhance market liquidity. The ECB vowed to support euro zone banks with loans if needed, adding the Swiss rescue of Credit Suisse was "instrumental" for restoring calm.

Fed Chair Jerome Powell and U.S. Treasury Secretary Janet Yellen welcomed the announcement by the Swiss authorities. The Bank of England also praised the Swiss.

“The greater risk environment for financials leads to husbanding of capital and risk-taking, less and more conservative investing and lending, and inevitably, lower growth," said Lloyd Blankfein, former chairman and CEO of Goldman Sachs Group Inc (NYSE:GS).

"While some banks have been hung up by poorly managed, concentrated risk, the overall banking system is extremely well capitalized and substantially more tightly regulated than in prior challenging times.”

The Swiss banking marriage follows efforts in Europe and the United States to support the sector since the collapse of U.S. lenders Silicon Valley Bank and Signature Bank (NASDAQ:SBNY).

Some investors welcomed the weekend steps but took a cautious stance.

"Provided markets don’t sniff out other lingering problems, I’d think this should be pretty positive," said Brian Jacobsen, senior investment strategist at Allspring Global Investments.

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Problems remain in the U.S. banking sector, where bank stocks remained under pressure despite a move by several large banks to deposit $30 billion into First Republic Bank (NYSE:FRC), an institution rocked by the failures of Silicon Valley and Signature Bank.

On Sunday, First Republic saw its credit ratings downgraded deeper into junk status by S&P Global (NYSE:SPGI), which said the deposit infusion may not solve its liquidity problems.

U.S. bank deposits have stabilized, with outflows slowing or stopping and in some cases reversing, a U.S. official said on Sunday, adding the problems of Credit Suisse are unrelated to recent deposit runs on U.S. banks and that U.S. banks have limited exposure to Credit Suisse.

The U.S. Federal Deposit Insurance Corp (FDIC), meanwhile, is planning to relaunch the sale process for Silicon Valley Bank, with the regulator seeking a potential breakup of the lender, according to people familiar with the matter.

'DECISIVE INTERVENTION'

The intervention comes after two sources told Reuters earlier on Sunday that major banks in Europe were looking to the Fed and ECB to step in with stronger signals of support to stem contagion. 

The euro, the pound and the Australian dollar all rose by around 0.4% against the greenback, indicating a degree of risk appetite in markets. 

"Bank stocks should rally on the news, but it is premature to signal all-clear," said Michael Rosen, chief investment officer for Angeles Investments in California.

UBS Chair Colm Kelleher said during a press conference that it will wind down Credit Suisse's investment bank, which has thousands of employees worldwide. UBS said it expected annual cost savings of some $7 billion by 2027.

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The Swiss central bank said Sunday's deal includes 100 billion Swiss francs ($108 billion) in liquidity assistance for UBS and Credit Suisse.

Credit Suisse shareholders will receive 1 UBS share for every 22.48 Credit Suisse shares held, equivalent to 0.76 Swiss francs per share for a total consideration of 3 billion francs, UBS said.

Credit Suisse shares had lost a quarter of their value last week. The bank was forced to tap $54 billion in central bank funding as it tries to recover from scandals that have undermined confidence.

Under the deal with UBS, some Credit Suisse bondholders are major losers. The Swiss regulator decided that Credit Suisse bonds with a notional value of $17 billion will be valued at zero, angering some of the holders of the debt who thought they would be better protected than shareholders in a rescue deal announced on Sunday.

($1 = 0.9280 Swiss francs)

Latest comments

UBS and CS was a gunshot wedding.
Futures went red about 5 minutes ago. Nobody impressed with bail outs woth printed money.
As soon as authorities don't allow the weakest corporation to fail then Capitalism is over. For Capitalism to work it relies on loss making entities to fail and allow stronger entities to pick up the slack and grow profits again. We actually created a monster in 2008 that we now struggle to tame.
Bernanke and Obama did exactly that in 2009, which started this death spiral.
 100% agree. But Greenspan took his eyes off the ball. So I would blame also Alan Greenspan (1987 to  2006)  and his Yahoo band for ignoring signs. Not to mention PM Margret Thatcher
It actually started after 9/11, first with GM and American Airlines, then years later AIG. It hasn’t stopped since.
5 or 6 of the worlds biggest lyers telling you not to panic- that your bank is okay- while throwing out a lifeline of free credit. Print baby print. All fiat is losing value to gold.
Gold will immediately be confiscated and made illegal to posses or barter with when the fiat fails. History WILL repeat.
Swiss bank is over. Customer ưill continue to withdraw their money. Nothing can change that after they took 300b of Russia
markets are calm again, and freezing the assets of the criminal and corrupt russian oligarchs is the most (and only?) righteous thing swiss banks have ever done..
They may have money to liquidity but the Swiss bank era is over
good news for everybody, except for CS and their shareholders who had it coming due to bad investments and poor management..
AT1 wipeouts coming to a bank near you
No bailouts.  Let bad banks fail and let the idiots who invested in them loose everything.
USD jpy sell or buy ?!
RESET THE SYSTEM. BURN IT !
You mean manipulate the markets to not panic the markets. Look at gold being brought down when it should be exploding way past $2000. GOT GOLD?
There is no easy fix now. All the free and cheap money we had for all those years created this, now back to the printing press to save the banking sector. Higher inflation will be the outcome just as we were seeing a drop. It appears that we are in the eye of the storm. Are the feds forced to hold tight in fear of collapsing the financial sector. The bonds the banks are holding have dropped dramatically and any further rise will collapse more banks. Nothing left but to put it on the backs of the little guy and let us endure higher costs.
couldn't agree more!
Central Banksters should not concern themselves with equities markets. They do this because they know that everything is built on the fantasy of "a good economy " equals a good stock market. Rubbish.
And Powell will cave this week. Watch for inflation to surge again. They're all liars and cheats
Keeping middle east investment whole.
What a sham.
The bad paper is now located at UBS.
thats the whole joke about this, there is no bad paper.  this was a stockdump plain and simple, that may have caused some deposit holders to switch banks (whereto one might ask, UBS?)  UBS just bought all their assets, so that's a big plus and it only has to write-off 8, maybe 10 billion, which is pocket chains for them.  the alternative was investors would have to invest 60 billion, watering down stock even more over hoping CS would ever make profits as high.
are you mad?
QE 5.0
Let me fix the headline. World's Central Banks Print More Money In Attempt To Keep The Ponzi Scheme From Collapsing. There, fixed it.
Bingo! You're correct
"Global regulators assure markets"?...Oh, thank God, I feel better now.
This move will end the current panic
... Global Regulators Assure Markets....BUT IN TODAY'S WORLD OF ANARCHY, How Good Is It ? More soap bubbles.
Do you think markets are going to love this? Of course !
Yes, they will... the financial world is a house of cards. UBS takes over CS and all is well?? Insanity
dave only sad losers like you complain about this..
🥳🍿
I would be very surprised if this calms the markets!
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