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LAST UPDATE | 20 Mar 2023
LONDON STOCK MARKETS fell today after Swiss authorities arranged the takeover of troubled Credit Suisse amid fears of a global banking crisis.
The FTSE 100, London’s top, lost close to 2% of its value this morning after Swiss authorities announced the rescue deal.
The index fell by as much as 129 points shortly after the markets opened, led lower by the biggest banks in the country.
Standard Chartered saw its shares fall by more than 7% at one point, while Barclays was just under 6% down.
Asian stock markets have also been impacted by the damage to the banking sector as shares in Hong Kong have fallen by more than 3%, potentially indicating another grim week ahead for global markets.
Ahead of a Federal Reserve meeting to decide on more possible interest rate hikes, markets in Hong Kong, Tokyo and Sydney declined, while in Shanghai, stocks edged up. Oil prices also retreated.
Swiss authorities announced yesterday that UBS would acquire its smaller rival Credit Suisse as regulators try to ease fears about banks following the collapse of two US lenders.
Heavy uncertainty has gripped the banking sector ever since the US’s 16th largest lender, Silicon Valley Bank, said it needed to raise money to stay afloat.
Since then shares in London’s FTSE 100 index have fallen by close to 9%, and several other banks in the US and Europe have struggled to keep their doors open.
Michael Hewson, chief market analyst at CMC Markets, said: “Having come off the worst week for European equity markets this year, volatility looks set to continue this week now that the fate of Credit Suisse appears to have finally been sealed.
“With Credit Suisse shareholders and some bondholders taking a huge hit, banks in Asia have taken a hit on similar concerns about (some of their) bond-holding values, while the weekend deal still presents the Swiss National Bank and Swiss government with untold headaches, with the size of the newly merged bank set to dwarf the size of the Swiss economy.”
He added: “The phrase ‘too big to fail’ really does spring to mind here, and this morning’s weakness in Asia markets serves to reinforce concerns about these types of writedowns and any spillover effects on the rest of the banking sector.”
Central banks have announced coordinated efforts to stabilise lenders including a facility to borrow US dollars if necessary.
Investors worry banks are cracking under the strain of unexpectedly fast, large rate hikes over the past year to cool economic activity and inflation.
That caused prices of bonds and other assets on their books to fall, fuelling unease about the industry’s financial health.
“Investors are waiting to see where the dust settles on the banking saga before making any bold moves,” Stephen Innes of SPI Asset Management said in a report.
The Swiss government said UBS will acquire Credit Suisse for almost $3.25 billion dollars after a plan for the troubled lender to borrow as much as $54 billion from Switzerland’s central bank failed to reassure investors and customers.
US regulators have also sought to calm fears over threats to banking systems. The Federal Reserve said cash-short banks had borrowed about $300 billion from the Federal Reserve in the week up to Thursday.
Separately, New York Community Bank agreed to buy a significant chunk of the failed Signature Bank in a $2.7 billion dollar deal, the Federal Deposit Insurance Corp (FDIC) said late announced. The FDIC said $60 billion in Signature Bank’s loans will remain in receivership and are expected to be sold off in time.
That fuelled concern about other lenders with shaky finances. Credit Suisse is among 30 institutions known as globally systemically important banks.
The unexpectedly large, fast rate hikes by the Fed and other central banks to cool inflation that is close to multi-decade highs have caused prices of bonds and other assets on their books to fall.
Traders expect last week’s turmoil to push the Fed to limit a rate hike at its meeting this week to 0.25 percentage points. That would be the same as the previous increase and half the margin traders expected earlier.
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€17 billion of Credit Suisse bonds got written down to zero overnight. Don’t cry that the institutional bond holders got BURNED; they had for the most part insured this risky debt with credit default swaps. That’s €17 billion that’s not on the head of the Swiss taxpayer; so a proper transfer of risk from the taxpayer to the risk seeking bond holders. There’s no point crying over spilled milk here but the great majority of Anglo Irish bond holders had hedged in the CDS market. That horse has bolted. PS: Journal, are you going to continue deleting my Ukraine posts when all I’m doing is stating facts and, as the penny finally begins to drop, presenting a reasonable alternative view?
@Ordinary Bloke: any posts that don’t fit the MSM narrative get deleted.. It’s a form of censorship
@a politicians promise is as good as a lie: their forum, their rules. You should know that by now. You can’t post comments on any other media site. Why isn’t there a national uproar over that!
@Ordinary Bloke: If your view is anything other than “Russia needs to get out of Ukraine and commit to a permanent ceasefire”, then it’s not reasonable and doesn’t deserve a platform.
Also, Putin needs to be surrendered to the Hague to answer for blowing up apartment buildings, schools, hospitals, etc. These things are completely non negotiable and rightly so.
If AI is going to take over then it should start with the bankers. They appear to be not fit for purpose. Shower of wasters
With inflation running amok they can’t print money to get out of the current mess. Banks swapping money to shore up balance sheets has shades of Anglo Irish about it.
@Sean Salmon: ermmm Quantitive Easing, not relevant to Switzerland, banking scam of the greatest level ever. A Ponzi scheme in any other industry.
Is there anything to be said for another bank guarantee?
@Handsome McWonderful: yes, €£$k off
This is only going one way. Regulators learnt nothing from last crash. Bankers realised that they wont carry the can when everything goes south as they got bailed out last time. No moral hazard to worry about. The reality is that investment banking is a big casino with the public picking up the losses. Until bankers start doing time in the big house nothing is going to change. As for getting a conviction that is a remote possibility in this country, in fact you are more likely to win the lotto. There is always a technicality or an invalid warrant to get these carpet baggers off the hook.
have your say