Global markets opened lower this morning (March 20) as fears grow over the stability of the banking sector after UBS’s takeover of Credit Suisse was agreed.
The FTSE 100 fell by nearly 1 per cent this morning (March 20), and the Dax and Stoxx 50 are down 1.3 per cent.
In Asia, the Nikkei 225 dropped 1.4 per cent and the Hang Seng Index fell 2.6 per cent in trading today.
The Vix index, a measure of market risk, soared 23 per cent on Friday as central bankers rushed to secure a deal to rescue Credit Suisse, which had seen a number of crises in the past few years, including lending money to specialist finance firm Greensill, and the implosion of Archegos.
The collapse of Silicon Valley Bank earlier this month prompted further concerns over the Swiss bank’s stability, with figures from the Financial Times showing that depositors withdrew SFr10bn (£8.84bn) a day from Credit Suisse last week.
Over the weekend, Swiss regulators brokered a deal between UBS and Credit Suisse, with the former to take the latter over for $3.25bn (£2.67bn).
Credit Suisse’s shares dropped 74 per cent over the past year, making it worth $8bn, compared with UBS which is worth $57bn.
The buyout wobbled investors’ confidence in the banking sector. As markets opened today, shares in Standard Chartered were down 8.5 per cent, Barclays saw its stocks crash 7.3 per cent and HSBC dropped 4 per cent.
Riz Malik, director of Southend-on-Sea-based R3 Mortgages, said the “lightning-fast” sale highlights that some of the big players are too big to fail.
“However, the fact that this intervention was even required for a European behemoth will send shockwaves through the market,” he said.
“It will be interesting to see how the past two to three weeks affect the Fed and Bank of England rate decisions later this week."
Part of the rescue deal for Credit Suisse involved $17bn in investors’ bond holdings being wiped out.
Some SFR16bn of additional tier one bonds in the bank, a tranche seen as risky, will be written down to zero, according to the bank, which said it was informed of this decision by the Swiss regulator.
The news was said to have surprised markets and commentators warned this would have wider repercussions.
Samuel Mather-Holgate of Swindon-based advisory firm, Mather & Murray Financial, said the sale was a “massive kick in the teeth” for Credit Suisse shareholders.
“Only last week the Swiss Central Bank was saying it regulated the bank correctly, it held more than sufficient capital and was in no danger of failing,” he said.
“Now, the government have bypassed shareholders and stitched up a deal that will see them get a fraction of the company value at the last closing price. It begs the question, why?”
sally.hickey@ft.com
