Investors Greet Emergency Credit Suisse Deal Warily

 

Investors Greet Emergency Credit Suisse Deal Warily

 

Swiss regulators announced that UBS, Switzerland’s largest bank, would take over the troubled Credit Suisse.

 

Joe Rennison

By Joe Rennison

March 20, 2023, 1:17 a.m. ET

https://www.nytimes.com/2023/03/20/business/markets-today.html

 

Stocks in Asia slipped and U.S. stock futures rose slightly after Swiss regulators struck a deal on Sunday to rescue the country’s embattled bank Credit Suisse from the brink of a disorderly bankruptcy that threatened to further roil global markets.

 

The takeover of Credit Suisse by UBS, the largest bank in Switzerland, was meant to calm the growing concern across markets about the health of the financial sector.

 

Stock futures on the S&P 500, which give investors the ability to bet on the index before the start of trading, nudged higher. On Friday, the S&P 500 slid 1.1 percent, its sharpest decline in a week.

 

In Asia on Monday, the Nikkei inched downward, trading about 1 percent lower at midday in Tokyo.

 

The $3.2 billion acquisition by UBS of Credit Suisse, Switzerland’s oldest bank, was announced on Sunday by the Swiss Financial Markets Supervisory Authority. The country’s central bank, the Swiss National Bank, will lend up to 100 billion Swiss francs to UBS to help it complete the takeover.

 

The deal brings to an end long-running doubts over the health of Credit Suisse that had been fanned by the recent collapse of California-based Silicon Valley Bank.

 

Shortly after the UBS acquisition of Credit Suisse was announced, the Federal Reserve and five other central banks, including the Swiss National Bank, unveiled a coordinated action to make sure dollars would remain readily available for short-term lending across the global financial system.

 

Separately on Sunday night, the Federal Deposit Insurance Corporation said it had entered into an agreement to sell the 40 former branches of Signature Bank, which was taken over by U.S. regulators on March 12, to New York Community Bancorp.

 

The UBS acquisition of Credit Suisse, which was brokered by the Swiss authorities, came after another weekend of frenzied activity by U.S. and European banking regulators. It was not immediately clear how far it would go toward calming markets.

 

Some investors said the deal valued Credit Suisse so cheaply that it could prompt a reassessment of the value of other banks. UBS will pay just over $3 billion for its rival. That’s less than the roughly $7 billion at which the company’s share price valued the bank as of Friday.

 

“The worst was averted but as cooler heads prevail the question is whether UBS just got Credit Suisse very cheaply, or is the banking system as a whole very overvalued,” said Peter Tchir, global market strategist at Academy Securities.

 

The crisis in the banking sector continues ahead of a crucial meeting of the Federal Reserve on Wednesday. The central bank is expected to raise interest rates again, turning the screws on an economy already showing signs of slipping from a year of rapid rate rises.

 

A number of small lenders in the United States came under renewed pressure last week. First Republic, which had been the subject of a rescue attempt by larger rivals that injected billions into the institution, fell more than 30 percent on Friday. Pacific Western and Western Alliance, two regional lenders, fell between 15 percent and 20 percent.

 

Investors said they expected Sunday’s Credit Suisse deal to cause ructions in debt markets because it wiped out a group of the bank’s bondholders. Investors who own stock in a company are typically last in line to be paid when a company is wiped out. But in this case, owners of stock in Credit Suisse received one UBS share for every 22.48 shares they owned, according to the terms of the deal.

 

Joe Rennison covers financial markets and trading, a beat that ranges from chronicling the vagaries of the stock market to explaining the often-inscrutable trading decisions of Wall Street insiders. @JARennison