Central banks try to calm markets after UBS deal to buy Credit Suisse
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[March 20, 2023] 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 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
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
"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
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.
"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.
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.
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, an institution rocked by the failures
of Silicon Valley and Signature Bank.
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Chairman of the Board of Directors of
UBS, Colm Kelleher, Chairman of the Board of Directors of Credit
Suisse, Axel Lehmann, Federal Councillor and chief of the finance
federal department Karin Keller-Sutter, Swiss Federal Council (Bundesrat)
President and chief of the interior federal department, Alain Berset
and Chairperson of the Swiss National Bank Thomas Jordan attend a
news conference on Credit Suisse after UBS takeover offer, in Bern,
Switzerland, March 19, 2023. REUTERS/Denis Balibouse
On Sunday, First Republic saw its credit ratings downgraded deeper
into junk status by S&P Global, 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.
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
"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.
The Swiss central bank said Sunday's deal includes 100 billion Swiss
francs ($108 billion) in liquidity assistance for UBS and Credit
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)
(Reporting by Stefania Spezzati, Oliver Hirt and John O'Donnell in
Zurich; Additional reporting by Lananh Nguyen, Saeed Azhar and
Hannah Langby and Reuters bureaus; Writing by Lincoln Feast, Conor
Humphries and Nick Zieminski; Editing by William Mallard, Kirsten
Donovan, Barbara Lewis, Hugh Lawson, David Holmes and Lisa Shumaker)
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