© Reuters. FILE PHOTO: A logo is pictured on Credit Suisse bank in Geneva, Switzerland March 15, 2023. REUTERS/Denis Balibouse/File Photo
By Stefania Spezzati, Oliver Hirt and John O’Donnell
(Reuters) – Some of the world’s biggest central banks came together on Sunday to prevent the spread of a banking crisis as Swiss authorities on Sunday persuaded UBS Group AG (SIX:) to buy rival Credit Suisse Group AG in as part of a historic agreement.
UBS will pay 3 billion Swiss francs ($3.23 billion) for 167-year-old Credit Suisse and take up to $5.4 billion in losses under a deal backed by a Swiss guarantee massive and which should be concluded by the end of 2023.
Shortly after the announcement on Sunday evening, the US Federal Reserve, European Central Bank and other major central banks issued statements to reassure markets that have been hit by a banking crisis that began with the collapse of two US regional banks earlier this month.
In a global response the likes of which has not been seen since the height of the pandemic, the Fed said it had joined the central banks of Canada, England, Japan, the EU and Switzerland in a coordinated action to improve market liquidity. The ECB pledged to support eurozone banks with loans if needed, adding that Switzerland’s bailout of Credit Suisse was “instrumental” in restoring calm.
“The euro area banking sector is resilient, with strong capital and liquidity positions,” the ECB said. “In any case, our policy toolbox is fully equipped to provide liquidity support to the eurozone financial system if needed and to preserve the smooth transmission of monetary policy.”
Fed Chairman Jerome Powell and US Treasury Secretary Janet Yellen said they welcomed the announcement from Swiss authorities. The Bank of England also welcomed the measures taken by the Swiss authorities.
The Swiss banking marriage follows efforts in Europe and the United States to support the sector since the collapse of US lenders Silicon Valley Bank and Signature Bank (NASDAQ:).
Some investors welcomed the actions taken over the weekend but took a cautious stance.
“Provided the markets don’t pick up any other lingering issues, I think that 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 the decision of several major banks to deposit $30 billion in Bank of the First Republic (NYSE:), an institution rocked by the failures of Silicon Valley and Signature Bank.
On Sunday, S&P downgraded First Republic Bank’s credit rating from BB+ to B+.
Four prominent U.S. banking lawmakers said Sunday they would consider whether a higher federal insurance limit on bank deposits was needed.
The U.S. Federal Deposit Insurance Corp (FDIC) is considering reviving the process of selling Silicon Valley Bank as the regulator seeks a possible breakup of the lender, according to people familiar with the matter.
“DECISIVE INTERVENTION”
It was still unclear whether the Swiss deal would be enough to restore confidence in lenders around the world. Stock markets will soon open in Asia, Australia and New Zealand.
The intervention comes after two sources told Reuters earlier on Sunday that major European banks were looking to the Fed and ECB to step in with stronger support signals to stem the contagion.
The euro, pound and Australian dollar all rose around 0.4% against the greenback, indicating some risk appetite in the markets.
“Bank stocks should rebound on the news, but it’s premature to report that everything is clear,” said Michael Rosen, chief investment officer of Angeles Investments in California.
UBS Chairman Colm Kelleher told a news conference he would end investment banking at Credit Suisse, which has thousands of employees worldwide. UBS said it expects annual savings of some $7 billion by 2027.
The Swiss central bank said Sunday’s deal includes 100 billion Swiss francs ($108 billion) in liquidity for UBS and Credit Suisse.
Credit Suisse shareholders will receive 1 UBS share for every 22.48 Credit Suisse shares held, which equates to 0.76 Swiss francs per share for total consideration of 3 billion francs, UBS said.
Credit Suisse shares had lost a quarter of their value last week. The bank has been 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 the big losers. The Swiss regulator ruled that Credit Suisse bonds with a notional value of $17 billion would be valued at zero, angering some debt holders who believed they would be better protected than shareholders in a deal. rescue announced on Sunday.
($1 = 0.9280 Swiss francs)