ZURICH – Banking stocks tumbled on Monday as initial relief over a historic state-backed rescue of troubled lender Credit Suisse by Swiss rival UBS gave way to new worries about the risks of high-yield debt issued by big banks.
Shares in Credit Suisse were down 58 per cent at 10.15am in Zurich, after diving more than 63 per cent to below UBS’ takeover price earlier, while UBS shares fell 15.5 per cent.
An index of European banking shares tanked, losing more than 4 per cent as shares in lenders such as Deutsche Bank, Commerzbank, Societe Generale and BNP Paribas dropped between 5.5 per cent and 7.5 per cent.
In Asia, an initial relief rally quickly evaporated as focus shifted to the massive hit some Credit Suisse bond holders will take under the UBS acquisition.
Under the deal, the Swiss regulator decided that Credit Suisse additional tier 1 (AT1) bonds with a notional value of 16 billion Swiss francs (S$23 billion) will be valued at zero, angering some holders of the debt who thought they would be better protected than shareholders in the takeover deal announced on Sunday.
Worries about what that might mean for holders of AT1 bonds issued by other banks added to persistent anxiety about a range of other risks including contagion, the fragile state of US regional banks and moral hazard.
Shares of Standard Chartered and HSBC both sank in Hong Kong on Monday, with HSBC closing down 6.2 per cent while StanChart sank 7.3 per cent.
In Singapore, the Straits Times Index ended down 1.4 per cent, with all three local banks in the red. DBS Bank tumbled 1 per cent to $32.22, while OCBC Bank lost 1.5 per cent to $12.08 and UOB slid 1.2 per cent to $28.21.
“It should be clear that after more than a week into the banking panic, and two interventions organised by the authorities, this problem is not going away. Quite the contrary, it has gone global,” said Mr Mike O’Rourke, chief market strategist at Jones Trading.
“The reports that UBS is acquiring Credit Suisse will likely magnify Credit Suisse’s problems by moving them to UBS.”
The shotgun Swiss banking marriage is backed by a massive government guarantee, helping prevent what would have been one of the largest banking collapses since the fall of Lehman Brothers in 2008.
In a global response not seen since the height of the pandemic, the United States Federal Reserve said it has joined central banks in Canada, England, Japan, the European Union and Switzerland in a coordinated action to enhance market liquidity. The European Central Bank vowed to support euro zone banks with loans if needed, adding that the Swiss rescue of Credit Suisse is “instrumental” in restoring calm.
On Monday, Credit Suisse’s banking operations appeared to be business as usual at its major offices in Asia.
The monetary authorities of Singapore and Hong Kong, where Credit Suisse hosts large regional offices, separately said that the Swiss bank’s business is continuing without interruption.
Credit Suisse urged its staff to go to work, according to a memo seen by Reuters.
Unresolved issue
There are also concerns about what happens next at Credit Suisse and what that means for investors, clients and employees.
In the memo to employees, Credit Suisse said that once the takeover is complete, wealth management clients may want to consider moving some assets to another bank if concentration is a concern.
The deal will also make UBS Switzerland’s only global bank and the Swiss economy more dependent on a single lender.
“The Credit Suisse debacle will have serious ramifications for other Swiss financial institutions. A countrywide reputation with prudent financial management, sound regulatory oversight and, frankly, for being somewhat dour and boring regarding investments has been wiped away,” said Mr Octavio Marenzi, chief executive of Opimas in Vienna. REUTERS
- With additional information from The Straits Times
