(Bern) Asian stock markets widened their losses on Monday, a sign that the return of global investors’ “confidence” in the banking system was far from over, despite the takeover of Credit Suisse by UBS announced the day before in the emergency.
The flagship Nikkei index of the Tokyo Stock Exchange lost 0.98% around 11:45 p.m. (Eastern time), weighed down in particular by its banking stocks. In Hong Kong, the losses of the Hang Seng index were worse (-2.51%), while the Shanghai and Shenzhen stock exchanges were up slightly.
City Index analyst Matt Simpson still noted a “heavy dose of suspicion and paranoia” in Asian markets in a note released on Monday. “Uncertainties could remain high for some time” despite the various support measures for the banking sector, also warned Stephen Innes of SPI Asset Management.
Asian authorities were trying to reassure their own markets on Monday. The Hong Kong monetary authority thus qualified as “insignificant” the impact of the Credit Suisse saga on its banking system, specifying that the Swiss bank’s assets in Hong Kong represented “less than 0.5% of total assets. of the city’s banking system.
In Tokyo, government spokesman Hirokazu Matsuno again assured Monday that Japanese financial institutions had “abundant liquidity and capital” and that the financial market was “generally stable”.
After intense negotiations over the weekend, Switzerland’s leading banking group UBS is set to buy struggling rival Credit Suisse for a pittance, with substantial guarantees from the Bern government, which hopes to have avoided a major crisis and regained the “confidence” of investors around the world.
From the US Treasury to the European Central Bank (ECB), this takeover was immediately welcomed by those who feared a new runaway in the markets already made feverish by the recent fall of the Silicon Valley Bank and other regional banks in the United States.
The amount of the takeover of Credit Suisse, which has been going through an intense phase of turbulence since the beginning of the week, amounts to 3 billion Swiss francs (C$4.42 billion), payable in UBS shares, for a bank which was worth almost triple Friday at the close of trading.
This merger will create a banking giant like Switzerland has never known before and raises concerns about possible layoffs.
“It’s the best way to ensure confidence”, launched in front of the media in Bern the president of the Swiss Confederation, Alain Berset, announcing the agreement.
This solution “is not only decisive for Switzerland […]but for the stability of the entire financial system” worldwide, underlined Mr. Berset in the presence of the presidents of the two banking giants, Colm Kelleher for UBS and Axel Lehmann for Credit Suisse.
Swiss Finance Minister Karin Keller-Sutter said the bankruptcy of Credit Suisse could have caused “irreparable economic damage”. “For this reason, Switzerland must assume its responsibilities beyond its own borders. »
ECB President Christine Lagarde said the takeover would “help restore orderly market conditions”.
On the American side, the Treasury and the central bank said they were “satisfied”.
For good measure, the world’s most powerful central banks, including the ECB, the Fed, the Bank of England and the Bank of Canada, immediately announced coordinated action to improve access to liquidity and reassure a few more investors.
The institutions decided to reinforce the “swap lines”, a device which facilitates the access of foreign central banks to dollars.
The central banks will thus increase the frequency of operations in dollars: “previously weekly, these operations will now be daily and will begin on Monday, March 20, 2023. They will continue at this rate at least until the end of April”, indicates a press release.
The network of swap lines serves as a “liquidity safety net to ease tensions in international funding markets and thus help to mitigate the effects of these tensions on the supply of loans to households and businesses”, recall the institutions. .
Race to the abyss
The banking sector has been under stress since the major central banks have raised their rates sharply in an attempt to control inflation. Many establishments have failed to prepare after years of having access to cheap money.
The turbulence on the banks in the United States increased the anxiety of investors and pushed them to sell the securities of institutions considered to be weak links.
This is the case of Credit Suisse which, for two years, has gone from resounding scandals to setbacks and has suddenly found it difficult to access liquidity at reasonable prices.
A lifeline of 50 billion Swiss francs launched Wednesday by the Swiss Central Bank, after a black day on the stock market, gave only a brief respite to the bank.
The regulatory authorities and the federal government had to face immense pressure from Switzerland’s main economic partners to rectify the situation.
UBS, which spent several years recovering from the shock of the 2008 financial crisis and a massive state bailout, is beginning to reap the rewards of its efforts, and it took tremendous pressure from the authorities for management to of the bank agrees to put on the habit of the saviour.
To ease the pill, the bank will benefit from a guarantee of some 9 billion francs from the government which serves as insurance if problems were to be discovered in very specific Credit Suisse portfolios.
The Swiss central bank also grants a liquidity line of up to 100 billion Swiss francs to the two institutions.
A nice tool
UBS will also take over the Swiss branch of Credit Suisse, one of the profitable parts of the group which lost 7.3 billion Swiss francs last year and was still expecting “substantial” losses in 2023.
This branch brings together retail banking and loans to SMEs.
“It’s a great tool that we’re very determined to keep” in order to “serve clients as effectively as Credit Suisse does,” Kelleher said.
On Sunday, the union of bank employees in Switzerland “demanded” the participation of the social partners in the discussions, given the “enormous” stakes for employment. The employers gave their support to the action of the government, but “expressly regrets that we have come to this”.