Swiss major bank Credit Suisse is to be acquired by domestic rival UBS after a weekend of intense negotiations. The "deal" comes with a government guarantee of 9 billion Swiss francs as well as liquidity assistance from the Swiss National Bank (SNB) of 100 billion francs. However, the end of the Credit Suisse era will continue to preoccupy the Swiss financial centre for a long time to come, and fears of a widening crisis in the banking sector are unlikely to be banished. This danger will also be a topic of discussion at the decision-making meeting of the top committee of the US Federal Reserve (Fed) in the middle of this week. Until the interest rate announcement on Wednesday evening, the tension on financial markets will probably remain high.
The merger of the two major Swiss banks will create a banking group with around 5 trillion US dollars in assets under management. UBS is paying a total of just three billion francs in UBS shares to acquire its direct competitor. That means CS shareholders will receive one UBS share for 22.48 Credit Suisse shares, or 76 centimes per CS share. On Friday, Credit Suisse shares had closed at 1.86 francs, representing a market value of around 7.4 billion francs.
In Asia, the stock markets nevertheless opened the new week with losses. In Hong Kong, the Hang Seng Index led the region's losses, falling more than 2.8%. In mainland China, however, the Shanghai and Shenzhen indices were slightly higher after China's central bank left the key interest rate for one-year and five-year loans unchanged. In Australia, the S&P/ASX 200 slipped 1.4% and in Tokyo, the Nikkei 225 traded 1.2% lower shortly before the close.
The US Federal Reserve and several other major central banks (Bank of Canada, Bank of England, Bank of Japan, ECB and SNB) announced Sunday evening a coordinated action to provide liquidity through the standing US dollar liquidity swap arrangements. The move is intended to strengthen the global financial system.
Continued uncertainty around the stability of the banking sector kept stock markets in the US under pressure on Friday. The Dow Jones Industrial closed at 31,861.98 points, 1.19% lower, and thus showed a negative weekly balance. The S&P 500 fell by 1.1% to 3,916.64 points and the Nasdaq indices fell by almost 0.5%. Under pressure were again mainly the US financial stocks. With great excitement investors are now awaiting the monetary policy decision of the Federal Reserve next Wednesday. On bond markets, the ten-year Treasury yield fell in the run-up to the interest rate decision to currently 3.42% and the US dollar lost further ground against the euro. The current rate is 1.0670.
In addition to the ongoing turmoil in the banking sector, a noticeable decline in consumer confidence in the US also dampened sentiment. The University of Michigan's consumer sentiment barometer slipped to 63.4 in March from 67.0 in February, marking the first decline in four months. However, the survey data arrived before the collapse of Silicon Valley Bank, so this was not yet factored into the gloom in sentiment; rather, it was the continued high consumer prices that weighed on households.
The latest inflation data from the eurozone only superficially nourished hopes of a more moderate pace by the European Central Bank (ECB). To be sure, the euro-area inflation rate declined for the fourth month in a row in February to 8.5% from 8.6% at the beginning of the year, confirming an initial estimate. The core annual inflation rate, however, climbed to a record 5.6% in February from 5.3% in January. The ECB's renewed interest rate tightening by 50 basis points last Thursday thus seems entirely plausible in the fight against high inflation. ECB Governing Council member Villeroy de Galhau stressed that the renewed interest rate hike was an important signal against the strong inflation. He said that the ECB was not only demonstrating confidence in its own anti-inflation strategy, but also confidence in the solidity of the European banking system.
Corporate news in focus today: Julius Baer presents its annual report and Electrolux holds a capital markets day.
Economic data in focus today: German producer prices February (08:00 CET) and the trade balance for the euro area in January (11:00).
Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi,
Source: LGT Bank (Switzerland) Ltd.