Markets receive with skepticism the purchase of Credit Suisse – 03/20/2023 – Market

Financial markets received with skepticism this Monday (20) the news of the purchase of Credit Suisse by competitor UBS, a rescue operation orchestrated by the Swiss authorities in the face of fears of destabilization of the global banking system.

Asian markets ended the day lower (Hong Kong -2.7%, Tokyo -1.4% and Shanghai -0.5%) and the trend was the same at the opening of European stock exchanges.

Paris was down 0.63%, Frankfurt fell 1.10% and London lost 1.17%. Madrid was down 0.90% and Milan was down 2.73%.

The trend was mainly caused by the fall in bank bonds, which demonstrates the fear of investors in a scenario in which the collapse of two American banks caused many fears.

The losses in the stock markets come after a week of tension in the markets and in view of the expectations of investors about what posture the Fed (Federal Reserve, central bank of the United States) will adopt from now on.

Analysts differ on whether the Fed will proceed with interest rate hikes, as many point out that the failure of the US bank SVB (Silicon Valley Bank) is linked to rising borrowing costs over the past year.

After a marathon of negotiations over the weekend, UBS, the largest Swiss bank, agreed on Sunday (19) to buy rival Credit Suisse for a price well below what the institution was valued a few weeks ago.

The institution accepted the purchase after the government of Bern presented guarantees and the Swiss Central Bank, the BNS, also guaranteed liquidity.

The sharp drop in oil prices and the rise in “safe haven values”, which include gold and the yen, are further indications that suggest that investors “are still scared”, points out Stephen Innes, of SPI Asset Management.

Authorities’ guarantees

Credit Suisse suffered a stock market collapse last week and needed help from the BNS. However, after the aid did not prevent the continuation of the fall of the shares, the authorities started a negotiation that resulted in the purchase by the rival.

UBS agreed to pay three billion Swiss francs (US$ 3.25 billion, R$ 17.1 billion), a third of what the bank was worth on Friday (17), before the negotiation.

During the discussions it was agreed that UBS will have a government guarantee of 9 billion Swiss francs, as insurance, in case problems arise with the Credit Suisse portfolio.

In addition, the BNS provided the two banks with a liquidity line of up to CHF 100 billion.

Regulatory agencies and the federal government acted under immense pressure from Switzerland’s main economic partners to remedy the situation before it spread to the rest of the world.

The two banks were affected at the beginning of the session on Monday: Credit Suisse shares fell 62% and UBS lost more than 13%.

In this scenario, the central banks of the United States, Switzerland, United Kingdom, Canada and Japan announced coordinated efforts to improve access to liquidity.

Innes points out, however, that “the greater the involvement of political authorities, the more investors fear bad news, which creates a feedback loop”.