European banking stocks slumped Monday as investors reeled from the historic weekend takeover of Credit Suisse Group AG that will wipe out a class of bondholders.
None of Credit Suisse said to push back against UBS'$1 Billion Offer.
Under the terms of the acquisition of Credit Suisse by the UBS Group AG, holders of securities known as additional tier 1 bonds will be wiped out, potentially sending the $275 billion market for bank funding into a tailspin. UBS shares fell 13%, while Credit Suisse fell 63%.
That raises concern that banks need to find new sources of capital if there is a loss of confidence in those securities, while existing holdings of debt issued by peers may see a significant loss of value.
The takeover of the 166 year-old Swiss lender is only adding to investor jitters after the failures of Silicon Valley Bank and Signature Bank in the US this month. The Stoxx Europe 600 Banks Index fell by 4.8% at 9: 15 a.m. in Paris, led by Deutsche Bank AG and Commerzbank AG.
Mikael Jacoby, head of continental European sales trading at Oddo Securities in Paris, said that they had got a nasty deal with a long and uncertain execution. Maybe some bottom fishers will buy stocks deemed safe, but globally it will be negative. All 44 stocks in the bank index fell, with Deutsche Bank down 10% and Commerzbank down 7.8%. In Hong Kong trading, HSBC Holdings Plc fell 6.2%, the most since September 2022, and Standard Chartered Plc fell 6%.
There will be a ripple effect from the Credit Suisse deal to the bond and equity market and we don't know yet how much exposure international and regional banks have, said Dickie Wong, director of research at Kingston Securities Ltd.
The European Central Bank, Federal Reserve and four other central banks announced on Sunday that they will take action to boost US dollar swap arrangements, a latest effort by policymakers to ease growing strains in the global financial system.
The sentiment towards banks started to turn sour on March 9 as fears around US bank Silicon Valley Bank erupted and extended amid the meltdown of Credit Suisse shares last week. Until then, lenders had been one of the biggest gainers of the year, despite rising interest rates and a resilient economy.
The UBS acquisition of CS eliminates immediate sector tail risks, but it also raises questions, according to Jefferies Financial Group Inc. analysts including Flora Bocahut. They wrote that Credit Suisse s AT 1 bonds written off to zero could spook holders of these types of securities at other banks.