Manama, Mar. 20 (BNA): Some of the largest central banks in the world met on Sunday to stop the spread of the banking crisis, as Swiss authorities persuaded UBS AG to buy its rival Credit Suisse Group in a historic deal.
UBS will pay 3 billion Swiss francs ($3.23 billion) for the 167-year-old Credit Suisse and incur losses of up to $5.4 billion in a deal backed by a huge Swiss guarantee and expected to close by the end of 2023.
Shortly after the announcement late Sunday, the US Federal Reserve, European Central Bank and other major central banks issued statements to reassure markets that have been bogged down by a banking crisis that began with the collapse of two US regional banks earlier this month, according to Reuters.
S&P 500 and Nasdaq futures rose 0.4%, both giving back some previous gains. New Zealand fell at the open and Australian shares opened with a loss of 0.5%. The safe-haven dollar lost ground against the British pound and the euro but rose against the yen. The pressure on UBS helped seal the Sunday deal.
“It’s a historic day in Switzerland, and we hope that one won’t come, frankly,” Colm Kelleher, UBS’s head of analysts, said on a conference call. “I would like to make it clear that while we have not initiated discussions, we believe this transaction is financially attractive to UBS shareholders,” Keeler said.
UBS chief executive Ralph Hammers said there were still a lot of details to work out. “I know there are still questions that we haven’t been able to answer,” he said. “And I understand that, and I even want to apologize for it.”
In a global response not seen since the height of the pandemic, the Fed said it has joined the central banks of Canada, England, Japan, the European Union and Switzerland in coordinated action to boost market liquidity. The European Central Bank pledged to support eurozone banks with loans if necessary, adding that a Swiss bailout of Credit Suisse was “helpful” to restore calm.
Federal Reserve Chairman Jerome Powell and US Treasury Secretary Janet Yellen welcomed the Swiss authorities’ announcement. The Bank of England also paid tribute to the Swiss.
Lloyd Blankfein, former Chairman and CEO of Goldman Sachs Group Inc.
“While some banks have been brought to a halt due to poor management and concentrated risk, the banking system in general is very well capitalized and vastly more regulated than it was in previous difficult times.”
The Swiss banking marriage follows efforts in Europe and the US to shore up the sector since the collapse of US lenders Silicon Valley Bank and Signature Bank.
Some investors welcomed the weekend’s moves but took a cautious stance.
I think that should be very positive,” said Brian Jacobsen, chief investment analyst at Allspring Global Investments.
Problems remain in the US banking sector, where bank stocks remain under pressure despite a move by several large banks to deposit $30 billion in First Republic Bank, an institution rocked by the failures of Silicon Valley and Signature Bank.
On Sunday, First Republic saw its credit rating cut deeper to junk status by S&P Global, which said a deposit injection may not solve its liquidity problems.
US bank deposits have stabilized, with outflows slowing or halting, and in some cases reversing, a US official said on Sunday, adding that Credit Suisse’s problems were unrelated to recent deposits in US banks and that US banks had limited exposure to Credit Suisse.
Meanwhile, the US Federal Deposit Insurance Corporation (FDIC) plans to relaunch the sale to the Silicon Valley bank, with the regulator seeking a possible breakup of the lender, according to people familiar with the matter.
WWA