European stock markets responded this Monday with profits to the absorption of the bank Credit Suisse by its competitor UBS, an optimism that many bank stocks jumped on despite persistent volatility.
(Read here: Ensuring investor confidence, the goal of the purchase of UBS from Credit Suisse)
After opening in the red, the main European indices closed higher: Paris gained 1.27%, Frankfurt 1.12%, London 0.93%, Madrid 1.31% and Milan 1.59%.
(See also: UBS Agrees to Buy Credit Suisse for More Than $2 Billion)
Many of the bank stocks, which opened with sharp falls, corrected the trend and closed with gains. Wall Street was also advancing: 1.01% for the Dow Jones index, 0.75% for the S&P500 and 0.21% for the technology-based Nasdaq by 6:00 PM GMT.
Among the rises in Europe was precisely UBS, which finally gained 1.26% after announcing the purchase of Credit Suisse for just over 3,200 million dollars.
The share of the first Swiss banking entity had lost up to 15% of its value at the opening of the Zurich stock market. Credit Suisse, for its part, sank 55.74% to 82 cents per share, above the 76 proposed by UBS in its purchase offer.
Five years ago, his share was worth around 15 Swiss francs. There is still “a lot of uncertainty” about the evolution of the situation, said Jack Allen-Reynolds, economist for the euro zone at Capital Economics, who wonders where the current volatility could lead.
The Swiss central bank participated with the Swiss government in offering guarantees to convince the country’s biggest bank, UBS, to buy out troubled rival Credit Suisse at a bargain price. UBS ended up accepting on Sunday.
Financial authorities across Europe lavished remarks on Monday reassuring investors about the soundness of Europe’s banking system.
The president of the European Central Bank (ECB), Christine Lagarde, said that banks in the euro zone have financial buffers “far higher than required” and that their exposure to Credit Suisse canceled debt securities was “very limited”.
‘A lot of uncertainty
Banks, however, are not yet out of the woods: losses in the Eurostoxx 600 bank index rose to more than 13% last week and several large banks continued to fall, including Barclays (-2.29%), ING (-0 .66%), Deutsche Bank (-0.50%) or Société Générale (-0.83%), although others such as the Spanish BBVA and Santander closed in the green with gains of 3.23% and 2.77%, respectively.
In the United States, the entity First Republic Bank, which was one of the banks that suffered the most losses last week, collapsed 11% in the first operations. After being downgraded by the S&P rating agency, the entity deepened its fall.
In contrast, the shares of the big US banks were trading higher, as were the shares of regional entities, which monopolize the concerns of investors.
The Credit Suisse deal “may have had some effect in reducing financial market anxiety, but this may be short-lived, as traders may be wondering which bank is next to make the headlines, and for the wrong reasons.” explained Tim Waterer, an analyst at Kohle Capital Markets.
On the other hand, investors are expectant about what position the Federal Reserve will take in the United States. Opinions differ on whether the Fed will continue raising rates, with many pointing out that the collapse of US bank SVB is linked to rising borrowing costs over the past year.
Guarantees from the authorities
UBS agreed on Sunday to pay 3 billion Swiss francs (3.02 billion euros, $3.25 billion) for Credit Suisse, a third of what the bank was worth on Friday, before trading.
In the discussions, it was established that UBS will benefit from a 9 billion Swiss francs government guarantee. In addition, the Swiss central bank made available to both entities a liquidity line of up to 100,000 million Swiss francs.
Regulators and the federal government acted under immense pressure from Switzerland’s main economic partners to clean up the situation before it spread to the entire world. In this context, the large central banks of the United States, Switzerland, the United Kingdom, Canada and Japan announced that they will adopt coordinated efforts to improve access to liquidity.
AFP
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