Monday, February 26, 2024

Credit Suisse sold in cut-price deal to avert banking crisis

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It came under pressure after a major shareholder said it would put no more money into the business, prompting a flood of clients to pull their money.

The Swiss Government had considered nationalising the bank if talks with UBS had failed.

Swiss politicians rapidly rewrote the country’s laws over the weekend to ensure the deal could be confirmed, bypassing shareholders.

Officials had raced to negotiate the shotgun merger of the two national banks before the opening of stock markets in Asia on Sunday evening, fearing a market meltdown if a solution had not been reached.

The Bank of England was reported by Sky News to have waived through the deal. Threadneedle Street last week held talks with British lenders, asking them to explain their current risk profiles on bond markets amid the turmoil at international rivals, The Telegraph reported.

A Bank of England spokesman said: “We welcome the comprehensive set of actions set out by the Swiss authorities today in order to support financial stability.

“We have been engaging closely with international counterparts throughout the preparations for today’s announcements and will continue to support their implementation. The UK banking system is well capitalised and funded, and remains safe and sound.”

A Government spokesman said: “The UK Government welcomes the steps taken today by the Swiss authorities in relation to Credit Suisse to support financial stability, and will continue to engage with the FCA and the Bank of England as is usual.”

The Swiss National Bank (SNB) said the deal would “secure financial stability and protect the Swiss economy in this exceptional situation.”

Central banks take emergency measures after Credit Suisse rescue deal

By Matthew Field and Matt Oliver

The Federal Reserve last night agreed to increase the supply of US dollars to central banks around the world in a bid to stop a cash crunch in markets.

Late last night six of the world’s biggest central banks agreed to ramp-up swap lines, agreements to exchange currencies between each other, as officials and investors braced for another week of intense market volatility.

The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank will increase currency trading between each other from weekly to daily to ensure there are enough dollars following throughout the global system to keep financial markets operating.

Swap lines were a key tool used during the 2008 financial crisis to stop markets seizing up. The Bank of England said the latest action would “ease strains in global funding markets, thereby helping to mitigate the effects of such strains on the supply of credit to households and businesses.”

Daily trading will commence from today and last until at least April.

Banks were bracing for more volatility in markets tomorrow after Swiss officials forced through a hastily arranged $3.2bn (£2.3bn) rescue deal for troubled Credit Suisse.

The 167-year-old bank was tonight sold to arch-rival UBS in a cut price deal intended to stabilise the Swiss financial system and stop the emergency escalating into a full-blown European banking crisis.

The Swiss National Bank has agreed to lend UBS up to 100 billion Swiss franc (£88bn) in emergency liquidity in an effort to shore up confidence.

The state also agreed to cover up to 9 billion Swiss francs in losses from certain parts of Credit Suisse, which is facing multiple legal battles.

However, observers warned that efforts to shore up confidence could fall short.

Mohamed El-Erian, chief economic advisor to Allianz, warned that UBS stock “may well come under pressure” on Monday morning as details of the deal emerged.

The cost of insuring UBS’s debt climbed in trading on Sunday. The bank’s credit default swaps, used to gauge its credit risk, widened by 40 basis points 215 bps on five-year contracts, Bloomberg reported.

Credit Suisse was forced into the arms of UBS after a run on the bank this week.

FINMA, Switzerland’s financial regulator, said tonight: “The Credit Suisse Group is experiencing a crisis of confidence, which has manifested in considerable outflows of client funds. This was intensified by the upheavals in the US banking market in March 2023.

“There was a risk of the bank becoming illiquid, even if it remained solvent, and it was necessary for the authorities to take action in order to prevent serious damage to the Swiss and international financial markets.”

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