Our head of investment rounds up the morning's big news.
The FTSE 100 is trading lower with financials including Standard Chartered (LSE:STAN), Barclays (LSE:BARC), Lloyds Banking Group (LSE:LLOY) and NatWest Group (LSE:NWG) trading at the bottom of the basket. Banks, financial services, and insurance are the worst performing sectors across Europe.
Risk-off sentiment across global markets is weighing on oil prices which are down more than 2.5%. Later this week, focus shifts to key central bank rate decisions including from the Federal Reserve which is expected to raise rates by 25 basis points despite the banking sector uncertainty. In the UK, investors are eyeing the latest inflation figures on Wednesday and the Bank of England’s rate decision on Thursday.
CREDIT SUISSE / UBS
UBS is paying 3 billion swiss francs (£2.65 billion, $3.25 billion) to acquire embattled Credit Suisse, taking on its losses of up to $5.4 billion. The Swiss regulator Finma decided that CS’s additional tier-1 bonds (AT1) or CoCo bonds worth $17.24 billion will be marked down to zero. The Swiss National Bank is providing 100 billion swiss francs for the merged entity as part of the deal to help offset the risk of financial contagion. UBS CEO Ralph Hamers said the transaction ‘is financially attractive for UBS shareholders’ and plans to wind down Credit Suisse’s investment bank.
Credit Suisse has been embroiled in scandal after scandal in recent years. On top of that, last week the lender said it found ‘material weakness’ in its financial statements and its biggest shareholder, the Saudi National Bank, said it was not willing to provide further financial support. The Swiss National Bank was forced to step in to provide liquidity to support Credit Suisse.
After months of uncertainty, client withdrawals, a sliding share price and existential angst, UBS’ takeover comes as a relief. However, its shares are still sharply lower today and its bondholders face much uncertainty. Credit Suisse’s CoCo bonds - high-yield investments which are a cross between a stock and a bond - have been written off, landing these bondholders with hefty losses. This has sparked nervousness about AT1 bonds more broadly with some investors retreating from them altogether.
Credit Suisse is a 167-year-old institution that has been instrumental to the growth of the Swiss economy. The end of its history marks a sad day for longstanding employees and loyal customers. There will be hard yards ahead for UBS to successfully implement the takeover. Credit Suisse is likely to be vastly reduced to only its profitable components.
- 10 low-volatility shares are a safer option for your ISA
- Why Warren Buffett loves a stock market crash
- 60 reasons to sell your UK shares
UBS’ acquisition has done little to allay the market’s unease, with banks nursing painful losses across Europe on Monday. Credit Suisse has opened down by more than 60% and UBS is down by over 12%.
Banks including Deutsche Bank AG (XETRA:DBK), Commerzbank AG (XETRA:CBK) and BNP Paribas Act. Cat.A (EURONEXT:BNP) are trading sharply lower, with German banks understood to have direct financial exposure of at least $11.5 billion to Swiss banks. Banks on the FTSE 100 like StanChart, Barclays and NatWest are languishing at the bottom of the UK index.
It has been a fraught fortnight for the banking sector, with the collapse of Silicon Valley Bank, and the turmoil at Credit Suisse. Investors clearly remain extremely cautious towards the sector. A key underlying cause has the backdrop of inflation-combative rising interest rates after the longstanding punchbowl of cheap money was removed. This is having major negative reverberations across the sector and wider markets globally.
UK RIGHTMOVE HOUSE PRICES
UK monthly asking prices rose by 0.8% in March, rebounding from February’s weakness but languishing below the 20-year average of 1%. According to the property website Rightmove, average house prices rose by almost £3,000 this month to £365,357.
The latest housing market data echoes similar figures recently from Halifax to suggest there are incipient signs of recovery in the UK housing market. Since last September’s disastrous mini-budget the housing market has been in disarray, driven by the jump in mortgage costs, the sluggish economic backdrop, the cost-of-living crisis, weak consumer confidence and falling real wages.
But with the UK managing so far to narrowly stave off a technical recession, mortgage rates normalising, and other economic data points improving, housing market activity has started to pick up. However, the Office for Budget Responsibility (OBR) still predicts that house prices are set to fall by 10% from last year’s high, suggesting the market is not yet out of the woods.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.