Tag: UBS Group AG

Deposit drain from smaller banks into financial giants like JPMorgan Chase has slowed, sources say

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First Republic Bank headquarters is seen on March 16, 2023 in San Francisco, California, United States.

Tayfun Coskun | Anadolu Agency | Getty Images

The surge of deposits moving from smaller banks to big institutions including JPMorgan Chase and Wells Fargo amid fears over the stability of regional lenders has slowed to a trickle in recent days, CNBC has learned.

Uncertainty caused by the collapse of Silicon Valley Bank earlier this month triggered outflows and plunging share prices at peers including First Republic and PacWest.

The situation, which roiled markets globally and forced U.S. regulators to intervene to protect bank customers, began improving around March 16, according to people with knowledge of inflows at top institutions. That’s when 11 of the biggest American banks banded together to inject $30 billion into First Republic, essentially returning some of the deposits they’d gained recently.

“The people who panicked got out right away,” said the person. “If you haven’t made up your mind by now, you are probably staying where you are.”

The development gives regulators and bankers breathing room to address strains in the U.S. financial system that emerged after the collapse of SVB, the go-to bank for venture capital investors and their companies. Its implosion happened with dizzying speed this month, turbocharged by social media and the ease of online banking, in an event that’s likely to impact the financial world for years to come.

Within days of its March 10 seizure, another specialty lender Signature Bank was shuttered, and regulators tapped emergency powers to backstop all customers of the two banks. Ripples from this event reached around the world, and a week later Swiss regulators forced a long-rumored merger between UBS and Credit Suisse to help shore up confidence in European banks.

Wearing many hats

The dynamic has put big banks like JPMorgan and Goldman Sachs in the awkward position of playing multiple roles simultaneously in this crisis. Big banks are advising smaller ones while participating in steps to renew confidence in the system and prop up ailing lenders like First Republic, all while gaining billions of dollars in deposits and being in the position of potentially bidding on assets as they come up for sale.

The broad sweep of those money flows are apparent in Federal Reserve data released Friday, a delayed snapshot of deposits as of March 15. While large banks appeared to gain deposits at the expense of smaller ones, the filings don’t capture outflows from SVB because it was in the same big-bank category as the companies that gained its dollars.

Although inflows into one top institution have slowed to a “trickle,” the situation is fluid and could change if concerns about other banks arise, said one person, who declined to be identified speaking before the release of financial figures next month. JPMorgan will kick off bank earnings season on April 14.

At another large lender, this one based on the West Coast, inflows only slowed in recent days, according to another person with knowledge of the matter.

JPMorgan, Bank of America, Citigroup and Wells Fargo representatives declined to comment for this article.

Post-SVB playbook

The moves mirror what one newer player has seen as well, according to Brex co-founder Henrique Dubugras. His startup, which caters to other VC-backed growth companies, has seen a surge of new deposits and accounts after the SVB collapse.

“Things have calmed down for sure,” Dubugras told CNBC in a phone interview. “There’s been a lot of ins and outs, but people are still putting money into the big banks.”

The post-SVB playbook, he said, is for startups to keep three to six months of cash at regional banks or new entrants like Brex, while parking the rest at one of the four biggest players. That approach combines the service and features of smaller lenders with the perceived safety of too-big-to-fail banks for the bulk of their money, he said.

“A lot of founders opened an account at a Big Four bank, moved a lot of money there, and now they’re remembering why they didn’t do that in the first place,” he said. The biggest banks haven’t historically catered to risky startups, which was the domain of specialty lenders like SVB.

Dubugras said that JPMorgan, the biggest U.S. bank by assets, was the largest single gainer of deposits among lenders this month, in part because VCs have flocked to the bank. That belief has been supported by anecdotal reports.

The next domino?

For now, attention has turned to First Republic, which has teetered in recent weeks and whose shares have lost 90% this month. The bank is known for its success in catering to wealthy customers on the East and West coasts.

Regulators and banks have already put together a remarkable series of measures to try to save the bank, mostly as a kind of firewall against another round of panic that would swallow more lenders and strain the financial system. Behind the scenes, regulators believe the deposit situation at First Republic has stabilized, Bloomberg reported Saturday.

First Republic has hired JPMorgan and Lazard as advisors to come up with a solution, which could involve finding more capital to remain independent or a sale to a more stable bank, said people with knowledge of the matter.

If those fail, there is the risk that regulators would have to seize the bank, similar to what happened to SVB and Signature, they said. A First Republic spokesman declined comment.

While the deposit flight from smaller banks has slowed, the past few weeks have exposed a glaring weakness in how some have managed their balance sheets. These companies were caught flat-footed as the Fed engaged in its most aggressive rate hiking campaign in decades, leaving them with unrealized losses on bond holdings. Bond prices fall as interest rates rise.

It’s likely other institutions will face upheaval in the coming weeks, Citigroup CEO Jane Fraser said during an interview on Wednesday.

“There could well be some smaller institutions that have similar issues in terms of their being caught without managing balance sheets as ably as others,” Fraser said. “We certainly hope there will be fewer rather than more.”

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March 25, 2023
U.S. stocks end higher, S&P 500 books back-to-back weekly gains despite bank jitters spurred by Deutsche Bank
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U.S. stocks finished Friday higher, despite a jump in the cost of Deutsche Bank’s credit-default swaps helping to reignite banking-sector worries. The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite each booked weekly gains.

How stocks traded
- The Dow Jones Industrial Average
  DJIA,
  +0.41%
  rose 132.28 points, or 0.4%, to close at 32,237.53.
- The S&P 500
  SPX,
  +0.56%
  gained 22.27 points, or 0.6%, to finish at 3,970.99.
- The Nasdaq Composite
  COMP,
  +0.31%
  added 36.56 points, or 0.3%, to end at 11,823.96.
For the week, the Dow gained 1.2%, while the S&P 500 rose 1.4% and the Nasdaq advanced 1.7%, according to FactSet data. The Dow snapped two straight weeks of losses, while the S&P 500 and Nasdaq each booked back-to-back weekly gains.
What drove markets

U.S. stocks ended modestly higher Friday to notch weekly gains even as worries over the banking system lingered.

Bank concerns have cast a “heavy cloud over the market,” with investors worried about “weak links,” said Yung-Yu Ma, chief investment strategist at BMO Wealth Management, in a phone interview Friday. Ma said he expects investors will be looking to sell, potentially into any rallies, “until some of these clouds are lifted.”

Shares of Germany’s Deutsche Bank AG
DBK,
-8.53%

DB,
-3.11%
dropped Friday, after the cost of insuring the bank against a credit default jumped. The bank’s credit-default swaps had risen to the highest level since late 2018, according to a Reuters report Friday.

Treasury Secretary Janet Yellen announced Friday she called an unscheduled meeting of the Financial Stability Oversight Council or FSOC which was created in the wake of the 2008 financial crisis to help the government combat threats to financial stability. The FSOC issued a short statement after the market closed Friday saying that “while some institutions have come under stress, the U.S. banking system remains sound and resilient”.

“Clearly, somebody thinks there are some concerns there,” said Randy Frederick, managing director of trading and derivatives at Charles Schwab. The problems facing European banks stem back to the era of negative interest rates, which set banks up for large losses on their bond holdings, he said.

The selloff in Deutsche Bank shares weighed on banks in the U.S. and Europe, as banking-sector fears reemerged. Shares of UBS Group
UBS,
-0.94%,
which recently agreed to buy rival Credit Suisse Group, fell Friday.

Other major European lenders, including Italy’s UniCredit S.p.A
UCG,
-4.06%
and Spain’s Banco Santander SA
SAN,
-3.00%,
also saw their shares sink.

“The thing that’s important to know about financials is there probably are banks that have problems, but there are others that don’t,” Frederick told MarketWatch during a phone interview. “People need to do some research.”

The S&P 500’s financial sector fell 0.1% Friday, according to FactSet data.

While banking-sector woes have hammered the financial sector this month, the outperformance of megacap technology stocks and other sectors have helped prop up the broader U.S. equities market. So far this month, the S&P 500 index is up less than 0.1%, FactSet data show.

Concerns about the fragility of the banking sector have been percolating following a year of the Federal Reserve’s aggressive interest rate hikes. On Wednesday, the Fed announced that it hiked its policy rate by a quarter point to a range of 4.75% to 5% while projecting it could deliver one more 25 basis-point hike in 2023.

In his first comments since the rapid collapse of Silicon Valley Bank two weeks ago, St. Louis Federal Reserve President James Bullard said Friday the latest drop in Treasury yields could help cushion some of the stress facing the banking sector.

Yields on the 2-year Treasury note
TMUBMUSD02Y,
3.779%
and 10-year Treasury note
TMUBMUSD10Y,
3.376%
each fell Friday in their third straight week of declines, according to Dow Jones Market Data. Two-year yields slid to 3.777% on Friday, the lowest level since September based on 3 p.m. Eastern time levels, while 10-year Treasury yields dropped to 3.379%, their lowest rate since January.

Read: ‘Red alert recession signals.’ Gundlach expects the Fed to cut rates substantially ‘soon.’

In U.S. economic data, a report Friday on sales of durable goods showed orders fell 1% in February, largely because of waning demand for passenger planes and new cars. Meanwhile, the S&P Global Flash U.S. services-sector index rose to an 11-month high of 53.8 in March.

The role of regional banks in the U.S. economy is “huge,” said Sandi Bragar, chief client officer at wealth management firm Aspiriant, in a phone interview Friday. Bragar said she worries that recent regional bank failures will result in a pullback in lending that leads to slower economic growth and potentially a recession.

“Our stance has been to be very diversified and we have been remaining on the defensive side of things,” she said.

Within equities, that has meant holding “high-quality companies” that should be resilient in “poor economic times,” including stocks in areas such as healthcare, information technology and consumer staples, said Bragar.

Companies in focus

Deutsche Bank
DBK,
-8.53%

DB,
-3.11%
shares dropped 8.5% but finished off lows seen when the German bank’s credit default swaps jumped without an apparent catalyst.

Wells Fargo
WFC,
-1.04%
shares slid 1% while JPMorgan
JPM,
-1.52%
fell 1.5%, with bank stocks remaining under pressure in the wake of regional U.S. bank failures.

Activision Blizzard
ATVI,
+5.91%
climbed 5.9% and after the U.K. Competition and Markets Authority dropped some of its concerns with the potential purchase of the company by Microsoft. Shares of Microsoft
MSFT,
+1.05%
rose slightly more than 1%.

–Steve Goldstein contributed to this report.
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March 24, 2023
Deutsche Bank shares slide 9% after sudden spike in the cost of insuring against its default

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A logo stands on display above the headquarters of Deutsche Bank AG at the Aurora Business Park in Moscow, Russia.

Andrey Rudakov | Bloomberg | Getty Images

Deutsche Bank shares fell by more than 9% in early trade on Friday following a spike in credit default swaps on Thursday night, as concerns about the stability of European banks persisted.

The German lender’s shares retreated for a third consecutive day and have now lost more than a fifth of their value so far this month. Credit default swaps — a form of insurance for a company’s bondholders against its default — leapt to 173 basis points on Thursday night from 142 basis points the previous day.

The emergency rescue of Credit Suisse by UBS, in the wake of the collapse of U.S.-based Silicon Valley Bank, has triggered contagion concern among investors, which was deepened by further monetary policy tightening from the U.S. Federal Reserve on Wednesday.

Deutsche Bank’s additional tier one (AT1) bonds — an asset class that hit the headlines this week after the controversial writedown of Credit Suisse’s AT1s as part of its rescue deal — also sold off sharply.

Deutsche led broad declines for major European banking stocks on Friday, with Commerzbank, Credit Suisse, Societe Generale and UBS all falling more than 5%.

Spillover risk

Financial regulators and governments have taken action in recent weeks to contain the risk of contagion from the problems exposed at individual lenders, and Moody’s said in a note Wednesday that they should “broadly succeed” in doing so.

“However, in an uncertain economic environment and with investor confidence remaining fragile, there is a risk that policymakers will be unable to curtail the current turmoil without longer-lasting and potentially severe repercussions within and beyond the banking sector,” the ratings agency’s credit strategy team said.

“Even before bank stress became evident, we had expected global credit conditions to continue to weaken in 2023 as a result of significantly higher interest rates and lower growth, including recessions in some countries.”

Moody’s suggested that, as central banks continue their efforts to reel in inflation, the longer that financial conditions remain tight, the greater the risk that “stresses spread beyond the banking sector, unleashing greater financial and economic damage.”

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March 24, 2023
Deutsche Bank shares slump in latest sign of bank worries

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Deutsche Bank shares slumped on Friday, putting the health of another globally systemic important bank in the spotlight heading into the weekend.

The German lender’s shares
DBK,
-8.53%
fell 10% in Frankfurt trade, and the Euro Stoxx bank index
SX7E,
-4.61%
fell 5%.

Deutsche Bank’s 5-year credit-default swaps widened on Thursday, in what Reuters reported was the largest one-day rise in its history. And on Friday, they widened again.

It should be noted that Deutsche Bank’s 5-year credit-default swap, which was 215 on Friday, is nowhere near the peak for Credit Suisse, which was 1,194, according to S&P Global data. The higher the value of the CDS, the more likely the market sees the issuer defaulting.

Deutsche Bank’s AT1 bonds have tumbled in value after Switzerland wiped out Credit Suisse’s
CSGN,
-5.19%
securities in the deal for it to be taken over by UBS
UBSG,
-3.55%.

The Invesco AT1 Capital Bond UCITS ETF
AT1,
-1.97%,
which invests in these convertible bonds, has dropped 18% this month as investors lose faith in the securities. European and other banking regulators across the globe have insisted they will not follow Switzerland’s precedent, and first let bank equity fall to zero before wiping out the convertible securities in the event of a failure.

“It is doubtful that banks will be able to issue new AT1 anytime soon, increasing the likelihood of outstanding AT1 notes being extended. We consider that the recent events in the banking sector have resulted in substantially increased uncertainty, which is likely to continue to be reflected as substantial short-term volatility in credit markets,” said analysts at ING.

UBS
UBS,
-0.94%
also is feeling the stress in a deal that the banks say might not complete this year. UBS shares dropped 6%.

Related: Analysts say UBS will face revenue pressure before it can cut Credit Suisse costs.

Analysts also noted that a foreign institution tapped a Fed facility for $60 billion, according to data released by the U.S. central bank on Thursday. The Fed does not identify the counterparties. Major central banks do have access to swap lines for dollar borrowing from the Fed, meaning that either it was an institution that does not have that capability, or it was one that wanted to do so anonymously.

Furthermore, Bloomberg News reported the U.S. government was investigating banks including Credit Suisse and UBS for allegedly helping Russians evade U.S. sanctions.

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March 24, 2023
S&P 500 reclaims 4,000 mark, stocks end higher ahead of Fed rate decision

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The S&P 500 on Tuesday posted its highest close since the collapse of Silicon Valley Bank earlier this month, which sent shockwaves through financial markets and raised concerns about the stability of the U.S. banking system. The S&P 500 index
SPX,
+1.30%
closed up about 51 points, or 1.3%, ending near 4,003, according to preliminary data from FactSet. That was its highest close since May 6, four days before the failure of Silicon Valley, the biggest bank collapse since the 2008 global financial crisis. The Dow Jones Industrial Average
DJIA,
+0.98%
rose 1% Tuesday, while the Nasdaq Composite Index
COMP,
+1.58%
swept to a 1.6% gain. Banks and companies with heavy exposure to rate-sensitive assets, including property loans, have been under pressure since Silicon Valley Bank’s implosion. It drew attention to some $600 billion in paper losses at banks from their holdings of “safe” but low-coupon securities that have fallen in value in the year since the Federal Reserve began rapidly increasing interest rates to combat high inflation. Those older bonds end up worth less when investors have access to new securities with higher yields, with a similar low-risk profile in terms of credit risks. The failure of several regional banks in March, plus the sale of Credit Suisse
CS,
+2.46%
to rival bank UBS
UBS,
+11.97%
over the weekend, has reawakened fears of potentially broader problems in the banking system as central bank have increased rates and ended an era of easy money. Even so, stocks were rallying as the Federal Reserve at the conclusion of its 2-day policy meeting on Wednesday is expected to raise its policy rate by another 25 basis points.

See: The Fed will either pause or hike interest rates by 25 basis points. What are the pros and cons of each approach?

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March 21, 2023
Stocks making the biggest moves midday: Tesla, First Republic, KeyCorp, UBS and more

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Image taken with a drone) A Tesla collision center is seen in this aerial view in Orlando.

Paul Hennessy | Lightrocket | Getty Images

Check out the companies making headlines in midday trading Tuesday.

Tesla — Shares popped 5% after Moody’s upgraded Tesla to Baa3 rating from its junk-rated credit. Moody’s called the electric-vehicle maker the “foremost manufacturers of battery electric vehicles” and said the upgrade reflects Tesla’s prudent financial policy and management’s operational track record.

First Republic, KeyCorp, U.S. Bancorp — Regional bank stocks rebounded on Tuesday as Treasury Secretary Janet Yellen said the government would consider backstopping deposits at more banks in order to protect the financial system. Shares of First Republic jumped more than 41%, while KeyCorp added 9%. U.S. Bancorp rose nearly 8%.

JPMorgan, Bank of America — Shares of larger U.S. banks rose on Tuesday as investors showed increased optimism after Yellen’s remarks. JPMorgan gained about 3% and Bank of America rose by 3.5%.

Foot Locker — Foot Locker gained 6% after Citi upgraded the retail stock to a buy from neutral after its investor day on Monday. The firm said the company’s move away from malls and toward digital, kids and loyalty projects is a step in the right direction.

Harley-Davidson — Shares of Harley-Davidson rose more than 5% after Morgan Stanley upgraded the motorcycle maker and said its focus on its core business can lift the stock by more than 30%. Jefferies also upgraded the stock, saying the company’s risk and reward are more balanced after a recent decline.

UBS — U.S.-listed shares of the Swiss-based bank gained 12% during midday trading following its agreement over the weekend to buy Credit Suisse for $3.2 billion. Credit Suisse rose 5% after taking a nearly 53% plunge on Monday.

Roblox — Shares rose more than 3% after D.A. Davidson said the online game platform has an “underappreciated” opportunity in artificial intelligence.

Emerson Electric — Shares added nearly 2% after Morgan Stanley said shares of the multinational tech company are too attractive to ignore . The firm upgraded the stock to overweight from equal weight.

Exxon Mobil — The oil and gas giant’s stock price gained 3% after Morgan Stanley said it likes the company’s robust “competitive positioning.”

— CNBC’s Alex Harring, Jesse Pound, Tanaya Macheel and Michelle Fox Theobald contributed reporting.

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March 21, 2023
CNBC Daily Open: First Republic Bank is trying to save itself
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General view of First Republic Bank in Century City on March 17, 2023 in Century City, California.

AaronP/Bauer-Griffin | GC Images | Getty Images

This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

UBS’ planned takeover of Credit Suisse calmed the market slightly. Broader market conditions, however, still look unstable.

What you need to know today

U.S. markets staged a relief rally as all major indexes made minor gains Monday. Asia-Pacific markets rose on Tuesday too. South Korea’s Kospi added 0.42% as the country’s producer price index for February increased 4.8% year on year, a slight decline from the previous month.

Japan’s Prime Minister Fumio Kishida is on his way to Ukraine for a surprise visit to Ukraine’s President Volodymyr Zelenskyy, Japan’s Ministry of Foreign Affairs confirmed. Kishida’s unexpected trip overlaps with Chinese leader Xi Jinping’s official state visit to Ukraine’s nemesis, Russia and its leader Vladimir Putin.

The bottom line

The “Minsky moment,” named after the economist Hyman Minsky, is a sudden collapse of the market after a long period of aggressive speculation brought on by easy money. Markets might face a Minsky moment soon, warned Marko Kolanovic, JPMorgan Chase’s chief market strategist and co-head of global research.

Markets haven’t collapsed. Some bank stocks are in the doldrums, yes, but the SPDR S&P Regional Banking ETF, a fund of regional bank stocks, rose 1.11% on Monday. Major indexes were up yesterday too. The Dow Jones Industrial Average gained 1.2%, the S&P 500 added 0.89% and the Nasdaq Composite increased 0.39%.

But there are signs market instability is increasing. The banking crisis is causing regional banks — which account for around a third of all lending in the United States — to reduce their loans, said Eric Diton, president and managing director of The Wealth Alliance. In other words, the availability of money in the economy is slowing even without the Federal Reserve increasing interest rates.

Speaking of interest rates, analysts seem to think there’s no good path forward for the Fed. An interest rate hike “would be a mistake,” MKM Partners Chief Economist Michael Darda told CNBC. On the other hand, a pause would cause “panicked reactions by equity and bond investors,” according to Nationwide’s Mark Hackett. This suggests markets are already so jittery that whatever the Fed does — even if it’s nothing — it might cause instability to spread.

With that in mind, investors might want to heed Kolanovic’s warning that a Minsky moment could be on the horizon.

Subscribe here to get this report sent directly to your inbox each morning before markets open.
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March 20, 2023
Goldman’s Oppenheimer says stocks will stay ‘fat and flat’ — and reveals how to trade it

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March 20, 2023
UBS shares fall 5%, Credit Suisse craters 60% after takeover deal

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The logos of Swiss banks Credit Suisse and UBS on March 16, 2023 in Zurich, Switzerland.

Arnd Wiegmann | Getty Images News | Getty Images

Shares of Credit Suisse and UBS led losses on the pan-European Stoxx 600 index on Monday morning, shortly after the latter secured a 3 billion Swiss franc ($3.2 billion) “emergency rescue” of its embattled domestic rival.

Credit Suisse shares collapsed by 60% at around 11:20 a.m. London time (7:20 a.m. ET), while UBS traded 5% lower.

Europe’s banking index was down nearly 1.8% around the same time, with lenders including ING, Societe Generale and Barclays all falling over 2.7%.

The declines come shortly after UBS agreed to buy Credit Suisse as part of a cut-price deal in an effort to stem the risk of contagion to the global banking system.

Swiss authorities and regulators helped to facilitate the deal, announced Sunday, as Credit Suisse teetered on the brink.

The size of Credit Suisse was a concern for the banking system, as was its global footprint given its multiple international subsidiaries. The 167-year-old bank’s balance sheet is around twice the size of Lehman Brothers’ when it collapsed, at about 530 billion Swiss francs at the end of last year.

The combined bank will be a massive lender, with more than $5 trillion in total invested assets and “sustainable value opportunities,” UBS said in a release late Sunday.

The bank’s chairman, Colm Kelleher, said the acquisition was “attractive” for UBS shareholders but clarified that “as far as Credit Suisse is concerned, this is an emergency rescue.”

“We have structured a transaction which will preserve the value left in the business while limiting our downside exposure,” he added in a statement. “Acquiring Credit Suisse’s capabilities in wealth, asset management and Swiss universal banking will augment UBS’s strategy of growing its capital-light businesses.”

Neil Shearing, group chief economist at Capital Economics, said a complete takeover of Credit Suisse may have been the best way to end doubts about its viability as a business, but the “devil will be in the details” of the UBS buyout agreement.

“One issue is that the reported price of $3,25bn (CHF0.5 per share) equates to ~4% of book value, and about 10% of Credit Suisse’s market value at the start of the year,” he highlighted in a note Monday.

“This suggests that a substantial part of Credit Suisse’s $570bn assets may be either impaired or perceived as being at risk of becoming impaired. This could set in train renewed jitters about the health of banks.”

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March 20, 2023
Credit Suisse shares slump by two-thirds after UBS deal

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Credit Suisse shares dropped as much as 65% on Monday after the struggling Swiss bank agreed to be taken over by its rival UBS at a steep discount.

The decline in Credit Suisse’s shares
CSGN,
-54.25%

CS,
-52.61%
mostly reflected the 59% discount it agreed to take in the deal initially valued at 3 billion francs, but also reflected the slide in UBS shares
UBSG,
+4.21%

UBS,
+4.48%
after the transaction was announced.

UBS shares in the afternoon were trading 5% lower, as investors balanced the risks of absorbing Credit Suisse with the future profit potential. UBS expects the deal to lift earnings by 2027 and points out it would have some $5 trillion in invested assets.

The Euro Stoxx banks index
SX7E,
+0.97%,
which doesn’t include UBS or Credit Suisse, fell 1% in see-saw trade.

Among the worries that stem from the deal was that the Swiss government wrote down the value of what are called AT1 bonds to zero. These bonds, also called contingent convertible bonds or CoCos, have been a key funding source for European banks.

The Invesco AT1 capital bonds ETF dropped 14%.

“It has become harder to assess the attractiveness of the current historically large spread pick-up provided by AT1 bonds vs. their [high-yield] corporate counterparts, which will likely constrain the appetite towards the AT1 asset class,” said analysts at Goldman Sachs.

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March 20, 2023
Saudi National Bank loses over $1 billion on Credit Suisse investment

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Signage for Credit Suisse Group AG outside a building, which houses the company’s branch, in Tokyo, Japan, on Monday, March 20, 2023. UBS Group AG agreed to buy Credit Suisse Group in a historic, government-brokered deal aimed at containing a crisis of confidence that had started to spread across global financial markets.

Kosuke Okahara | Bloomberg | Getty Images

Saudi National Bank is nursing major losses in the wake of Credit Suisse’s failure after a deal was reached for UBS to buy the embattled Swiss lender for $3.2 billion.

Saudi National Bank — Credit Suisse’s largest shareholder — confirmed to CNBC Monday that it had suffered a loss of around 80% on its investment.

The Riyadh-based bank holds a roughly 10% stake in Credit Suisse, having invested 1.4 billion Swiss francs ($1.5 billion) in the Swiss lender in November of last year, at 3.82 Swiss francs per share.

Under the terms of the rescue deal, UBS is paying Credit Suisse shareholders 0.76 Swiss francs per share

The significant discount comes as regulators try to shore up the global banking system. The scramble for a rescue follows a tumultuous few weeks which saw the collapses of U.S.-based Silicon Valley Bank and First Republic bank as well as major stock price downturns across the banking sector internationally.

Shares of UBS, Switzerland’s largest bank, traded down 11% at 8:55 a.m., while Europe’s banking sector was around 2.8% lower.

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March 20, 2023
Looking only at interest rates leads to an ‘unduly optimistic’ view of markets, says Goldman Sachs

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Timothy Moe of the investment bank discusses the UBS deal to buy Credit Suisse and stresses the importance of looking at “the broader aspect of financial conditions.”

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March 19, 2023
Here’s why UBS’s deal to buy Credit Suisse matters to U.S. investors

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Thousands of miles away from U.S. shores last Wednesday, a headline began working its way across Europe, then Wall Street, sparking fresh panic as it dawned on investors that they may be facing yet another banking crisis.

Shares of Credit Suisse
CS,
-6.94%

CSGN,
-8.01%
would eventually sink 25% last week to a fresh record low, unable to find footing days after the head of top shareholder Saudi National Bank said they won’t invest any more in the bank. By Sunday, the struggling Swiss bank had a new owner, leaving investors to wonder if at least one chapter in a current roller coaster of global banking stress can be closed.

Swiss authorities steered rival UBS AG
UBS,
-5.50%
to an all-stock deal worth 3 billion francs ($3.25 billion), or 0.76 francs per share, a not-so-slight discount to the 1.86 franc close on Friday of Credit Suisse. So important was the agreement, it was announced by Switzerland’s President Alain Berset, with both banks and the chairman of the Swiss National Bank on either side of him.

“With the takeover of Credit Suisse by UBS, a solution has been found to secure financial stability and protect the Swiss economy in this exceptional situation,” the SNB said in a statement.

The Swiss National Bank said either Swiss bank can borrow up to 100 billion francs in a liquidity assistance loan, and Credit Suisse will get a liquidity assistance loan of up to 100 billion francs, backed by a federal default guarantee. The U.S. Federal Reserve had worked with its Swiss counterpart on the deal as well.

“We welcome the announcements by the Swiss authorities today to support financial stability. The capital and liquidity positions of the U.S. banking system are strong, and the U.S. financial system is resilient,” said a statement Sunday by Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell.

European Central Bank President Christine Lagarde also praised Swiss authorities for “restoring orderly market conditions and ensuring financial stability,” while reiterating the “resilience” of the euro-area banking sector. She said the ECB stands ready to provide liquidity if needed.

Her comment comes days after the the ECB pulled the trigger Thursday on a 50-basis-point rate hike, as it warned “inflation is projected to remain too high for too long.”

The deal for Credit Suisse comes in the wake of stress on the U.S. banking sector, triggered by the collapse of Silvergate Bank, Silicon Valley Bank and Signature Bank, all within the space of a week.

“Virtually everyone at this high-level Swiss press conference — government officials, regulator, central bank governor, and executives of the two banks — blamed the US banking sector turmoil for being the catalyst for the financial turmoil in #Switzerland,” tweeted Mohamed A. El-Erian, chief economic adviser at Allianz, of the press conference Sunday with Swiss authorities to announce the deal.

And for U.S. investors who have had quite enough anxiety lately, a logical question would be to ask if the deal that brings together the two Swiss banking giants will now remove one layer of stress from global markets, and hence Wall Street.

For that reason, many will be watching how Asian and U.S. equity futures trade later on Sunday, as well as Europe’s opening reaction on Monday.

The Credit Suisse news may only go so far to assuage investors, with some raising an eyebrow over Powell and Yellen’s Sunday statement about the Swiss deal. “Seriously, if everyone truly believed the ‘The capital and liquidity positions of the U.S. banking system are strong, and the U.S. financial system is resilient’ … Would they have to tell us? Are these words enough?” said Jim Bianco, president of Bianco Research, on Twitter. “Or do investors want to see Warren Buffett writing checks to regional banks in the next two hours (before Asia opens)?”

Fox News and other media outlets reported over the weekend that the Berkshire Hathaway
BRK.A,
-2.76%

BRK.B,
-2.81%
chairman and CEO had been talking to President Joe Biden’s administration in recent days over possible investments in the battered regional bank sector, and offering his advice.

The billionaire investor was responsible for a capital injection to Bank of America
BAC,
-3.97%
in 2011 as its shares tumbled due to subprime mortgages, as well as $5 billion to Goldman Sachs
GS,
-3.67%
amid the 2008 financial crisis.

Some had said ahead of the deal last week that global-market stability depended on the Swiss first getting their house in order.

“I don’t think there are any direct consequences for U.S. investors, but it’s extremely negative for sentiment if a major Swiss bank fails, hot on the heels of SVB/SBNY,” Simon Ree, the founder of Tao of Trading options academy school and author of the book by the same name, told MarketWatch last week.

“The market will be (temporarily) wondering who’s next. It could start to have the optics of a global banking crisis, rather than an idiosyncratic failure of a niche U.S. regional bank,” said Ree.

Credit Suisse’s troubles came amid a revamp and five straight money-losing quarters, following a painful legacy that included billions worth of exposure to the collapsed Archegos family office and $10 billion worth of funds tied to Greensil Capital it had to freeze.

Read: In its delayed annual report, Credit Suisse admitted to financial control weaknesses

“The SNB and the Swiss government are fully aware that the failure of Credit Suisse or even any losses by deposit holders would destroy Switzerland’s reputation as a financial center,” said Otavio Marenzi, CEO of Opimas, a management consulting firm focused on global capital markets, in a note to clients last week.

The bank’s plummeting stock price and soaring bond yields was “mimicking Silicon Valley Bank’s recent collapse in a frightening way. In terms of the outflow of deposits, Credit Suisse’s position looks even worse,” said Marenzi.

Over there?

As far as some are concerned, the market may have more stress ahead of it.

“The SVB failure highlights the potential for other skeletons to be hidden in closets and the market will spend the next few weeks/months hunting them out. Even just the extreme volatility we’ve seen on bond markets the last five days renders any attempt to ascribe a value to other asset classes redundant,” said Ree.

Plus: Here’s what’s really protecting your bank deposits

His view is shared by many analysts, who in part point to increasing uncertainty around how the Federal Reserve will react going forward as it tries to balance market and economic risks. Some now see full percentage rate cuts by year-end, amid banking stress.

Samantha LaDuc, the founder of LaDucTrading.com who specializes in timing major market inflections, said she stands by her advice (that she shared with MarketWatch in February) that investors are being “paid to wait,” by staying in cash.

Read: Looking for a place for your cash? Grab these 5% CDs while you still can.

“I have been literally recommending and tweeting to clients that we are PAID TO WAIT in T-bills at 5% until [the] bond market can figure out if we have recession or not. All that happened last week pulled forward recession risk,” she told MarketWatch.

Prior to the SVB crisis, she had been recommending clients short reflation trades, such as banks
XLF,
-3.22%

KRE,
-5.99%,
energy
XLE,
-1.57%
and metals and mining
XME,
-0.78%

COPX,
+0.63%

SLX,
-1.96%,
and has been saying she sees “unattractive risk-reward for either stocks or bonds.”

Opimas’ Marenzi said the threat to Wall Street from Credit Suisse was simple:

“You mean what do American investors who do not own any non-American stocks and do not own a passport and could not find Switzerland on a map and who think that anyone who speaks any language other than English is a bit weird have to worry about? Not a lot, other than the contagion spreading back into the US banking system and causing a meltdown,” he told MarketWatch.

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March 19, 2023
UBS buys Credit Suisse for $3.2 billion as regulators look to shore up the global banking system

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UBS agreed to buy its embattled rival Credit Suisse for 3 billion Swiss francs ($3.2 billion) Sunday, with Swiss regulators playing a key part in the deal as governments looked to stem a contagion threatening the global banking system.

“With the takeover of Credit Suisse by UBS, a solution has been found to secure financial stability and protect the Swiss economy in this exceptional situation,” read a statement from the Swiss National Bank, which noted the central bank worked with the Swiss government and the Swiss Financial Market Supervisory Authority to bring about the combination of the country’s two largest banks.

The terms of the deal will see Credit Suisse shareholders receive 1 UBS share for every 22.48 Credit Suisse shares they hold.

“This acquisition is attractive for UBS shareholders but, let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue. We have structured a transaction which will preserve the value left in the business while limiting our downside exposure,” said UBS Chairman Colm Kelleher in a statement.

The combined bank will have $5 trillion of invested assets, according to UBS.

“We are committed to making this deal a great success. There are no options in this,” Kelleher said when asked during the press conference if the bank could back out of the deal. “This is absolutely essential to the financial structure of Switzerland and … to global finance.”

The Swiss National Bank pledged a loan of up to 100 billion Swiss francs ($108 billion) to support the takeover. The Swiss government also granted a guarantee to assume losses up to 9 billion Swiss francs from certain assets over a preset threshold “in order to reduce any risks for UBS,” said a separate government statement.

“This is a commercial solution and not a bailout,” said Karin Keller-Sutter, the Swiss finance minister, in a press conference Sunday.

The UBS deal was scrambled together before markets reopened for trading Monday after Credit Suisse shares logged their worst weekly decline since the onset of the coronavirus pandemic. The losses came despite a new loan of up to 50 billion Swiss francs ($54 billion) granted from the Swiss central bank last week, in an effort to halt the slide and restore confidence in the bank.

News of the deal was welcomed by Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell in a statement. “The capital and liquidity positions of the U.S. banking system are strong, and the U.S. financial system is resilient. We have been in close contact with our international counterparts to support their implementation,” they said.

Credit Suisse had already been battling a string of losses and scandals, and in the last two weeks, sentiment was rocked again as banks in the U.S. reeled from the collapse of Silicon Valley Bank and Signature Bank.

U.S. regulators’ backstop of uninsured deposits in the failed banks and the creation of a new funding facility for troubled financial institutions failed to stem the shock and is threatening to envelop more banks both in the U.S. and abroad.

Credit Suisse Chairman Axel Lehmann said in the press conference that the financial instability brought about by the collapsed U.S. regional banks hit the bank at the wrong time.

Despite regulators’ involvement in the pairing, the deal gives UBS autonomy to run the acquired assets as it sees fit, which could mean significant job cuts, sources told CNBC’s David Faber.

Credit Suisse’s scale and potential impact on the global economy is much greater than U.S. regional banks, which pressured Swiss regulators to find a way to bring the country’s two largest financial institutions together. Credit Suisse’s balance sheet is around twice the size of Lehman Brothers’ when it collapsed, at around 530 billion Swiss francs as of the end of 2022. It is also far more globally interconnected, with multiple international subsidiaries — making an orderly management of Credit Suisse’s situation even more important.

Bringing the two rivals together was not without its struggles, but pressure to stave off a systemic crisis won out in the end. UBS initially offered to buy Credit Suisse for around $1 billion Sunday, according to multiple media reports. Credit Suisse reportedly balked at the offer, arguing it was too low and would hurt shareholders and employees, people with knowledge of the matter told Bloomberg.

By Sunday afternoon, UBS was in talks to buy the bank for “substantially” more than 1 billion Swiss francs, sources told CNBC’s Faber. He said the price of the deal increased throughout the day’s negotiations.

Credit Suisse lost around 38% of its deposits in the fourth quarter of 2022 and revealed in its delayed annual report early last week that outflows have still yet to reverse. It reported a full-year net loss of 7.3 billion Swiss francs for 2022 and expects a further “substantial” loss in 2023.

The bank had previously announced a massive strategic overhaul in a bid to address these chronic issues, with current CEO and Credit Suisse veteran Ulrich Koerner taking over in July.

—CNBC’s Elliot Smith contributed to this report.

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March 19, 2023
UBS to buy Credit Suisse for more than $3 billion in deal backed by Swiss government

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Struggling Swiss banking giant Credit Suisse has agreed to be bought by its arch-rival UBS at a discount to Friday’s close price, after seeing a wave of customer deposits exit the bank.

The deal was announced by Switzerland’s president, Alain Berset, flanked by executives from both banks and the chairman of the Swiss National Bank.

“With the takeover of Credit Suisse by UBS, a solution has been found to secure financial stability and protect the Swiss economy in this exceptional situation,” the SNB said in a statement.

UBS
UBS,
-5.50%
will buy Credit Suisse
CS,
-6.94%
for 3 billion francs ($3.25 billion), or 0.76 francs per share, in an all-stock deal, the bank announced.

That compares to Credit Suisse’s
CSGN,
-8.01%
closing price of 1.86 francs on Friday. The FT reported UBS initially bid just 0.25 francs per share.

UBS said it benefits from 25 billion francs of downside protection from the transaction to support marks, purchase price adjustments and restructuring costs, and additional 50% downside protection on non-core assets.

The deal does not need shareholder approval. The Swiss financial regulator said Credit Suisse’s AT1 securities, worth 16 billion francs, will be entirely written down.

Credit Suisse chairman Axel Lehmann (L) and UBS Chairman Colm Kelleher (R) look on prior to a press conference.

fabrice coffrini/Agence France-Presse/Getty Images

“This is a commercial solution and not a bailout,” said Karin Keller-Sutter, the Swiss finance minister. “Bankruptcy would have been the highest risk.”

The Swiss National Bank said either UBS or Credit Suisse can borrow up to 100 billion francs in a liquidity assistance loan, and Credit Suisse can also receive a liquidity assistance loan of up to 100 billion francs. backed by a federal default
guarantee.

The Federal Reserve has been working with its Swiss counterpart on the deal, as both banks have major operations in the U.S.

Keller-Sutter said she held talks with U.S. Treasury Secretary Janet Yellen and U.K. Chancellor Jeremy Hunt. Keller-Sutter said “many thousands” of Credit Suisse will be affected, pointing to job cuts ahead.

UBS said the combination of the two businesses is expected to generate annual run-rate of cost reductions of more than $8 billion by 2027. UBS Chairman Colm Kelleher said the investment bank will represent no more than 25% of risk-weighed assets.

Credit Suisse’s downfall occurred just days after the collapse of U.S. banks SVB Financial and Signature Bank. While Credit Suisse, as well as Swiss authorities, said they didn’t have the same kinds of problems, they also saw customers leave. After wealthy clients withdrew roughly $100 billion from Credit Suisse in the fourth quarter, they again began to see big outflows last week, the FT reported.

Credit Suisse has lost money for five consecutive quarters, reeling from losses to family office Archegos as well as having to freeze $10 billion of supply chain funds sold through the bank that were managed by Greensill Capital.

Also read: Saudis, Qataris and Norway to see big losses on UBS deal for Credit Suisse

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March 19, 2023
UBS offers to buy Credit Suisse for up to $1 billion, the Financial Times reports

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A customer walks towards an automated teller machine (ATM) inside a Credit Suisse Group AG bank branch in Geneva, Switzerland, on Thursday, Sept. 1, 2022.

Jose Cendon | Bloomberg | Getty Images

Swiss banking giant UBS on Sunday offered to buy its embattled rival Credit Suisse for up to $1 billion, according to the Financial Times, citing four people with direct knowledge of the situation.

The deal, which the FT said could be signed as early as Sunday evening, values Credit Suisse at around $7 billion less than its market value at Friday’s close.

related investing news

The FT said UBS had offered a price of 0.25 Swiss francs ($0.27) a share to be paid in UBS stock. Credit Suisse shares ended Friday at 1.86 Swiss francs. The fast-moving nature of the negotiations means the terms of any end deal could be different from those reported.

Credit Suisse is reportedly balking at the offer, however, arguing it is too low and would hurt shareholders and employees, people with knowledge of the matter told Bloomberg.

Credit Suisse declined to comment on the reports when contacted by CNBC.

The UBS offer comes after Credit Suisse shares logged their worst weekly decline since the onset of the coronavirus pandemic, despite an announcement that it would access a loan of up to 50 billion Swiss francs ($54 billion) from the Swiss central bank.

It had already been battling a string of losses and scandals, and last week sentiment was rocked again with the collapse of Silicon Valley Bank and the shuttering of Signature Bank in the U.S., sending shares sliding.

Credit Suisse’s scale and potential impact on the global economy is much greater than the U.S. banks. The Swiss bank’s balance sheet is around twice the size of Lehman Brothers when it collapsed, at around 530 billion Swiss francs as of end-2022. It is also far more globally inter-connected, with multiple international subsidiaries — making an orderly management of Credit Suisse’s situation even more important.

Credit Suisse lost around 38% of its deposits in the fourth quarter of 2022, and revealed in its delayed annual report early last week that outflows have still yet to reverse. It reported a full-year net loss of 7.3 billion Swiss francs for 2022 and expects a further “substantial” loss in 2023.

The bank had previously announced a massive strategic overhaul in a bid to address these chronic issues, with current CEO and Credit Suisse veteran Ulrich Koerner taking over in July.

This is a developing story. Please check back for updates.

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March 19, 2023
Crunch time for Credit Suisse talks as UBS seeks Swiss assurances

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Red pedestrian crossing signs outside a Credit Suisse Group AG bank branch in Basel, Switzerland, on Tuesday, Oct. 25, 2022.

Stefan Wermuth | Bloomberg | Getty Images

Talks over rescuing Credit Suisse rolled into Sunday as UBS sought $6 billion from the Swiss government to cover costs if it were to buy its struggling rival, a person with knowledge of the talks said.

Authorities are scrambling to resolve a crisis of confidence in the 167-year-old Credit Suisse, the mostly globally significant bank caught in the turmoil spurred by the collapse of U.S. lenders Silicon Valley Bank and Signature Bank over the past week.

While regulators want a resolution before markets reopen on Monday, one source cautioned the talks are encountering significant obstacles, and 10,000 jobs may have to be cut if the two banks combine.

The guarantees UBS is seeking would cover the cost of winding down parts of Credit Suisse and potential litigation charges, two people told Reuters.

Credit Suisse, UBS and the Swiss government declined to comment.

The frenzied weekend negotiations follow a brutal week for banking stocks and efforts in Europe and the U.S. to shore up the sector. U.S. President Joe Biden’s administration moved to backstop consumer deposits while the Swiss central bank lent billions to Credit Suisse to stabilise its shaky balance sheet.

UBS was under pressure from the Swiss authorities to take over its local rival to get the crisis under control, two people with knowledge of the matter said. The plan could see Credit Suisse’s Swiss business spun off.

This fund manager shorted Credit Suisse — and he’s sticking with his bet

Switzerland is preparing to use emergency measures to fast-track the deal, the Financial Times reported, citing two people familiar with the situation.

U.S. authorities are involved, working with their Swiss counterparts to help broker a deal, Bloomberg News reported, also citing those familiar with the matter.

Berkshire Hathaway‘s Warren Buffett has held discussions with senior Biden administration officials about the banking crisis, a source told Reuters.

The White House and U.S. Treasury declined to comment.

British finance minister Jeremy Hunt and Bank of England Governor Andrew Bailey are also in regular contact this weekend over the fate of Credit Suisse, a source familiar with the matter said. Spokespeople for the British Treasury and the Bank of England’s Prudential Regulation Authority, which oversees lenders, declined to comment.

Forceful response

Credit Suisse shares lost a quarter of their value in the last week. The bank was forced to tap $54 billion in central bank funding as it tries to recover from a string of scandals that have undermined the confidence of investors and clients.

It ranks among the world’s largest wealth managers and is considered one of 30 global systemically important banks – the failure of any would ripple throughout the entire financial system.

There were multiple reports of interest for Credit Suisse from other rivals. Bloomberg reported that Deutsche Bank was considering buying some of its assets, while U.S. financial giant BlackRock denied a report that it was participating in a rival bid for the bank.

Interest rate risk

The failure of California-based Silicon Valley Bank brought into focus how a relentless campaign of interest rate hikes by the U.S. Federal Reserve and other central banks – including the European Central Bank on Thursday – was pressuring the banking sector.

SVB and Signature’s collapses are largest bank failures in U.S. history behind the demise of Washington Mutual during the global financial crisis in 2008.

First Citizens BancShares is evaluating an offer for SVB and at least one other suitor is seriously considering an offer, Bloomberg News reported on Saturday.

Fail or sale? What could be next for stricken Credit Suisse

Banking stocks globally have been battered since SVB collapsed, with the S&P Banks index falling 22%, its largest two-week loss since the pandemic shook markets in March 2020.

Big U.S. banks threw a $30 billion lifeline to smaller lender First Republic. U.S. banks have sought a record $153 billion in emergency liquidity from the Federal Reserve in recent days.

The Mid-Size Bank Coalition of America asked regulators to extend federal insurance to all deposits for the next two years, Bloomberg News reported on Saturday, citing a letter from the coalition.

In Washington, focus has turned to greater oversight to ensure that banks and their executives are held accountable.

Biden called on Congress to give regulators greater power over the sector, including imposing higher fines, clawing back funds and barring officials from failed banks.

The swift and dramatic events may mean big banks get bigger, smaller banks may strain to keep up and more regional lenders may shut.

“People are actually moving their money around, all these banks are going to look fundamentally different in three months, six months,” said Keith Noreika, vice president of Patomak Global Partners and a Republican former U.S. comptroller of the currency.

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March 19, 2023
UBS reportedly seeks $6 billion in government guarantees for Credit Suisse takeover

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UBS reports its latest earnings

FABRICE COFFRINI | AFP | Getty Images

UBS is asking the Swiss government to cover about $6 billion in costs if it were to buy Credit Suisse, a person with knowledge of the talks said, as the two sides raced to hammer together a deal to restore confidence in the ailing Swiss bank.

The 167-year-old Credit Suisse is the biggest name ensnared in the turmoil unleashed by the collapse of U.S. lenders Silicon Valley Bank and Signature Bank over the past week, spurring a rout in banking stocks and prompting authorities to rush out extraordinary measures to keep banks afloat.

The $6 billion in government guarantees UBS is seeking would cover the cost of winding down parts of Credit Suisse and potential litigation charges, two people told Reuters.

One of the sources cautioned that the talks to resolve the crisis of confidence in Credit Suisse are encountering significant obstacles, and 10,000 jobs may have to be cut if the two banks combine.

Swiss regulators are racing to present a solution for Credit Suisse before markets reopen on Monday, but the complexities of combining two behemoths raises the prospect that talks will last well into Sunday, said the person, who asked to remain anonymous because of the sensitivity of the situation.

Credit Suisse, UBS and the Swiss government declined to comment.

The frenzied weekend negotiations come after a brutal week for banking stocks and efforts in Europe and the U.S. to shore up the sector. U.S. President Joe Biden’s administration moved to backstop consumer deposits while the Swiss central bank lent billions to Credit Suisse to stabilize its shaky balance sheet.

UBS was under pressure from the Swiss authorities to carry out a takeover of its local rival to get the crisis under control, two people with knowledge of the matter said. The plan could see Credit Suisse’s Swiss business spun off.

Switzerland is preparing to use emergency measures to fast-track the deal, the Financial Times reported, citing two people familiar with the situation.

U.S. authorities are involved, working with their Swiss counterparts to help broker a deal, Bloomberg News reported, also citing those familiar with the matter.

British finance minister Jeremy Hunt and Bank of England Governor Andrew Bailey are also in regular contact this weekend over the fate of Credit Suisse, a source familiar with the matter said. Spokespeople for the British Treasury and the Bank of England’s Prudential Regulation Authority, which oversees lenders, declined to comment.

Forceful response

Credit Suisse shares lost a quarter of their value in the last week. It was forced to tap $54 billion in central bank funding as it tries to recover from a string of scandals that have undermined the confidence of investors and clients.

The company ranks among the world’s largest wealth managers and is considered one of 30 global systemically important banks whose failure would ripple throughout the entire financial system.

The banking sector’s fundamentals are stronger and the global systemic linkages are weaker than during the 2008 global financial crisis, Goldman analyst Lotfi Karoui wrote in a late Friday note to clients. That limits the risk of a “potential vicious circle of counterparty credit losses,” Karoui said.

“However, a more forceful policy response is likely needed to bring some stability,” Karoui said. The bank said the lack of clarity on Credit Suisse’s future will pressure the broader European banking sector.

A senior official at China’s central bank said on Saturday that high interest rates in the major developed economies could continue to cause problems for the financial system.

There were multiple reports of interest for Credit Suisse from other rivals. Bloomberg reported that Deutsche Bank was looking at the possibility of buying some of its assets, while U.S. financial giant BlackRock denied a report that it was participating in a rival bid for the bank.

Interest rate risk

The failure of California-based Silicon Valley Bank brought into focus how a relentless campaign of interest rate hikes by the U.S. Federal Reserve and other central banks — including the European Central Bank this week — was pressuring the banking sector. SVB and Signature’s collapses are the second- and third-largest bank failures in U.S. history behind the demise of Washington Mutual during the global financial crisis in 2008.

Banking stocks globally have been battered since SVB collapsed, with the S&P Banks index falling 22%, its largest two weeks of losses since the pandemic shook markets in March 2020.

Big U.S. banks threw a $30 billion lifeline to smaller lender First Republic, and U.S. banks altogether have sought a record $153 billion in emergency liquidity from the Federal Reserve in recent days.

In Washington, focus has turned to greater oversight to ensure that banks and their executives are held accountable.

Biden called on Congress to give regulators greater power over the sector, including imposing higher fines, clawing back funds and barring officials from failed banks.

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March 18, 2023
Fail or sale? What could be next for stricken Credit Suisse

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People walk by the New York headquarters of Credit Suisse on March 15, 2023 in New York City.

Spencer Platt | Getty Images

Credit Suisse may have received a liquidity lifeline from the Swiss National Bank, but analysts are still assessing the embattled lender’s prognosis, weighing the option of a sale and whether it is indeed “too big to fail.”

Credit Suisse’s management began crunch talks this weekend to assess “strategic scenarios” for the bank, Reuters reported citing sources.

It comes after the Financial Times reported Friday that UBS is in talks to take over all or part of Credit Suisse, citing multiple people involved in the discussions. Neither bank commented on the report when contacted by CNBC.

According to the FT, the Swiss National Bank and Finma, its regulator, are behind the negotiations, which are aimed at boosting confidence in the Swiss banking sector. The bank’s U.S.-listed shares were around 7% higher in after-hours trading early Saturday.

Credit Suisse is undergoing a massive strategic overhaul aimed at restoring stability and profitability after a litany of losses and scandals, but markets and stakeholders still appear unconvinced.

Shares fell again on Friday to register their worst weekly decline since the onset of the coronavirus pandemic, failing to hold on to Thursday’s gains which followed an announcement that Credit Suisse would access a loan of up to 50 billion Swiss francs ($54 billion) from the central bank.

Possible UBS sale

There has long been chatter that parts — or all — of Credit Suisse could be acquired by domestic rival UBS, which boasts a market cap of around $60 billion to its struggling compatriot’s $7 billion.

Beat Wittmann, chairman and partner at Swiss advisory firm Porta Advisors, said he expects a merger to be announced before market open Monday.

“If negotiations this weekend won’t be successful then expect that CS will be under non stop fire from a falling equity price, soaring credit default swaps prices, bank counterparties cutting lines, client assets’ outflows and international regulators in New York, London and Frankfurt,” he warned.

“Key elements of a straightforward corporate financial transaction have to be to unwind and/or sell crucial parts of the investment bank and secure continuation of the Swiss bank’s business,” Wittmann added.

JPMorgan’s Kian Abouhossein described a takeover “as the more likely scenario, especially by UBS.”

In a note Thursday, he said a sale to UBS would likely lead to: The IPO or spinoff of Credit Suisse’s Swiss bank to avoid “too much concentration risk and market share control in the Swiss domestic market”; the closure of its investment bank; and retention of its wealth management and asset management divisions.

Both banks are reportedly opposed to the idea of a forced tie-up.

This fund manager shorted Credit Suisse — and he’s sticking with his bet

BlackRock, meanwhile, denied an FT report Saturday that it is preparing a takeover bid for Credit Suisse. “BlackRock is not participating in any plans to acquire all or any part of Credit Suisse, and has no interest in doing so,” a company spokesperson told CNBC Saturday morning.

Vincent Kaufmann, CEO of Ethos, a foundation that represents shareholders holding more than 3% of Credit Suisse stock, told CNBC that its preference was “still to have a spin-off and independent listing of the Swiss division of CS.”

“A merger would pose a very high systemic risk for Switzerland and also create a dangerous Monopoly for the Swiss citizens,” he added.

Bank of America strategists noted on Thursday, meanwhile, that Swiss authorities may prefer consolidation between Credit Suisse’s flagship domestic bank and a smaller regional partner, since any combination with UBS could create “too large a bank for the country.”

‘Orderly resolution’ needed

The pressure is on for the bank to reach an “orderly” solution to the crisis, be that a sale to UBS or another option.

Barry Norris, CEO of Argonaut Capital, which has a short position in Credit Suisse, stressed the importance of a smooth outcome.

“I think in Europe, the battleground is Credit Suisse, but if Credit Suisse has to unwind its balance sheet in a disorderly way, those problems are going to spread to other financial institutions in Europe and also beyond the banking sector, particularly I think into commercial property and private equity, which also look to me to be vulnerable to what’s going on in financial markets at the moment,” Norris told “Squawk Box Europe” Friday.

The importance of an “orderly resolution” was echoed by Andrew Kenningham, chief European economist at Capital Economics.

“As a Global Systemically Important Bank (or GSIB) it will have a resolution plan but these plans (or ‘living wills’) have not been put to the test since they were introduced during the Global Financial Crisis,” Kenningham said. “Experience suggests that a quick resolution can be achieved without triggering too much contagion provided that the authorities act decisively and senior debtors are protected.”

He added that while regulators are aware of this, as evidenced by the SNB and Swiss regulator FINMA stepping in on Wednesday, the risk of a “botched resolution” will worry markets until a long-term solution to the bank’s problems becomes clear.

Stock to zero?

Despite a possible UBS acquisition, Norris still expects Credit Suisse‘s stock to become worthless.

“Our view has been that the end game has always been UBS stepping in and rescuing Credit Suisse with the encouragement of the Swiss government/National Bank,” Norris told CNBC Pro Saturday.

“If this happens we would expect [Credit Suisse] equity holders to get zero, deposit holders guaranteed and probably but not certain that bond holders will be made whole.”

European banking shares have suffered steep declines throughout the latest Credit Suisse saga, highlighting market concerns about the contagion effect given the sheer scale of the 167-year-old institution.

The sector was rocked at the beginning of the week by the collapse of Silicon Valley Bank, the largest banking failure since Lehman Brothers, along with the shuttering of New York-based Signature Bank.

Yet in terms of scale and potential impact on the global economy, these companies pale in comparison to Credit Suisse, whose balance sheet is around twice the size of Lehman Brothers when it collapsed, at around 530 billion Swiss francs as of end-2022. It is also far more globally inter-connected, with multiple international subsidiaries.

For Wittmann, the demise of Credit Suisse has been “entirely self-inflicted by years of mismanagement and an epic destruction of corporate and shareholder value.”

“Broader lessons learnt will have to include minimization of investment banking, higher capital requirements, securing alignment of interest re compensation and importantly that the structurally under-resourced Swiss regulator FINMA would be brought up to fulfill its task,” he said.

Central banks to provide liquidity

The biggest question economists and traders are wrestling with is whether Credit Suisse’s situation poses a systemic risk to the global banking system.

Oxford Economics said in a note Friday that it was not incorporating a financial crisis into its baseline scenario, since that would require systemic problematic credit or liquidity issues. At the moment, the forecaster sees the problems at Credit Suisse and SVB as “a collection of different idiosyncratic issues.”

“The only generalised problem that we can infer at this stage is that banks – who have all been required to hold large amounts of sovereign debt against their flighty deposits – may be sitting on unrealised losses on those high-quality bonds as yields have risen,” said Lead Economist Adam Slater.

“We know that for most banks, including Credit Suisse, that exposure to higher yields has largely been hedged. Therefore, it is difficult to see a systemic problem unless driven by some other factor of which we are not yet aware.”

Despite this, Slater noted that “fear itself” can trigger depositor flights, which is why it will be crucial for central banks to provide liquidity.

The U.S. Federal Reserve moved quickly to establish a new facility and protect depositors in the wake of the SVB collapse, while the Swiss National Bank has signaled that it will continue to support Credit Suisse, with proactive engagement also coming from the European Central Bank and the Bank of England.

“So, the most likely scenario is that central banks remain vigilant and provide liquidity to help the banking sector through this episode. That would mean a gradual easing of tensions as in the LDI pension episode in the U.K. late last year,” Slater suggested.

Kenningham, however, argued that while Credit Suisse was widely seen as the weak link among Europe’s big banks, it is not the only one to struggle with weak profitability in recent years.

“Moreover, this is the third ‘one-off’ problem in a few months, following the UK’s gilt market crisis in September and the US regional bank failures last week, so it would be foolish to assume there will be no other problems coming down the road,” he concluded.

— CNBC’s Katrina Bishop, Leonie Kidd and Darla Mercado contributed to this report.

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March 18, 2023
BlackRock denies report that it’s preparing a takeover bid for Credit Suisse

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BlackRock headquarters in New York, US, on Friday, Jan. 13, 2023. via Getty Images

Michael Nagle | Bloomberg | Getty Images

BlackRock has denied a report that it is preparing a takeover bid for embattled Swiss lender Credit Suisse.

“BlackRock is not participating in any plans to acquire all or any part of Credit Suisse, and has no interest in doing so,” a company spokesperson told CNBC Saturday morning.

It comes after the Financial Times reported that the U.S. asset manager was working on a bid to acquire the bank, citing people familiar with the situation.

UBS has also been suggested as a potential buyer, with the FT reporting Friday that it is in talks to take over all or part of Credit Suisse. UBS hasn’t commented on the report.

Credit Suisse’s future looks to be hanging in the balance after a multibillion-dollar lifeline offered by the Swiss central bank last week failed to calm investors.

Credit Suisse’s shares registered their worst weekly decline since the onset of the coronavirus pandemic last week, and are down almost 35% over the month to date.

The latest slide in stock price came after the Saudi National Bank revealed it would not provide the bank with any more cash, and follows a delay of its annual results over financial reporting concerns.

The failure of Silicon Valley Bank — the largest U.S. banking failure since Lehman Brothers — and the shuttering of New York-based Signature Bank compounded nervousness around the global banking sector.

Credit Suisse was already in the midst of a massive strategic overhaul aimed at restoring stability and profitability. It has faced various scandals and controversies over recent years, including the fallout from its involvement with the collapsed supply chain finance firm, Greensill Capital, which led to $1.7 billion in losses.

The default at hedge fund Archegos Capital not long after led to another $5.5 billion loss for the Swiss investment bank.

These — and other controversies — hit investor and customer confidence hard, with the bank losing billions of dollars in deposits as a result.

— CNBC’s Ganesh Rao and Elliot Smith contributed to this report.

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March 18, 2023