UBS Group (SIX:UBSG) has entered into a $3 billion acquisition deal with Credit Suisse (SIX:CSGN) after suffering from a catastrophic loss of deposits over the weekend. Credit Suisse is the largest bank to fail in the last decade. Regulators FINMA, despite allowing shareholders to receive some compensation, have wiped out some $17 billion in junior debt, called Additional Tier-1 (AT1) bonds. This has angered AT1 debt holders across Europe, leading to a sharp decline in bank stocks.
The acquisition has been brokered by Swiss authorities and has not received approval from Credit Suisse shareholders. This move has allowed the acquisition to bypass Swiss law, which could lead to legal challenges.
Central Banks have agreed to revive the mutual swap lines to prevent further financial contagion. European Central Bank (ECB) President Christine Lagarde is expected to address the EU Parliament and disclose the strength of Eurozone banks, which are facing the most significant test of their soundness since the euro crisis a decade ago. The ECB and other European supervisory agencies issued a statement welcoming the resolution of Credit Suisse and emphasized that AT1 would be senior to equity in any bank resolution in the Eurozone.
Meanwhile, the Federal Deposit Insurance Corp. (FDIC) has agreed to sell most of Signature Bank, one of the three U.S. institutions to collapse this month, to Flagstar, the owner of New York Community Bank. Regional bank stocks remain front and center amid concerns about the fate of First Republic.
US stock markets are set to open mixed as the rapidly unfolding situation in the banking sector affects the confidence of the rest of the market. The Nasdaq Composite has risen 4.6% on perceptions that the Federal Reserve will be forced to cut interest rates to stem the growing sense of crisis.
