UBS examining takeover of Credit Suisse

UBS AG was examining on Saturday a takeover of embattled lender Credit Suisse that could see the Swiss government offer a guarantee against the risks involved.

The 167-year-old Credit Suisse is the biggest name ensnared in the market turmoil unleashed by the collapse of US lenders Silicon Valley Bank and Signature Bank over the past week, and its slide has fanned fears of broader banking problems.

To get the crisis under control, UBS was coming under pressure from the Swiss authorities to carry out a takeover, Reuters' sources said. Under the plan, Credit Suisse's Swiss business could be spun off, they added.

Credit Suisse Chief Financial Officer Dixit Joshi and his teams were meeting over the weekend to assess their options for the bank, people with knowledge of the matter said.

The bank's share price swung wildly this week, during which it was forced to tap US$54 billion in central bank funding, and Credit Suisse had lost a quarter of its market value by Friday night.

The mood in Switzerland, long considered an icon for banking stability, was pensive as executives wrestled with the future of the country's biggest lenders.

"Banks in permanent stress" read the front page headline of the Neue Zuercher Zeitung newspaper on Saturday morning.

Credit Suisse ranks among the world's largest wealth managers and is considered one of 30 global systemically important banks whose failure would cause ripples throughout the entire financial system.

In a sign of its vulnerability, at least four of Credit Suisse's major rivals, including Societe Generale SA and Deutsche Bank AG, have put restrictions on their trades involving the Swiss bank or its securities.

Goldman Sachs cut its recommendation on exposure to European bank debt, saying a lack of clarity on Credit Suisse's future would put pressure on the broader sector in the region.

Although the banking system was more robust than it was at the time of the financial crisis in 2008, a more forceful policy response is likely needed to bring some stability, Goldman analyst Lotfi Karoui wrote in a note to clients.

Already this week, big US banks provided a US$30 billion lifeline for smaller lender First Republic while US banks altogether have sought a record US$153 billion in emergency liquidity from the Federal Reserve in recent days.

This reflected funding and liquidity strains on banks, driven by weakening depositor confidence, said ratings agency Moody's, which this week downgraded its outlook on the US banking system to negative.

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

US President Joe 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.

Some Democratic lawmakers asked regulators and the Justice Department to probe the role of Goldman Sachs in SVB's collapse, said the office of Representative Adam Schiff.

Banking stocks globally have been battered since Silicon Valley Bank collapsed, raising questions about other weaknesses in the financial system.

US regional bank shares fell sharply on Friday and the S&P Banks index posted its worst two-week calendar loss since the pandemic shook markets in March 2020, slumping 21.5%.

First Republic Bank ended Friday down 32.8%, bringing its loss over the last 10 sessions to more than 80%.

While support from some of the biggest names in US banking prevented First Republic's collapse this week, investors were startled by disclosures on its cash position and how much emergency liquidity it needed.

The failure of SVB, meanwhile, brought into focus how a relentless campaign of interest rate hikes by the US Federal Reserve and other central banks, including the European Central Bank this week, was putting pressure on the banking sector.

Many analysts and regulators have said SVB's downfall was due to its specialized, tech-focused business model, while the wider banking system was much more robust thanks to reforms adopted in the years after the global financial crisis.

But 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.

 

Credit Suisse secures US$54 billion to prevent global bank crisis

Credit Suisse on Thursday said it would borrow up to US$54 billion from the Swiss central bank to shore up its liquidity and investor confidence after a slump in its shares intensified fears about a global financial crisis.

The Swiss bank's announcement helped stem heavy selling in financial markets in Asian morning trade on Thursday, following torrid sessions in Europe and the United States overnight as investors fretted about a run on global bank deposits.

In its statement early Thursday, Credit Suisse said it would exercise its option to borrow from the Swiss National Bank up to 50 billion Swiss francs (US$54 billion). That followed assurances from authorities in the private banking hub on Wednesday that Credit Suisse met the capital and liquidity requirements imposed on systemically important banks and that it could access central bank liquidity if needed.

Credit Suisse is the first major global bank to be given such a lifeline since the 2008 financial crisis - though central banks have extended liquidity more generally to banks during times of market stress including the coronavirus pandemic.

Asian stocks were hit by Wall Street's tumble on Thursday and investors bought gold, bonds and the dollar. While the bank's announcement helped trim some of those losses, trade was volatile and sentiment fragile.

"It does help. It removes an immediate risk. But it confronts us with another choice. The more we do this, the more we blunt monetary policy, the more we have to live with higher inflation -- and what is it going to be?" said Damien Boey, Chief Equity Strategist at Barrenjoey in Sydney.

"Do bailouts make things better? On the one hand, you are removing a source of risk to the markets which is a clear and present danger. On the other hand we are feeding into this paradigm of monetary policy bucking within itself."

The Swiss bank's problems have shifted the focus for investors and regulators from the United States to Europe, where Credit Suisse led a selloff in bank shares after its largest investor said it could not provide more financial assistance because of regulatory constraints.

The concerns about Credit Suisse added to broader banking sector fears sparked by last week's collapse of Silicon Valley Bank and Signature Bank, two US mid-size firms.

Credit Suisse's borrowing will be made under the covered loan facility and a short-term liquidity facility, fully collateralized by high quality assets. It also announced offers for senior debt securities for cash of up to 3 billion francs.

"This additional liquidity would support Credit Suisse’s core businesses and clients as Credit Suisse takes the necessary steps to create a simpler and more focused bank built around client needs," the bank said.

Investor focus is also on any action by central banks and other regulators elsewhere to restore confidence in the banking system as well as any exposure businesses may have to Credit Suisse.

SVB's demise last week, followed by that of Signature Bank two days later, sent global bank stocks on a roller-coaster ride this week, with investors discounting  assurances from US President Joe Biden and emergency steps giving banks access to more funding.

FINMA and the Swiss central bank said there were no indications of a direct risk of contagion for Swiss institutions from US banking market turmoil.

On Wednesday, Credit Suisse shares led a 7% fall in the European banking index, while five-year credit default swaps (CADS) for the flagship Swiss bank hit a new record high.

The investor exit for the doors prompted fears of a broader threat to the financial system, and two supervisory sources told Reuters that the European Central Bank had contacted banks on its watch to quiz them about their exposures to Credit Suisse.

The US Treasury also said it is monitoring the situation around Credit Suisse and is in touch with global counterparts, a Treasury spokesperson said.

Rapid rises in interest rates have made it harder for some businesses to pay back or service loans, increasing the chances of losses for lenders who are also worried about a recession.

Traders are now betting that the Federal Reserve, which just last week was expected to accelerate its interest-rate-hike campaign in the face of persistent inflation, may be forced to hit pause and even reverse course.

Bets on a large European Central Bank interest-rate hike at Thursday's meeting also evaporated quickly as the Credit Suisse rout fanned fears about the health of Europe's banking sector. Money market pricing suggested traders now saw less than a 20% chance of a 50 basis point rate hike at the ECB meeting.

Unease sparked by SVP's demise has also prompted depositors to seek out new homes for their cash.

Ralph Hammers, CEO of Credit Suisse rival UBS said market turmoil has steered more money its way and Deutsche Bank CEO Christian Sewing said that the German lender has also seen incoming deposits.

 

 

 

Deutsche Bank not withdrawing completely from Russia

Deutsche Bank said it was not withdrawing completely from Russia, drawing anger from investors and contrasting with Wall Street banks which are severing ties with the country over its invasion of Ukraine. Banks and asset managers have joined many other Western companies in pulling back from Russia following a raft of sanctions on the country.

"We are often asked why we are not withdrawing completely from Russia. The answer is that this would go against our values," Chief Executive Christian Sewing said in a note to Deutsche Bank staff on Thursday.

He added that it would not be the right thing to do in terms of managing those client relationships and helping them to manage their situation.

Bill Browder, an investor campaigning to expose corruption, said that by staying in Russia, Germany's biggest bank is completely at odds with the international business community and will create backlash, lost reputation and business in the West.

Russian forces bearing down on Kyiv were regrouping northwest of the Ukrainian capital, satellite pictures showed on Friday, and Britain said Moscow could now be planning an assault on the city within days.

Tim Ash, senior emerging market sovereign strategist at BlueBay Asset Management, said it was "just not good enough from Deutsche Bank ".

"Perhaps Deutsche Bank needs to take a fresh look at its own ESG (environmental, social, governance) framework," he said.

Fund managers are reassessing their approach to governance as a result of the invasion.

Goldman Sachs Group and JPMorgan Chase this week became the first US banks to suspend business in Russia.

Goldman Sachs, which has a credit exposure to Russia of US$650 million, said on Thursday it was winding down its business there. Any losses would be immaterial, according to a source familiar with the situation.

JPMorgan also said it was actively unwinding Russian business and was not pursuing any new business there.

JPMorgan has about 160 staff in Moscow. The bank did not list Russia in the top 20 countries where it has the most exposure, in its most recent filings.

The world's biggest insurance brokers Marsh and Aon also said on Thursday they were halting operations in Russia.

Deutsche Bank said earlier this week its credit risk exposure to Russia and Ukraine was US$3.18 billion and that it had reduced its Russia exposure further over the past two weeks.

Credit Suisse, Italy's UniCredit and France's BNP Paribas have also disclosed billions of euros worth of Russia risk.

"Most European banks are applying the strictest sanctions and even going further, trying to do what is right and what needs to be done," Ana Botin, President of the European Banking Federation and Executive Chairman of Santander, said in an interview with Spain's El Mundo newspaper published on Friday.

While the potential losses among major European lenders are not big enough to threaten their stability, analysts and investors fear it could derail their turnaround plans and halt payouts to shareholders.

European banking stocks have had a reprieve this week, clawing back some of their sharp losses made since the invasion