Choppy trading in markets on Monday, with stocks swinging between losses and gains, suggested measures taken to shore up the global financial system failed to calm investors’ nerves over the weekend.
Authorities in Switzerland on Sunday ordered a hasty takeover of Credit Suisse by UBS. Major central banks also scrambled to make dollar-denominated funding more readily available, and federal regulators announced a takeover of parts of the collapsed Signature Bank in New York.
Stock futures for the S&P 500, which give investors a chance to bet on the index ahead of trading, edged up after posting losses in early trading. Banks took center stage again, with wild swings in their fortunes.
First Republic Bank, which has been the subject of a bailout attempt by larger rivals who injected billions into the San Francisco-based institution, saw another sharp decline in premarket trading. Its shares have fallen more than 80 percent this month, destroying tens of billions of dollars in market value and threatening its future as an independent bank. First Republic’s credit rating was downgraded by S&P Global on Sunday for the second time in less than a week.
Other regional banks, which have faltered after the collapses of Silicon Valley Bank and Signature Bank that spooked depositors across the banking system, are likely to fare better in early trade. PacWest and Western Alliance shares are up double-digit percentages in premarket trading.
In Europe, the takeover of Credit Suisse by UBS, Switzerland’s largest bank, should calm growing markets concerns about the health of the financial sector and save Credit Suisse from the abyss of disorderly bankruptcy. UBS shares fell about 4 percent in Zurich trading, while an index that tracks Europe’s largest banks fell about 1 percent.
“The worst has been averted, but with cooler heads reigning, the question is whether UBS just got Credit Suisse very cheaply or if the banking system as a whole is very overvalued,” said Peter Tchir, global market strategist at Academy Securities.
In Asia, markets ended lower, with Tokyo’s Nikkei 225 down more than 1 percent and Hong Kong’s Hang Seng down more than 2 percent.
Banking turmoil continued to weigh on oil prices, reflecting concerns that problems in the sector could dampen economic growth. Brent crude, the international benchmark, fell to nearly $70 a gallon, its lowest level since late 2021, before rebounding and trading slightly lower. West Texas Intermediate Oil briefly slipped to just over $64 a gallon, also its lowest level in more than a year.
Bitcoin has moved in the other direction, hitting a nine-month high. The cryptocurrency is up about 40 percent over the past 10 days.
UBS’s $3.2 billion acquisition of Credit Suisse, a hefty discount to the bank’s market value, was announced by the Swiss Financial Market Supervisory Authority on Sunday. The country’s central bank, the Swiss National Bank, will loan UBS up to 100 billion Swiss francs ($108 billion) to help it complete the acquisition.
The deal ended long-standing doubts about the health of Credit Suisse fueled by the recent collapse of Silicon Valley Bank, based in Santa Clara, California.
Shortly after Credit Suisse’s UBS acquisition was announced, the Federal Reserve and five other central banks, including the Swiss National Bank, unveiled coordinated action to ensure dollars remained available for short-term borrowing across the global financial system. The facility’s modest reception on Monday indicated there was no acute need for dollars.
Separately, the Federal Deposit Insurance Corporation announced Sunday night that it had entered into an agreement to sell the 40 former branches of Signature Bank, which was acquired by US regulators on March 12, to New York Community Bancorp.
The FDIC said Monday it would extend the bidding process for potential Silicon Valley bank buyers until Wednesday. That would give applicants more time to “explore all options to maximize value and achieve an optimal outcome,” the agency said, which could include partial offers for different units of the bank and portions of its asset portfolio.
Investors said they expected the deal with Credit Suisse to create turmoil in bond markets because it wiped out a group of the bank’s bondholders. Investors who own stock in a company are typically the last to be paid when a company goes obliterated. But in this case, under the terms of the transaction, Credit Suisse stockholders received one UBS share for every 22.48 shares they owned.
The Credit Suisse bonds that have become worthless were a special form of risky bank debt, so-called AT1 bonds, which are intended to absorb losses in times of stress. On Monday, banking regulators in the European Union, of which Switzerland is not a member, issued a statement reiterating that shareholders in their jurisdiction bear losses at banks before bondholders.
A London-traded fund that tracks the performance of AT1 bonds fell sharply in trading on Monday.
The crisis in the banking sector lingers ahead of a crucial Federal Reserve meeting on Wednesday. Many economists expect Fed policymakers to hike rates by a quarter point, but market prices suggest traders are evenly divided on whether the central bank will hike rates and continue to turn the tide on an economy which is already showing signs of a one-year slide. Rapid rate increases, or leave it unchanged. That’s a notable turnaround from a few weeks ago, when traders assessed a high probability of a half-point hike by the Fed.
“Economists often underestimate the viciousness of market movements,” wrote Berenberg Bank’s Holger Schmieding in a research note on Monday. “When fear breeds fear, markets can fall harder and longer than fundamentals can justify.”
Jason Karaian and Kevin Granville contributed coverage.
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