NNA - Bank stocks slumped on Monday (Mar 20) as investors reeled from the historic takeover of Credit Suisse that will wipe out a class of bondholders, adding to this month’s US$1 trillion plunge in global financial shares.
Under the terms of UBS Group’s acquisition of Credit Suisse, holders of securities known as additional tier 1 bonds will be wiped out, potentially sending the US$275 billion market for bank funding into a tailspin. UBS shares fell 7.2 per cent while Credit Suisse plunged 60 per cent.
That’s raising concern that banks will need to find new sources of capital if there’s a loss of confidence in those securities, while lenders’ existing holdings of such debt issued by peers also may see a significant loss of value. More broadly, the takeover of the 166-year-old Swiss lender is only adding to investor jitters following the failures of Silicon Valley Bank and Signature Bank in the US this month.
The Stoxx Europe 600 Banks Index slipped 1.6 per cent at 11.10 am in Paris, paring a loss of 6 per cent. ING Groep and Société Générale dropped the most, while US banks fell in premarket trading. AT1 bonds issued by several European banks fell by more than 10 percentage points. A fund that invests in the securities, Invesco AT1 Capital Bond UCITS ETF, plunged 18 per cent in London.
“You’ve got a nasty deal with a long and uncertain execution,” said Mikael Jacoby, head of continental European sales trading at Oddo Securities in Paris. “In the banking sector, maybe some bottom fishers will buy stocks deemed as safe but globally it will be negative.”
Of the 44 stocks in the Stoxx 600 bank index, 41 fell, with ING declining 4.5 per cent and SocGen sinking 3.4 per cent.
In Hong Kong, HSBC Holdings tumbled 6.2 per cent, the most since September 2022, and Standard Chartered slumped 6 per cent. The index has lost more than US$213 billion in market value this month, while a broader MSCI gauge of world financial stocks has tumbled by US$1 trillion through Friday.
Wall Street lenders pared their losses late in the European morning. JPMorgan and Wells Fargo each declined 0.7 per cent while Bank of America and Citigroup were unchanged. First Republic Bank, which got a US$30 billion rescue last week, plunged 15 per cent after losing a third of its value on Friday.
“What is certain is that there will be ripple effect from the Credit Suisse deal to the bond and equity market and we don’t know yet how much exposure international and regional banks have,” said Dickie Wong, director of research at Kingston Securities.
Banks were the best performers in European stocks from late September through the end of February, as rising interest rates in a still-growing economy bolstered the profitability of lending. Sentiment started turning sour on March 9 as Silicon Valley Bank collapsed, followed by the meltdown in shares of Credit Suisse last week.
The Stoxx 600 banks index has slumped 18 per cent since it closed at a five-year high on Feb 28. --BLOOMBERG
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