Europe markets firm after emergency UBS Credit Suisse purchase

LONDON (ICIS)–European markets firmed on Monday after Switzerland-based banking group UBS announced plans to acquire embattled rival Credit Suisse, raising market hopes that banking sector contagion may be limited.

Credit Suisse’ 167-year history ended on Sunday when the deal, characterised as an acquisition by UBS and a merger by Credit Suisse, was announced, with the bank to change hands for Swiss francs (Swfr) 3bn ($3.2bn), a fraction of its market cap.

The hastily-brokered deal came after recent banking sector turmoil prompted regulators to” [urge] UBS to consider a takeover of Credit Suisse to preserve global financial stability”, according to UBS chairman Colm Kelleher.

“It is a historic day in Switzerland and a day frankly we hoped would not come,” Kelleher said in press and investor call late on Sunday.

While not directly related to the collapse of Silicon Valley Bank in the US, that crisis led a dip in banking share valuations that prompted closer scrutiny of Credit Suisse’ financial exposure.

The Switzerland government exercised its powers to move the deal through as quickly as possible without the need for UBS shareholder approval, with the Swiss National Bank pledging liquidity assistance of up to Swfr100bn for both banks.

With a deal close expected in the second quarter of 2023, UBS expects the merger to be financially accretive by 2027, according to CEO Ralph Hamers.

“It’s an outcome that we may not have hoped for but the transaction is strategic,” Hamers said.

The bank intends to “downsize and de-risk” Credit Suisse’ trading division, and house the operations in a non-core division of UBS, he added

After a substantial dip in early trading that saw some key European stock indices fall by multiple percentage points,  and bourses closing down across Asia, markets were trading mutedly positive as of 11:30 GMT on Monday, amid hopes that the deal may limit sector contagion.

Emergency dollar lending facilities set up by central banks across the globe over the weekend to aid liquidity saw few takers, with the Bank of England reporting no drawdowns and the European Central Bank reporting a total of $5m, hinting that panic is being contained for now.

The UK’s FTSE 100 index, Germanys DAX and France’s CAC 40 were trading up 0.25%, 0.59% and 0.77% from Friday’s close as 11:30 GMT.

European chemicals stocks were also trading up, with the STOXX 600 chemicals index firming 1.26% in early trading, with the largest risers including Hexpol, Air Liquide and Symrise, with share prices all firming over 2%.

OCI, K+S and Linde were the biggest losers on Monday morning, with stock down 3.4%, 2.21% and 2.7%.

The banking sector shock has had a stronger impact on commodity pricing, with crude trading at a 15-month low on Monday amid a wider dip, and energy prices also sinking.

Focus article by Tom Brown

Pictured: The exterior of UBS’ London office on 20 March 2023 (Source: Vuk Valcic/ZUMA Press Wire/Shutterstock)