European Markets Recover After Joint Actions by Six Central Banks Following Credit Suisse Rescue

Bridgette Randall
20 Mar, 2023
Frankfurt

European markets opened lower but turned higher after major central banks announced more liquidity measures following the Credit Suisse rescue by the Swiss authorities. 

On Sunday, after days of negotiations, Switzerland National Bank and Swiss regulators announced a few details of Credit Suisse rescue.  

The shotgun wedding between UBS, the largest Swiss bank and Credit Suisse, the second-largest Swiss bank, calmed financial markets for now.  

The Federal Reserve Bank, the European Central Bank, the Swiss National Bank, the Bank of England, the Bank of Canada and the Bank of Japan announced coordinated measures to increase U.S. dollar liquidity to prevent the fallout from Credit Suisse's in global financial markets.    

Market sentiment was further strengthened after the European Central Bank president Christine Lagarde assured investors in a speech on Monday that the Euro Area banks have more than adequate capital and liquidity needed. 

"The euro area banking sector is resilient, with strong capital and liquidity positions," added Lagarde in a speech to the European Parliament on Monday.  

 

Switzerland Government Forced UBS-Credit Suisse Merger 

Credit Suisse Group AG plunged 52% to 96 cents in New York trading after the troubled Swiss bank agreed to be acquired by the rival UBS. 

In a deal negotiated by the Swiss regulators and the Swiss National Bank, UBS agreed to pay 50 Swiss cents per share or $3.25 billion, significantly less than the expected price for shareholders. 

The Swiss National Bank agreed to provide up to 100 billion Swiss francs in liquidity and the Swiss government will offer a loss guarantee of up to 9 billion Swiss francs but UBS will be responsible for the first 5 billion Swiss francs of potential losses. 

Total assets held by Credit Suisse had declined to $70 billion just before the announcement of the transaction, indicating that a substantial part of the assets may be impaired or is expected to be impaired. 

The deal orchestrated by the Swiss regulators and the central bank will pay stockholders but will write down $17 billion of AT1 bondholders, upending the traditional capital structure in the global banking industry. 

UBS Group AG increased 4% to $18.95 in New York and advanced 1.3% to 17.33 Swiss francs.  

 

Indexes & Yields 

The DAX index increased 1.1% to 14,933.38, the CAC-40 index added 1.3% to 7,013.14 and the FTSE 100 index advanced 1% to 7,403.85. 

The Swiss Market Index increased 0.3% to 10,643.64 after reversing the loss of 1.9% in the first twenty minutes of trading.  

The yield on 10-year German Bunds decreased to 2.21%, French bonds fell to 2.66%, the UK gilts to 3.30% and Italian bonds to 3.97%. 

The euro inched higher to $1.07, the British pound to $1.22 and the Swiss franc to 92.90 cents. 

Brent crude oil increased 88 cents to $73.84 a barrel and the Dutch TTF natural gas price fell 3.52 to 39.33 per MWh. 

 

German Wholesale Inflation Eased After Energy Prices Declined 

Germany's producer price index, a measure of wholesale inflation, declined for the fifth month in a row and approached the lowest level in eighteen months, the latest data from the Federal Statistics Office or Destatis showed today. 

The producer price index increased 15.8% from a year ago in February, slower than the 17.6% rise in January. 

The latest increase in prices was the smallest since September when prices rose 14.2%. 

 

Euro Area Good Trade Deficit Slightly Widened In January  

The Euro Area international goods trade deficit slightly widened in January, the latest data from the Eurostat showed Monday. 

The international good trade deficit increased to Є30.6 billion in January from Є30.2 billion a year ago. 

Imports increased 9.7% to €253.5 billion from €231.1 billion and exports advanced 11.0% to €222.9 billion from €200.8 billion a year ago. 

 

Europe Stock Movers 

FirstGroup Plc declined as much as 1% but closed a fraction down to 104.50 pence despite the company extending its partnership to October 2023 with the Department for Transportation and HS2 Limited. 

FirstGroup and Trenitalia are working together with the UK government in the largest infrastructure project in Europe to build high-speed rail service for the West Coast Partnership. 

Spectris Plc increased 0.1% to  3,457.25 pence after the company said it initiated the third tranche of its stock repurchase program. 

Between March 20 and July 31, the company plans to acquire its stock not to exceed 9.711 million shares for a total purchase price not to exceed £40 million.