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By Geoffrey Smith
Investing.com -- Credit Suisse collapses into the arms of local rival UBS in a $3 billion deal that rattles bondholders by wiping out $17B in junior debt, forcing European supervisors to put out a statement that they would handle things differently. The FDIC agrees to sell most of Signature Bank, and most mid-sized regional U.S. banks are inching up in premarket, but First Republic is still falling after another rating downgrade at the weekend. Stocks are holding up surprisingly well, with expectations of an earlier pivot in central bank policy supporting technology stocks in particular. Chinese President Xi Jinping begins a three-day visit to Moscow, only days after the International Criminal Court brought charges of war crimes against his host, Russia's Vladimir Putin. And gold hits $2,000 for the first time in 11 months as havens soar. Here's what you need to know in financial markets on Monday, 20th March.
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1. UBS to buy Credit Suisse for $3B; AT1 wipeout shocks junior bondholders
UBS Group (SIX:UBSG) agreed to buy Credit Suisse (SIX:CSGN) for $3B in a hasty deal brokered by Swiss authorities. Credit Suisse suffered catastrophic loss of deposits last weekend and is by far the largest bank to fail in the last decade.
Controversially, regulators FINMA wiped out some $17B in junior debt – so-called Additional Tier-1 (AT1) bonds – as part of the rescue act, despite still allowing shareholders to receive some compensation. While that move was in line with Swiss law, it upset holders of AT1 debt across Europe, pushing bank stocks sharply lower.
The move did, however, sidestep Swiss law by forcing the deal through without the approval of Credit Suisse shareholders. As such, some analysts said legal challenges are to be expected.
2. Central banks agree swap lines to stem contagion; FDIC deal to sell Signature
The Federal Reserve and other central banks moved at the weekend to stop contagion from spreading any further through the financial system, reviving a 2008-era instrument of mutual swap lines to backstop local demand for dollars.
European Central Bank Christine Lagarde is due to address the EU Parliament at 12:00 ET (16:00 GMT) and is sure to be pumped for information on the strength of Eurozone banks, which face the biggest test of their soundness since the euro crisis a decade ago. The ECB and other European supervisory agencies issued a statement welcoming the resolution of Credit Suisse – albeit stressing that AT1 would be senior to equity in any bank resolution in the Eurozone.
The Federal Deposit Insurance Corp. reached a deal to sell most of Signature Bank – one of the three U.S. institutions to collapse this month - to Flagstar, the owner of New York Community Bank. There appears little chance of its SigNet payments system - beloved of crypto platforms - being revived.