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After a shaky start to the session, the FTSE 100 recovered earlier losses to end the session 0.9% higher at 7,404 points.
A weaker dollar also helped the the blue chip index’s mining contingent to bounce, noted IG’s Chris Beauchamp.
“What began as a very ‘sea of red’ kind of day has turned into a rebound, with stocks clawing back losses,” Beauchamp said.
“Ultimately, while it is a shock to see a global bank disappear so quickly, it is reassuring to see governments and regulators moving quickly to seal off any source of further contagion,” he added. “And after the ECB last week, investors seem relaxed about the prospect of a 25bps hike from the Fed this week, though they will hope for some fairly dovish commentary to go with it.”
At the UK close, US stocks were mixed, with the Dow Jones Industrial Average trading 0.9% higher at 32,132 and the S&P 500 gaining 0.5% to 3,935. But the Nasdaq was down 0.2% at 11,607.
Confidence remains fragile in the market after bank runs, despite policymakers’ provision of liquidity, noted AJ Bell investment director Russ Mould, and if the latest moves fail to calm markets, odds on a recession and need to pivot to rate cuts and QE would grow
“Silvergate, Silicon Valley Bank and Signature Bank have failed, First Republic Bank has suffered a run leading to liquidity support from other lenders and Credit Suisse has fallen into the arms of bitter rival UBS. Investors could be forgiven for thinking what is coming next, as bank share prices slide and regulators and central bankers alike continue to assert that there is enough liquidity out there, only for them to offer more (and more) of it as it seemingly disappears,” said Mould.
“Ultimately, central bankers and policymakers need to bolster faith by stopping runs on deposits, boosting asset prices (especially for the government bonds owned by banks) and get credit flowing again so that the banking crisis does not spill over into the real economy and provoke a deep recession.”
But, Mould questioned: “How? We have been here before, in 2007-09 worldwide and then in the EU during the 2010s when interest rate cuts and Quantitative Easing were the main tools and, perhaps, we are due for a repeat performance.
“That may not sound like a pleasant prospect for central bankers in the UK, EU and USA when inflation is still running above their 2% inflation targets, and they are busy proving their inflation-busting credentials with rate hikes and Quantitative Tightening policies designed to withdraw some of the hot money and stimulus they have pumped into the system since 2008.
“But the world is now so much more indebted in 2023 than it was in 2009 that a credit shock simply cannot be afforded. A tiny blip in credit growth in the USA in 2008 – the only time credit shrank since 1950 – produced an economic downturn and financial market meltdown of epic proportion.”
Mould concluded: “Policymakers will be hoping that none of this is needed, and that existing insurance schemes for depositors, additional liquidity guarantees for banks and UBS’ takeover of Credit Suisse will stop the rot.
“Ultimately these interventions should be adequate, at least in Europe, where banks have shrunk their balance sheets and taken less risk and are better capitalised, more tightly regulated and subjected to fiercer stress tests than most of their US counterparts, where the banks with less than $250 billion in assets have taken a lot of risk, have grown their asset bases and freely (over)distributed capital to their investors via dividends and buybacks – even the US megabanks canned their buyback programmes in the second half of 2022 when they realised the error of their ways.”
The afternoon rally by equity markets pullled gold spot prices back below the US$2,000 per ounce level breached for the first time in over 12 months on Monday morning, and a record high of £1,645 per ounce against the pound sterling.
Around 3.30pm GMT, the price of the yellow metal had fallen by 1% to US$1,970.50.
Craig Erlam, senior market analyst, UK & EMEA at OANDA commented: “Gold traded above $2,000 for the first time since March last year and only the fifth day ever earlier, a move that will get traders talking about the prospect of record highs in the not-too-distant future. The yellow metal has been buoyed by lower yields, a softer dollar, and a flight for safety over the last couple of weeks.
“The next test of its bullishness may come Wednesday and perhaps not from the rate decision itself but what Powell and his colleague have to say on the path forward. His counterpart at the ECB opted to remain tight-lipped on future moves and a similar approach from the Fed could see gold spike once more.”
Gold’s safe haven properties have come to the fore amid widespread market uncertainly following Silicon Valley Bank’s collapse and Credit Suisse’s pending takeover by rival UBS.
Adrian Ash, director of research at online gold marketplace BullionVault noted: “Like the 2008 banking crisis, the sudden loss of confidence in mainstream finance has thrown into focus the fact that bank deposits are debt, not property,” said
According to Ash, gold investors and high-value buyers are less concerned about prices than they are with the certainty of title and the fact that wholesale bullion is the most tradeable of commodities.
Thousands of signal workers and maintenance staff in the RMT union have voted overwhelmingly to accept an offer from Network Rail to end their roles in the long-running dispute over pay, jobs and working conditions, the BBC News website has reported.
RMT members who work for 14 train operating companies are still due to walk out on 30 March and 1 April, but the Network Rail result will be seen as a significant breakthrough, the report said.
The deal comes after Network Rail amended its previously rejected offer of a 5% pay rise for 2022 and a 4% increase this year. The turnout for the vote was nearly 90%, said the RMT, with 76% of members voting in favour of the pay offer.
The country’s biggest rail union said the offer amounted to an uplift on salaries of between 14.4% for the lowest paid grades to 9.2% for the highest paid.
RMT general secretary Mick Lynch said that while the dispute with Network Rail was now over, members at train operating companies would continue to strike unless they received the “right offer”.
However, without maintenance and signalling staff involved, the disruption caused by RMT’s walkouts will be on a slightly smaller scale. Operators not directly involved are unaffected.
During last Saturday’s strike, workers at 14 train operators walked out, with between 40% and 50% of trains running, the BBC report said.
The price of Bitcoin held above the US$28,000 level in afternoon trading as the cryptocurrency got a boost amidst the woes of the traditional banking sector.
Marcus Sotiriou, market analyst at the publicly listed digital asset broker GlobalBlock noted: “Over the weekend, Bitcoin rallied to new local highs of $28,300, as it made a higher high on the weekly time frame. Technically speaking, this signals the start of a new bull trend for digital asset trading and the end of the bear market. To be confident of a trend reversal, we need to see how Bitcoin reacts at the support level of $25,200.
“The recent closures of US banking giants have acted as a catalyst for Bitcoin’s price increase, as the drawbacks of the banking system are a key proponent for decentralised assets such as Bitcoin.”
“In fact,”m he added, “open interest in Bitcoin futures has hit a yearly high, showing how there is now significant speculative interest in the digital asset trading market. CoinGlass data tells us that the nominal value of open interest has reached $12 billion – a 7% gain for the month. Despite open interest not giving us knowledge as to the direction of the positioning, it shows us that there is huge speculation in the market right now, so we could see a big move in either direction.
“Due to the funding rate of most coins flipping green, I am anticipating a flush in the market soon, as a positive funding rate indicates that the positioning in the futures market is mainly aggressive longs – when there is high open interest with aggressive longs, it typically means over-leveraged longs need to be wiped out.”
The Bank of England has joined other European regulators in saying that shareholders of failed banks should bear losses ahead of holders of Additional Tier 1 bonds after the structure of Credit Suisse’s rescue in Switzerland angered bondholders, Reuters reported.
Some 16 billion Swiss francs ($17.24 billion) of Credit Suisse’s AT1 debt will be written down to zero on the orders of Swiss regulators as part of the bank’s emergency takeover by fellow Swiss banking giant UBS.
That means Credit Suisse’s AT1 bondholders appear to be left with nothing while shareholders, who typically sit below bonds in the priority ladder for repayment, will receive $3.23 billion under the UBS deal.
The BoE confirmed that in the UK, holders of common equity tier 1 instruments – shares – should expect to suffer losses before AT1 bondholders. The central bank said this was the approach used in its resolution this month of Silicon Valley Bank UK.
“Holders of such instruments should expect to be exposed to losses in resolution or insolvency in the order of their positions in this hierarchy,” the BoE said in a statement, Reuters noted.
The FTSE 100 index pushed up to the session peak as Wall Street mostly started higher – though the tech-led Nasdaq Composite missed out – as the rout in the banking sector eased.
Around 45 minutes after the opening bell, the Dow Jones Industrials Average (DJIA) was up 286 points, or 0.9%, to 32,148, while the broader S&P 500 added 0.4%, but the Nasdaq Composite lost 0.3%.
Investors were hopeful that UBS’s $3.2 billion dollar deal to buy flailing fellow Swiss bank Credit Suisse, made possible in part by Swiss regulators, will shore up the ongoing banking crisis in the US.
“Credit Suisse liquidity has become a major threat to the health of the overall banking sector in recent months,” TickMill Group’s market analyst James Harte commented. “The recent market turmoil around the collapse of SVB saw Credit Suisse shares plummeting to fresh lows, stoking fears of an imminent collapse.”
There is also optimism that the banking sector’s woes will keep the Federal Open Market Committee from raising rates aggressively when it meets later this week.
In London, at around 2.15pm, the FTSE 100 index was up 47 points, or 0.6% at 7,382.
Here’s a quick look at today’s movers in London.
Tribal Group- down 16% to 42p
The education support services group saw shares fall after providing an update on its Singapore contract.
It said Nanyang Technology University has attempted to terminate its contract with Tribal and reserved its right to claim damages.
However, Tribal said in a statement it has rejected this claim and is considering options regarding the next appropriate steps.
As a result, accounts for the year ended 31 December 2022 will now be released on 24 March.
Great Eastern Energy- down 62% to 5p
Shares headed south after the company provided notice it plans to delist from the London Stock Exchange.
In a statement, the Indian coal company said it had voluntarily decided to delist as the volume of trading on the LSE is “negligible” and does not justify the costs related to such listing and trading.
Xeros- down 2% to 4p
Xeros shares had started the day strong, rising 7%, but were down at the time of writing, falling 2% to 4p.
The group announced its third licensing agreement for its filtration tech, designed to capture microfibres in washing machines.
The new non-exclusive agreement is with a “global component manufacturer” with links to Samsung, Panasonic and LG, AIM-listed Xeros said in a statement and will see it paid per filter sold over the next 10-years.
Equities continue to bounce back on Monday with the FTSE 100 now at 7,377.49, up 42.09 points, or 0.57%.
But Credit Suisse bondholders are licking their wounds after the rescue deal by rival UBS resulted in US$17bn of the failed Swiss bank’s bonds being wiped out, upending debt recovery norms and further eroding financial market confidence.
“In my eyes, this is against the law,” said Patrik Kauffman, a fund manager at Aquila Asset Management who invests in additional tier 1 (AT1) bank debt, quoted by the Financial Times.
He said it was “insane” that under the terms of UBS’s takeover of Credit Suisse, AT1 bondholders were set to receive nothing while shareholders would walk away with SFr3bn (US$3.2bn).
“We’ve never seen this before. I don’t think this would be allowed to happen again.”
AT1 bonds were introduced in Europe after the global financial crisis to serve as shock absorbers when banks start to fail.
They are designed to impose permanent losses on bondholders or be converted into equity if a bank’s capital ratios fall below a predetermined level, effectively propping up its balance sheet and allowing it to stay in business. Its market size is estimated to be US$275bn in Europe.
The Swiss authorities’ decision to leave AT1 bondholders with nothing has turned upside down the long-established norms of debt investors being prioritised over equity holders in a debt recovery.
Some investors said reversing the market norms could herald a significant reduction in appetite for AT1s. “This could be the end of that market for the foreseeable future,” said Jim Leaviss, chief investment officer of public fixed income at M&G, quoted by the FT.
“Global investors won’t be interested for a while or at least until the yields adjust significantly higher, but at that point, the yields will likely be too high for banks to want to issue them as a cheaper source of funding than equities.”
The ECB questioned the Swiss authorities’ move on Monday, saying equity instruments “are the first ones to absorb losses” and only after that would AT1s need to be written down. “This approach has been consistently applied in past cases,” the ECB said, adding that AT1 debt remained “an important component of the capital structure of European banks”.
French insurer AXA stated it had a “limited exposure” of about €0.6 bn Credit Suisse (CSGN.S) but less than €20mln exposure to AT1s.
According to data on Bloomberg, Pacific Investment Management Co., Invesco Ltd (NYSE:IVZ) and BlueBay Funds Management Co. SA are among the many asset managers holding Credit Suisse AT1 notes, although these holdings may have changed or been sold entirely since their last regulatory filings.
One fund under pressure was the Invesco AT1 Capital Bond ETF, whose share price slumped nearly 9%. It tracks the performance of an index of AT1 bonds including some issued by Credit Agricole, Barclays, Lloyds and UBS.
The German economy will shrink again in the first quarter of the year and underlying inflation could prove to be stubborn even if overall price growth is likely to slow sharply soon, the Bundesbank said in a monthly report on Monday.
In the report, the German central bank said: ““German economic activity will probably fall again in the current quarter.”
“However, the decline is likely to be less than in the final quarter of 2022.”
German GDP shrank by 0.4% in the final quarter of 2022. A second consecutive drop in activity in the first three months of this year would put Germany into a technical recession.
On inflation, the Bundesbank said that inflation is likely to fall this month but “the core rate is proving exceptionally persistent and could even increase slightly towards the middle of the year”.
The British arm of Silicon Valley Bank (SVB UK) has handed out millions of pounds in employee bonuses just days after its insolvency was averted through a Bank of England-orchestrated rescue deal.
Sky News reported that the payouts to staff including its senior executives were signed off by HSBC, SVB UK’s new owner, last week.
Sources described the bonus pool as “modest”, and said it totalled between £15mln and £20mln.
Sky said it was unclear how much had been awarded to Erin Platts, the UK bank’s chief executive or her senior colleagues.
Wall Street is expected to open flat as investors bet the Federal Open Market Committee will err on the side of caution when it meets this week, opting for a 25 basis point hike due to ongoing turmoil in the banking sector.
Futures for the Dow Jones Industrial Average declined less than 0.1% in Monday pre-market trading while those for the broader S&P 500 index added less than 0.1% and contracts for the Nasdaq-100 were up by the same margin.
US stocks finished in the red on Friday in a volatile week for the markets, even after a consortium of 11 banks joined forces to deposit $30 billion into regional bank First Republic to help stem further contagion in the sector a week after Silicon Valley Bank went under.
The DJIA shed 1.2% to 31,862 points, the S&P 500 fell 1.1% to 3,917 points, and the Nasdaq Composite lost 0.7% to 11,630 points.
In the latest development, UBS Group will take over its embattled Swiss rival Credit Suisse for $3.25 billion following crunch talks on Sunday aimed at stopping the stricken bank from triggering a wider international banking crisis.
“While the market’s main focus remains the turmoil in the banking sector, investors will have one eye on central bank activity this week as officials face the conundrum of balancing inflationary concerns with recent market volatility pressures and the likely implications for economic activity and the appropriate response for monetary policy,” commented TickMill Group market analyst Patrick Munnelly.
“Just over a week ago markets were aggressively pricing the potential that the Fed would use this week’s policy update to signal a re-acceleration in the pace of interest rate increases by hiking by 50 basis points (bps) rather than repeating the 25bps rise seen in February, with further indications of the potential for a higher terminal rate for this policy tightening cycle,” he added.
“However, given recent market turbulence, investors are now pricing a 25bps hike with the potential for significant rate cuts by year-end, which marks a stark reversal in market sentiment.”
Shares in Glencore PLC (LSE:GLEN) rose 2.8% after UBS put the mining stock back on its ‘buy’ list.
The Swiss investment bank made the case that the risk/ reward is now attractive after the recent sell off.
Analysts at the bank upgraded to ‘buy’ from ‘hold’ with an unchanged 560p price target pointing out the stock is down around 26% from its January high mainly due to increasing macro concerns and the weaker thermal coal price.
“We believe the risk/ reward is again attractive and concerns of further softening in thermal coal/ curtailing of cobalt production are priced in,” analysts wrote.
UBS prefers Glencore to Rio Tinto, BHP and Anglo America which it has ‘sell’ ratings on.
“We look favourably on Glencore’s commodity mix medium-term, its restructuring & organic growth options as well as its strong near-term free cash flow generation/good capital discipline,” UBS said.
As for the lead index index it continues to advance, now at 7,375.77, up 40.37 points, or 0.55%.
The Footsie is now up 25 points at 7,360.53. Further encouragement has come from the US where futures have recouped early falls to move higher.
Dow Jones futures are up 33 points, S&P 500 futures are 6 points to the good while Nasdaq futures are 19 points higher.
All adding to hopes that the UBS takeover of Credit Suisse and moves by central banks to secure liquidity in the financial markets can bring calm to a nervous market.
Banks have rallied from earlier lows. Lloyds is now just 1.3% lower and NatWest is down 0.8%. Leading insurer Aviva PLC (LSE:AV.) has pushed into the green, up 0.3%. In Europe, UBS has halved its losses, now down 5%.
European markets are also in positive territory, the Dax is up 0.6% and the CAC-40 is up 0.8%.
Goldman Sachs (NYSE:GS) thinks the Euro area and UK banking systems continue to look resilient on key metrics, and macro measures of contagion have only deteriorated modestly.
The investment bank feels the main drag on economic activity is therefore likely to come from a tightening in bank lending, which is already contracting in response to higher policy rates.
Estimating the response of bank lending to the banking stress, however, is difficult, the bank stated.
Goldman estimated that the recent drop in bank stocks, rise in financials spreads, and increase in uncertainty might tighten bank lending standards by around 10 percentage points both in the Euro area and the UK.
While significant the broker notes this is quite a bit smaller than the deterioration of credit conditions seen during the global financial crisis (50pp) and the Euro area sovereign crisis (20pp).
This tightening points to a real GDP hit of about 0.3% in the Euro area and 0.5% in the UK.
As a result Goldman has lowered estimates for the level of Euro area real GDP by 0.3% over the next year by reducing growth by 0.1pp in each quarter from quarter three 2023 to, and including quarter one, 2024.
It now predicts 2023 growth at 0.7%, which remains slightly above consensus but below the latest ECB staff projections.
For the UK, Goldman makes a smaller level downgrade of 0.2% and now sees zero growth this year.
Given the additional growth drag from the banking stress, the bank expects the ECB to hike by 25bp in May and another 25bp in June for a terminal rate of 3.5%.
“We maintain our view that the BoE is more likely than not to hike 25bp next week, but we no longer expect the BoE to hike in May and lower our terminal rate to 4.25%. We see substantial uncertainty around our updated central bank paths in both directions.”
The Bank of England has not received any requests for dollars through the new operation announced by the world’s top central banks last night.
According to Reuters, the BoE said it received no bids for dollar liquidity at a first daily seven-day repo operation that was launched on Monday.
That suggests that UK banks were not desperate to get their hands on US dollars this morning.
In Europe, Eurozone banks borrowed just US$5m from the European Central Bank through the new dollar swap facility set up by the major central banks last night, Reuters reports.
ECB LENDS BANKS $5 MLN IN 7-DAY SWAP OPERATION UNVEILED ON SUNDAY IN COOPERATION WITH THE FED.
— Breaking Market News (@financialjuice) March 20, 2023
Meanwhile the FTSE after pushing into the green has settled 3 points lower.
London’s lead index has all but erased all of its earlier losses in a volatile start to trading.
The FTSE 100 is now flirting with opening levels currently at 7,330.93, down 4.47 points, or 0.1%. It briefly popped into positive territory.
Mining companies lead the way with Endeavour Mining PLC (LSE:EDV, TSX:EDV, OTCQX:EDVMF) up 6.3%, Fresnillo up 4.1%, Anglo American up 3.2% and Antofagasta up 2.3%. Hopes that the banking crisis may be contained limiting economic damage have prompted buyers to snap up stocks on hopes of increased demand. Glencore, up 2.3%, received an additional boost from UBS which put the stock on its ‘buy’ list.
Water utilities aren’t far behind with United Utilities rose 2.2%, Severn Trent up 1.9%, and Pennon up 2.4%.
Financial stocks continue to lead the fallers with Asia-focused insurer, Prudential PLC (LSE:PRU), top of the pile, down 5%. But bank although lower are well above worst levels for the day.
Amidst the market mayhem, water utilities were a rate bright feature. Stocks reacted positively despite the industry watchdog announcing new powers over the payment of dividends.
The industry regulator Ofwat announced new powers that will enable it to stop the payment of dividends if they would risk the company’s financial resilience, and take enforcement action against water companies that don’t link dividend payments to performance.
The change will require company boards to take account of their performance – for customers and the environment – when deciding whether to make dividend payments. It will also require companies to maintain a higher level of overall financial health.
But there was no mention of immediate punitive measures amid growing political pressure following the repeated release of sewage into UK rivers. United Utilities rose 2.2%, Severn Trent up 1.9%, and Pennon up 2.4%.
Russ Mould at AJ Bell noted: “Everything is moving so quickly in the banking sector that as soon as you think the main issue is sorted, along comes another worry.”
“The takeover of Credit Suisse by UBS was done fast and should have provided reassurance to the market that we haven’t had another bank collapse.”
“However, what it has done is exposed the issues around AT1 bonds, also known as additional tier-one bonds.”
He explained “AT1 bonds are a form of contingent convertibles. They can be converted into equity or written down entirely if certain conditions are met, with the decision triggered by capital strength falling below a pre-determined level – i.e., when the issuer gets into trouble.”
“These bonds typically offer high yields to reflect the additional risks.”
“The Swiss financial regulator has ordered that Credit Suisse’s AT1 bonds be written down to zero. That appears to have spooked investors and has led to a sell-off in other bank debt and that’s weighed on share prices.”
“It means the banking crisis we’ve seen over the past few weeks has started a new chapter rather than reaching its ending.”
He highlighted the plight of investors holding exchange-traded fund Invesco AT1 Capital Bond ETF, whose share price slumped nearly 14%. It tracks the performance of an index of AT1 bonds including some issued by Credit Agricole, Barclays, Lloyds and UBS.
The FTSE has bounced off its early lows and is now down just 50 points at 7,285, above earlier lows of 7,207.
Victoria Scholar, head of investment, interactive investor said: “UBS’ acquisition of Credit Suisse is the key focus for markets today with European bourses still under pressure despite the rescue deal. “
“The FTSE 100 is trading lower with financials including Standard Chartered, Barclays, Lloyds and NatWest trading at the bottom of the basket. Banks, financial services, and insurance are the worst performing sectors across Europe.”
Safe haven assets such as gold and even bitcoin have been beneficiaries from the turmoil in the banking sector.
The price of the ‘yellow metal’ topped US$2,000 per ounce earlier after rising strongly over the past week as investors seek safer stores of value.
In a similar manner, Bitcoin has also advanced a further 4.6% to US$28,315.17.
Stephen Innes, at SPI Asset Management, said the markets risk being pulled into a ‘horrible negative feedback loop’, as authorities take action to (they hope) stem the crisis.
“No, if and or buts; price action in oil and safe-havens gold and yen suggests folks are still spooked, hinting we are in the process of devolving from a bank to an economic crisis when growth becomes more concerning than the crisis itself.”
“And if that proves accurate, a negative equity-bond correlation should see gold push higher and oil continues to tank.”
“Compounding matters is that the more policymakers do, the more investors expect bad news to come down the pipe, which creates a horrible negative feedback loop, almost as if investors are asking themselves “what do they know we do not know?”
Over in Europe, UBS shares slipped 8.6% to Sfr15.64 after its US$3.25bn rescue deal for Credit Suisse which itself tumbled 63% to SFr0.68.
Falls were also widespread across the banking sector. The Euro Stoxx 600 banks index fell 4.7% to 134.46 with leading names in the European banking sector all lower.
Deutsche Bank fell 9.8% to EUR8.42, Commerzbank slid 7.9% to EUR8.45, Banco Santander (LSE:BNC) was 4.3% lower at EUR3.00, UniCredit declined 5.1% to EUR15.10 while in Paris BNP Paribas and Societe Generale were 6.8% and 7.7% lower respectively.
The Dax tumbled to 14,533.76, down 234.44 points, or 1.59%, and the CAC 40 slipped to 6,822.16, down 103.24 points, or 1.49%.
Back in London and the FTSE 100 is now down 95.92 points, or 1.3%, at 7,239.48. The index earlier touched 7,206.82.
The FTSE 100 opened sharply lower on Monday as the takeover of Credit Suisse by its Suisse rival UBS failed to quell nerves in the banking sector.
At 8.15am London’s lead index stood at 7,260.92, down 74.48 points, or 1%, while the FTSE 250 tumbled to 18,248.07, down 222.76 points, or 1.2%.
The wipeout of US$17bn of Credit Suisse bonds as part of the deal sparked concern about similar debt and sent banking shares down further.
Susannah Streeter, head of money and markets, Hargreaves Lansdown pointed out focus “is shifting to the implications of high-risk bond holders in banks, after holders of more risky Credit Suisse debt saw their investment wiped out, as under the deal those additional tier 1 bonds were valued at zero.”
“In bankruptcy proceedings, bond holders are higher up the queue than shareholders, but under the contracts signed the same rules don’t have to apply given Credit Suisse was facing a clear viability issue and had already been given support from the central bank” she added.
In a bid to calm market jitters the Federal Reserve and other global central banks announced fresh measures to improve US dollar liquidity.
In a joint statement released on Sunday, the world’s leading central banks said that they will launch daily operations to make funding available via standing swap lines. Previously, those operations were conducted on a weekly basis.
The Fed, European Central Bank, Bank of England and the Swiss National Bank are among those involved in what was described as a “co-ordinated action”. They were joined by the Bank of Canada and the Bank of Japan.
Lloyds Banking Group PLC (LSE:LLOY), HSBC Holdings PLC (LSE:HSBA), Standard Chartered PLC (LSE:STAN) and NatWest Group PLC (LSE:NWG) fell 3.3%. 2.8%, 7.2% and 3.3% respectively.
In signs of further stress in the sector Flagstar Bank owner New York Community Bank agreed to buy most of the operations of Signature Bank, the failed New York City-based lender.
The Federal Deposit Insurance Corporation announced the deal on Sunday, one week after the US banking regulator and deposit insurer took control of Signature.
Concerns that banks will become more cautious in their lending prompted falls in the oil price on fears that the turmoil will lead to a global recession.
Brent crude fell 3.2% to US$70.66/barrel with BP PLC (LSE:BP.) and Shell PLC (LSE:SHEL, NYSE:SHEL) down 1.4% and 1.9% respectively.
The volatility in global markets will pile further pressure on the Bank of England and Federal Reserve who meet this week to make their latest monetary policy moves.
Away from the banking turmoil for a moment and UK house prices rose 0.8% in March from February, figures from Rightmove showed on Monday, with prices of the largest homes leading with a 1.2% increase.
The online estate agency said the average price of properties coming on the market was £365,357, up slightly from £362,452 in February.
Rightmove said the increase is below the average monthly rise in March over the past 20 years, indicating a higher degree of pricing caution by new sellers than is usual for this point in the year.
The strong price rise in the larger home top-of-the-ladder sector of the UK house market was the exception to the caution seen elsewhere, with a 0.4% and 0.5% respective increase in the first-time buyer and second-stepper sectors, Rightmove noted.
New seller asking prices are £5,800 below the peak in October 2022, the property sales portal said, with annual price growth easing to positive 3.0%, which Rightmove said reflects a “more stable footing than many anticipated” and a movement towards the “more normal market of 2019”.
“The beginning of the spring season sees stability and confidence continuing to return to the market as it recovers from the turbulence at the end of 2022. The pace of the market reached an unsustainable level in the last two years, and was on track to slow to a more normal level, though the speed of this slowdown to more normality was accelerated by the reaction to September’s mini-budget,” Rightmove analyst Tim Bannister said.
Virgin Orbit has begun drawing up detailed contingency plans for its insolvency days after halting its operations and furloughing its workforce, according to reports.
Sky News has learnt that the commercial space satellite venture founded by Sir Richard Branson’s Virgin Group is working with Alvarez & Marsal and Ducera, two restructuring firms, on fallback plans in the event that it cannot secure new funding.
The decision to line up the advisers underlines the parlous nature of Virgin Orbit’s finances, even as it continues talks with a small number of prospective investors about providing sufficient funding to restart its operations, the report said.
Exclusive: Virgin Orbit, Sir Richard Branson’s commercial satellite venture, is drawing up contingency plans for its insolvency as it races to secure new funding. The company last week announced it was “pausing” operations and furloughing its workforce. https://t.co/ClWKbTSCTA
— Mark Kleinman (@MarkKleinmanSky) March 19, 2023
Virgin Orbit is 75%-owned by Sir Richard’s holding company, with its shares listed on the Nasdaq exchange in New York.
Its value has further plummeted following the failure of its inaugural British mission in Cornwall in January.
Sources said the insolvency planning work involving A&M and Ducera was being run out of the US.
A&M also worked on plans for the administration of Virgin Atlantic Airways as it raced to recapitalise itself during the COVID-19 pandemic.
Sources said that Boeing, which has previously invested in the company, is not in talks with it.
The Federal Reserve and other global central banks have announced fresh measures to improve US dollar liquidity as global financial markets reel from the turmoil hitting the banking sector.
In a joint statement released on Sunday, the world’s leading central banks said that they will launch daily operations to make funding available via standing swap lines. Previously, those operations were conducted on a weekly basis.
The Fed, European Central Bank, Bank of England and the Swiss National Bank are among those involved in what was described as a “co-ordinated action”. They were joined by the Bank of Canada and the Bank of Japan.
“The network of swap lines among these central banks is a set of available standing facilities and serve as an important liquidity backstop to ease strains in global funding markets, thereby helping to mitigate the effects of such strains on the supply of credit to households and businesses,” the central banks said in a statement.
The move came hours after the SNB announced that its two largest banks, UBS and Credit Suisse, would merge after a frantic weekend of negotiations brokered by Swiss regulators to safeguard its banking system and attempt to prevent a crisis spreading across global financial markets.
FTSE 100 is expected to nurse heavy losses at the open on Monday after Asian bank debt and shares fell after the wipeout of US$17bn of Credit Suisse bonds in the takeover by UBS sparking concern of further turmoil in in European markets.
HSBC shares dropped 7.1% in Hong Kong, while Standard Chartered tumbled 7.7% while some bank bonds suffered steep declines.
Spread betting companies are calling London’s lead index down by around 100 points.
The baning sector will once again take centre stage following more drama over the weekend after UBS agreed to buy Credit Suisse in a US$3.2bn deal.
The two largest banks in Switzerland agreed the deal after a frantic weekend of talks brokered by Swiss regulators to safeguard its banking system and attempt to prevent a crisis spreading across global financial markets.
Under the terms of the deal shareholders of Credit Suisse will receive 1 share in UBS for every 22.48 shares in Credit Suisse.
Credit Suisse Group announces it has entered into a merger agreement with UBS. All details available here: https://t.co/IkG4X3wze5 pic.twitter.com/3Obz6zpxSC
— Credit Suisse (@CreditSuisse) March 19, 2023
Some SFr16bn of Credit Suisse’s Additional Tier 1 capital bonds, which are designed to take losses when institutions run into trouble and to transfer the risk of a bank failure from taxpayers to investors, are being wiped out.
Michael Hewson, chief market analyst at CMC Markets, said: “Some have suggested that UBS putting such a low-ball number on its interest means that Credit Suisse could be in more trouble than perhaps regulators are letting on, and while that might be true, it could also be UBS management being extremely cautious.”
Until the agreement is finalised the Swiss National Bank will grant Credit Suisse access to facilities that provide substantial additional liquidity.
The historic deal follows five days in which the Swiss establishment raced to end a deepening crisis at Credit Suisse that threatened to topple the country’s second-largest lender.
An emergency SFr50bn (US$54bn) credit line provided by the Swiss National Bank on Wednesday failed to arrest a steep decline in the share price, which was exacerbated by wider market turmoil caused by the sudden collapse of California-based Silicon Valley Bank.
“On Friday the liquidity outflows and market volatility showed it was no longer possible to restore market confidence, and a swift and stabilising solution was absolutely necessary,” Swiss president Alain Berset said at a press conference in Bern on Sunday evening. “This solution was the takeover of Credit Suisse by UBS.”
“This is no bailout. This is a commercial solution,” said Swiss finance minister Karin Keller-Sutter.
“The bankruptcy would have had huge collateral damage on the Swiss financial market and with a risk of contagion internationally.
“The US and UK were very grateful for this solution . . . they really feared a bankruptcy of Credit Suisse,” she added.
Axel Lehmann, Chairman of Credit Suisse said: “Given recent extraordinary and unprecedented circumstances, the announced merger represents the best available outcome.”
The merger is expected to be consummated by end of 2023 if possible.
In Asia on Monday, the Nikkei 225 index was down 1.4%. In China, the Shanghai Composite was down 0.4%, while the Hang Seng index in Hong Kong was down 3.2%.
No major UK corporate results are scheduled on Monday.
The price of Bitcoin held above the US$28,000 level in afternoon trading as the cryptocurrency got a boost amidst the woes of the traditional banking sector.
Marcus Sotiriou, market analyst at the publicly listed digital asset broker GlobalBlock noted: “Over the weekend, Bitcoin rallied to new local highs of $28,300, as it made a higher high on the weekly time frame. Technically speaking, this signals the start of a new bull trend for digital asset trading and the end of the bear market. To be confident of a trend reversal, we need to see how Bitcoin reacts at the support level of $25,200.
“The recent closures of US banking giants have acted as a catalyst for Bitcoin’s price increase, as the drawbacks of the banking system are a key proponent for decentralised assets such as Bitcoin.”
“In fact,”m he added, “open interest in Bitcoin futures has hit a yearly high, showing how there is now significant speculative interest in the digital asset trading market. CoinGlass data tells us that the nominal value of open interest has reached $12 billion – a 7% gain for the month. Despite open interest not giving us knowledge as to the direction of the positioning, it shows us that there is huge speculation in the market right now, so we could see a big move in either direction.
“Due to the funding rate of most coins flipping green, I am anticipating a flush in the market soon, as a positive funding rate indicates that the positioning in the futures market is mainly aggressive longs – when there is high open interest with aggressive longs, it typically means over-leveraged longs need to be wiped out.”
The Bank of England has joined other European regulators in saying that shareholders of failed banks should bear losses ahead of holders of Additional Tier 1 bonds after the structure of Credit Suisse’s rescue in Switzerland angered bondholders, Reuters reported.
Some 16 billion Swiss francs ($17.24 billion) of Credit Suisse’s AT1 debt will be written down to zero on the orders of Swiss regulators as part of the bank’s emergency takeover by fellow Swiss banking giant UBS.
That means Credit Suisse’s AT1 bondholders appear to be left with nothing while shareholders, who typically sit below bonds in the priority ladder for repayment, will receive $3.23 billion under the UBS deal.
The BoE confirmed that in the UK, holders of common equity tier 1 instruments – shares – should expect to suffer losses before AT1 bondholders. The central bank said this was the approach used in its resolution this month of Silicon Valley Bank UK.
“Holders of such instruments should expect to be exposed to losses in resolution or insolvency in the order of their positions in this hierarchy,” the BoE said in a statement, Reuters noted.
The FTSE 100 index pushed up to the session peak as Wall Street mostly started higher – though the tech-led Nasdaq Composite missed out – as the rout in the banking sector eased.
Around 45 minutes after the opening bell, the Dow Jones Industrials Average (DJIA) was up 286 points, or 0.9%, to 32,148, while the broader S&P 500 added 0.4%, but the Nasdaq Composite lost 0.3%.
Investors were hopeful that UBS’s $3.2 billion dollar deal to buy flailing fellow Swiss bank Credit Suisse, made possible in part by Swiss regulators, will shore up the ongoing banking crisis in the US.
“Credit Suisse liquidity has become a major threat to the health of the overall banking sector in recent months,” TickMill Group’s market analyst James Harte commented. “The recent market turmoil around the collapse of SVB saw Credit Suisse shares plummeting to fresh lows, stoking fears of an imminent collapse.”
There is also optimism that the banking sector’s woes will keep the Federal Open Market Committee from raising rates aggressively when it meets later this week.
In London, at around 2.15pm, the FTSE 100 index was up 47 points, or 0.6% at 7,382.
Here’s a quick look at today’s movers in London.
Tribal Group- down 16% to 42p
The education support services group saw shares fall after providing an update on its Singapore contract.
It said Nanyang Technology University has attempted to terminate its contract with Tribal and reserved its right to claim damages.
However, Tribal said in a statement it has rejected this claim and is considering options regarding the next appropriate steps.
As a result, accounts for the year ended 31 December 2022 will now be released on 24 March.
Great Eastern Energy- down 62% to 5p
Shares headed south after the company provided notice it plans to delist from the London Stock Exchange.
In a statement, the Indian coal company said it had voluntarily decided to delist as the volume of trading on the LSE is “negligible” and does not justify the costs related to such listing and trading.
Xeros- down 2% to 4p
Xeros shares had started the day strong, rising 7%, but were down at the time of writing, falling 2% to 4p.
The group announced its third licensing agreement for its filtration tech, designed to capture microfibres in washing machines.
The new non-exclusive agreement is with a “global component manufacturer” with links to Samsung, Panasonic and LG, AIM-listed Xeros said in a statement and will see it paid per filter sold over the next 10-years.
Equities continue to bounce back on Monday with the FTSE 100 now at 7,377.49, up 42.09 points, or 0.57%.
But Credit Suisse bondholders are licking their wounds after the rescue deal by rival UBS resulted in US$17bn of the failed Swiss bank’s bonds being wiped out, upending debt recovery norms and further eroding financial market confidence.
“In my eyes, this is against the law,” said Patrik Kauffman, a fund manager at Aquila Asset Management who invests in additional tier 1 (AT1) bank debt, quoted by the Financial Times.
He said it was “insane” that under the terms of UBS’s takeover of Credit Suisse, AT1 bondholders were set to receive nothing while shareholders would walk away with SFr3bn (US$3.2bn).
“We’ve never seen this before. I don’t think this would be allowed to happen again.”
AT1 bonds were introduced in Europe after the global financial crisis to serve as shock absorbers when banks start to fail.
They are designed to impose permanent losses on bondholders or be converted into equity if a bank’s capital ratios fall below a predetermined level, effectively propping up its balance sheet and allowing it to stay in business. Its market size is estimated to be US$275bn in Europe.
The Swiss authorities’ decision to leave AT1 bondholders with nothing has turned upside down the long-established norms of debt investors being prioritised over equity holders in a debt recovery.
Some investors said reversing the market norms could herald a significant reduction in appetite for AT1s. “This could be the end of that market for the foreseeable future,” said Jim Leaviss, chief investment officer of public fixed income at M&G, quoted by the FT.
“Global investors won’t be interested for a while or at least until the yields adjust significantly higher, but at that point, the yields will likely be too high for banks to want to issue them as a cheaper source of funding than equities.”
The ECB questioned the Swiss authorities’ move on Monday, saying equity instruments “are the first ones to absorb losses” and only after that would AT1s need to be written down. “This approach has been consistently applied in past cases,” the ECB said, adding that AT1 debt remained “an important component of the capital structure of European banks”.
French insurer AXA stated it had a “limited exposure” of about €0.6 bn Credit Suisse (CSGN.S) but less than €20mln exposure to AT1s.
According to data on Bloomberg, Pacific Investment Management Co., Invesco Ltd (NYSE:IVZ) and BlueBay Funds Management Co. SA are among the many asset managers holding Credit Suisse AT1 notes, although these holdings may have changed or been sold entirely since their last regulatory filings.
One fund under pressure was the Invesco AT1 Capital Bond ETF, whose share price slumped nearly 9%. It tracks the performance of an index of AT1 bonds including some issued by Credit Agricole, Barclays, Lloyds and UBS.
The German economy will shrink again in the first quarter of the year and underlying inflation could prove to be stubborn even if overall price growth is likely to slow sharply soon, the Bundesbank said in a monthly report on Monday.
In the report, the German central bank said: ““German economic activity will probably fall again in the current quarter.”
“However, the decline is likely to be less than in the final quarter of 2022.”
German GDP shrank by 0.4% in the final quarter of 2022. A second consecutive drop in activity in the first three months of this year would put Germany into a technical recession.
On inflation, the Bundesbank said that inflation is likely to fall this month but “the core rate is proving exceptionally persistent and could even increase slightly towards the middle of the year”.
The British arm of Silicon Valley Bank (SVB UK) has handed out millions of pounds in employee bonuses just days after its insolvency was averted through a Bank of England-orchestrated rescue deal.
Sky News reported that the payouts to staff including its senior executives were signed off by HSBC, SVB UK’s new owner, last week.
Sources described the bonus pool as “modest”, and said it totalled between £15mln and £20mln.
Sky said it was unclear how much had been awarded to Erin Platts, the UK bank’s chief executive or her senior colleagues.
Wall Street is expected to open flat as investors bet the Federal Open Market Committee will err on the side of caution when it meets this week, opting for a 25 basis point hike due to ongoing turmoil in the banking sector.
Futures for the Dow Jones Industrial Average declined less than 0.1% in Monday pre-market trading while those for the broader S&P 500 index added less than 0.1% and contracts for the Nasdaq-100 were up by the same margin.
US stocks finished in the red on Friday in a volatile week for the markets, even after a consortium of 11 banks joined forces to deposit $30 billion into regional bank First Republic to help stem further contagion in the sector a week after Silicon Valley Bank went under.
The DJIA shed 1.2% to 31,862 points, the S&P 500 fell 1.1% to 3,917 points, and the Nasdaq Composite lost 0.7% to 11,630 points.
In the latest development, UBS Group will take over its embattled Swiss rival Credit Suisse for $3.25 billion following crunch talks on Sunday aimed at stopping the stricken bank from triggering a wider international banking crisis.
“While the market’s main focus remains the turmoil in the banking sector, investors will have one eye on central bank activity this week as officials face the conundrum of balancing inflationary concerns with recent market volatility pressures and the likely implications for economic activity and the appropriate response for monetary policy,” commented TickMill Group market analyst Patrick Munnelly.
“Just over a week ago markets were aggressively pricing the potential that the Fed would use this week’s policy update to signal a re-acceleration in the pace of interest rate increases by hiking by 50 basis points (bps) rather than repeating the 25bps rise seen in February, with further indications of the potential for a higher terminal rate for this policy tightening cycle,” he added.
“However, given recent market turbulence, investors are now pricing a 25bps hike with the potential for significant rate cuts by year-end, which marks a stark reversal in market sentiment.”
Shares in Glencore PLC (LSE:GLEN) rose 2.8% after UBS put the mining stock back on its ‘buy’ list.
The Swiss investment bank made the case that the risk/ reward is now attractive after the recent sell off.
Analysts at the bank upgraded to ‘buy’ from ‘hold’ with an unchanged 560p price target pointing out the stock is down around 26% from its January high mainly due to increasing macro concerns and the weaker thermal coal price.
“We believe the risk/ reward is again attractive and concerns of further softening in thermal coal/ curtailing of cobalt production are priced in,” analysts wrote.
UBS prefers Glencore to Rio Tinto, BHP and Anglo America which it has ‘sell’ ratings on.
“We look favourably on Glencore’s commodity mix medium-term, its restructuring & organic growth options as well as its strong near-term free cash flow generation/good capital discipline,” UBS said.
As for the lead index index it continues to advance, now at 7,375.77, up 40.37 points, or 0.55%.
The Footsie is now up 25 points at 7,360.53. Further encouragement has come from the US where futures have recouped early falls to move higher.
Dow Jones futures are up 33 points, S&P 500 futures are 6 points to the good while Nasdaq futures are 19 points higher.
All adding to hopes that the UBS takeover of Credit Suisse and moves by central banks to secure liquidity in the financial markets can bring calm to a nervous market.
Banks have rallied from earlier lows. Lloyds is now just 1.3% lower and NatWest is down 0.8%. Leading insurer Aviva PLC (LSE:AV.) has pushed into the green, up 0.3%. In Europe, UBS has halved its losses, now down 5%.
European markets are also in positive territory, the Dax is up 0.6% and the CAC-40 is up 0.8%.
Goldman Sachs (NYSE:GS) thinks the Euro area and UK banking systems continue to look resilient on key metrics, and macro measures of contagion have only deteriorated modestly.
The investment bank feels the main drag on economic activity is therefore likely to come from a tightening in bank lending, which is already contracting in response to higher policy rates.
Estimating the response of bank lending to the banking stress, however, is difficult, the bank stated.
Goldman estimated that the recent drop in bank stocks, rise in financials spreads, and increase in uncertainty might tighten bank lending standards by around 10 percentage points both in the Euro area and the UK.
While significant the broker notes this is quite a bit smaller than the deterioration of credit conditions seen during the global financial crisis (50pp) and the Euro area sovereign crisis (20pp).
This tightening points to a real GDP hit of about 0.3% in the Euro area and 0.5% in the UK.
As a result Goldman has lowered estimates for the level of Euro area real GDP by 0.3% over the next year by reducing growth by 0.1pp in each quarter from quarter three 2023 to, and including quarter one, 2024.
It now predicts 2023 growth at 0.7%, which remains slightly above consensus but below the latest ECB staff projections.
For the UK, Goldman makes a smaller level downgrade of 0.2% and now sees zero growth this year.
Given the additional growth drag from the banking stress, the bank expects the ECB to hike by 25bp in May and another 25bp in June for a terminal rate of 3.5%.
“We maintain our view that the BoE is more likely than not to hike 25bp next week, but we no longer expect the BoE to hike in May and lower our terminal rate to 4.25%. We see substantial uncertainty around our updated central bank paths in both directions.”
The Bank of England has not received any requests for dollars through the new operation announced by the world’s top central banks last night.
According to Reuters, the BoE said it received no bids for dollar liquidity at a first daily seven-day repo operation that was launched on Monday.
That suggests that UK banks were not desperate to get their hands on US dollars this morning.
In Europe, Eurozone banks borrowed just US$5m from the European Central Bank through the new dollar swap facility set up by the major central banks last night, Reuters reports.
ECB LENDS BANKS $5 MLN IN 7-DAY SWAP OPERATION UNVEILED ON SUNDAY IN COOPERATION WITH THE FED.
— Breaking Market News (@financialjuice) March 20, 2023
Meanwhile the FTSE after pushing into the green has settled 3 points lower.
London’s lead index has all but erased all of its earlier losses in a volatile start to trading.
The FTSE 100 is now flirting with opening levels currently at 7,330.93, down 4.47 points, or 0.1%. It briefly popped into positive territory.
Mining companies lead the way with Endeavour Mining PLC (LSE:EDV, TSX:EDV, OTCQX:EDVMF) up 6.3%, Fresnillo up 4.1%, Anglo American up 3.2% and Antofagasta up 2.3%. Hopes that the banking crisis may be contained limiting economic damage have prompted buyers to snap up stocks on hopes of increased demand. Glencore, up 2.3%, received an additional boost from UBS which put the stock on its ‘buy’ list.
Water utilities aren’t far behind with United Utilities rose 2.2%, Severn Trent up 1.9%, and Pennon up 2.4%.
Financial stocks continue to lead the fallers with Asia-focused insurer, Prudential PLC (LSE:PRU), top of the pile, down 5%. But bank although lower are well above worst levels for the day.
Amidst the market mayhem, water utilities were a rate bright feature. Stocks reacted positively despite the industry watchdog announcing new powers over the payment of dividends.
The industry regulator Ofwat announced new powers that will enable it to stop the payment of dividends if they would risk the company’s financial resilience, and take enforcement action against water companies that don’t link dividend payments to performance.
The change will require company boards to take account of their performance – for customers and the environment – when deciding whether to make dividend payments. It will also require companies to maintain a higher level of overall financial health.
But there was no mention of immediate punitive measures amid growing political pressure following the repeated release of sewage into UK rivers. United Utilities rose 2.2%, Severn Trent up 1.9%, and Pennon up 2.4%.
Russ Mould at AJ Bell noted: “Everything is moving so quickly in the banking sector that as soon as you think the main issue is sorted, along comes another worry.”
“The takeover of Credit Suisse by UBS was done fast and should have provided reassurance to the market that we haven’t had another bank collapse.”
“However, what it has done is exposed the issues around AT1 bonds, also known as additional tier-one bonds.”
He explained “AT1 bonds are a form of contingent convertibles. They can be converted into equity or written down entirely if certain conditions are met, with the decision triggered by capital strength falling below a pre-determined level – i.e., when the issuer gets into trouble.”
“These bonds typically offer high yields to reflect the additional risks.”
“The Swiss financial regulator has ordered that Credit Suisse’s AT1 bonds be written down to zero. That appears to have spooked investors and has led to a sell-off in other bank debt and that’s weighed on share prices.”
“It means the banking crisis we’ve seen over the past few weeks has started a new chapter rather than reaching its ending.”
He highlighted the plight of investors holding exchange-traded fund Invesco AT1 Capital Bond ETF, whose share price slumped nearly 14%. It tracks the performance of an index of AT1 bonds including some issued by Credit Agricole, Barclays, Lloyds and UBS.
The FTSE has bounced off its early lows and is now down just 50 points at 7,285, above earlier lows of 7,207.
Victoria Scholar, head of investment, interactive investor said: “UBS’ acquisition of Credit Suisse is the key focus for markets today with European bourses still under pressure despite the rescue deal. “
“The FTSE 100 is trading lower with financials including Standard Chartered, Barclays, Lloyds and NatWest trading at the bottom of the basket. Banks, financial services, and insurance are the worst performing sectors across Europe.”
Safe haven assets such as gold and even bitcoin have been beneficiaries from the turmoil in the banking sector.
The price of the ‘yellow metal’ topped US$2,000 per ounce earlier after rising strongly over the past week as investors seek safer stores of value.
In a similar manner, Bitcoin has also advanced a further 4.6% to US$28,315.17.
Stephen Innes, at SPI Asset Management, said the markets risk being pulled into a ‘horrible negative feedback loop’, as authorities take action to (they hope) stem the crisis.
“No, if and or buts; price action in oil and safe-havens gold and yen suggests folks are still spooked, hinting we are in the process of devolving from a bank to an economic crisis when growth becomes more concerning than the crisis itself.”
“And if that proves accurate, a negative equity-bond correlation should see gold push higher and oil continues to tank.”
“Compounding matters is that the more policymakers do, the more investors expect bad news to come down the pipe, which creates a horrible negative feedback loop, almost as if investors are asking themselves “what do they know we do not know?”
Over in Europe, UBS shares slipped 8.6% to Sfr15.64 after its US$3.25bn rescue deal for Credit Suisse which itself tumbled 63% to SFr0.68.
Falls were also widespread across the banking sector. The Euro Stoxx 600 banks index fell 4.7% to 134.46 with leading names in the European banking sector all lower.
Deutsche Bank fell 9.8% to EUR8.42, Commerzbank slid 7.9% to EUR8.45, Banco Santander (LSE:BNC) was 4.3% lower at EUR3.00, UniCredit declined 5.1% to EUR15.10 while in Paris BNP Paribas and Societe Generale were 6.8% and 7.7% lower respectively.
The Dax tumbled to 14,533.76, down 234.44 points, or 1.59%, and the CAC 40 slipped to 6,822.16, down 103.24 points, or 1.49%.
Back in London and the FTSE 100 is now down 95.92 points, or 1.3%, at 7,239.48. The index earlier touched 7,206.82.
The FTSE 100 opened sharply lower on Monday as the takeover of Credit Suisse by its Suisse rival UBS failed to quell nerves in the banking sector.
At 8.15am London’s lead index stood at 7,260.92, down 74.48 points, or 1%, while the FTSE 250 tumbled to 18,248.07, down 222.76 points, or 1.2%.
The wipeout of US$17bn of Credit Suisse bonds as part of the deal sparked concern about similar debt and sent banking shares down further.
Susannah Streeter, head of money and markets, Hargreaves Lansdown pointed out focus “is shifting to the implications of high-risk bond holders in banks, after holders of more risky Credit Suisse debt saw their investment wiped out, as under the deal those additional tier 1 bonds were valued at zero.”
“In bankruptcy proceedings, bond holders are higher up the queue than shareholders, but under the contracts signed the same rules don’t have to apply given Credit Suisse was facing a clear viability issue and had already been given support from the central bank” she added.
In a bid to calm market jitters the Federal Reserve and other global central banks announced fresh measures to improve US dollar liquidity.
In a joint statement released on Sunday, the world’s leading central banks said that they will launch daily operations to make funding available via standing swap lines. Previously, those operations were conducted on a weekly basis.
The Fed, European Central Bank, Bank of England and the Swiss National Bank are among those involved in what was described as a “co-ordinated action”. They were joined by the Bank of Canada and the Bank of Japan.
Lloyds Banking Group PLC (LSE:LLOY), HSBC Holdings PLC (LSE:HSBA), Standard Chartered PLC (LSE:STAN) and NatWest Group PLC (LSE:NWG) fell 3.3%. 2.8%, 7.2% and 3.3% respectively.
In signs of further stress in the sector Flagstar Bank owner New York Community Bank agreed to buy most of the operations of Signature Bank, the failed New York City-based lender.
The Federal Deposit Insurance Corporation announced the deal on Sunday, one week after the US banking regulator and deposit insurer took control of Signature.
Concerns that banks will become more cautious in their lending prompted falls in the oil price on fears that the turmoil will lead to a global recession.
Brent crude fell 3.2% to US$70.66/barrel with BP PLC (LSE:BP.) and Shell PLC (LSE:SHEL, NYSE:SHEL) down 1.4% and 1.9% respectively.
The volatility in global markets will pile further pressure on the Bank of England and Federal Reserve who meet this week to make their latest monetary policy moves.
Away from the banking turmoil for a moment and UK house prices rose 0.8% in March from February, figures from Rightmove showed on Monday, with prices of the largest homes leading with a 1.2% increase.
The online estate agency said the average price of properties coming on the market was £365,357, up slightly from £362,452 in February.
Rightmove said the increase is below the average monthly rise in March over the past 20 years, indicating a higher degree of pricing caution by new sellers than is usual for this point in the year.
The strong price rise in the larger home top-of-the-ladder sector of the UK house market was the exception to the caution seen elsewhere, with a 0.4% and 0.5% respective increase in the first-time buyer and second-stepper sectors, Rightmove noted.
New seller asking prices are £5,800 below the peak in October 2022, the property sales portal said, with annual price growth easing to positive 3.0%, which Rightmove said reflects a “more stable footing than many anticipated” and a movement towards the “more normal market of 2019”.
“The beginning of the spring season sees stability and confidence continuing to return to the market as it recovers from the turbulence at the end of 2022. The pace of the market reached an unsustainable level in the last two years, and was on track to slow to a more normal level, though the speed of this slowdown to more normality was accelerated by the reaction to September’s mini-budget,” Rightmove analyst Tim Bannister said.
Virgin Orbit has begun drawing up detailed contingency plans for its insolvency days after halting its operations and furloughing its workforce, according to reports.
Sky News has learnt that the commercial space satellite venture founded by Sir Richard Branson’s Virgin Group is working with Alvarez & Marsal and Ducera, two restructuring firms, on fallback plans in the event that it cannot secure new funding.
The decision to line up the advisers underlines the parlous nature of Virgin Orbit’s finances, even as it continues talks with a small number of prospective investors about providing sufficient funding to restart its operations, the report said.
Exclusive: Virgin Orbit, Sir Richard Branson’s commercial satellite venture, is drawing up contingency plans for its insolvency as it races to secure new funding. The company last week announced it was “pausing” operations and furloughing its workforce. https://t.co/ClWKbTSCTA
— Mark Kleinman (@MarkKleinmanSky) March 19, 2023
Virgin Orbit is 75%-owned by Sir Richard’s holding company, with its shares listed on the Nasdaq exchange in New York.
Its value has further plummeted following the failure of its inaugural British mission in Cornwall in January.
Sources said the insolvency planning work involving A&M and Ducera was being run out of the US.
A&M also worked on plans for the administration of Virgin Atlantic Airways as it raced to recapitalise itself during the COVID-19 pandemic.
Sources said that Boeing, which has previously invested in the company, is not in talks with it.
The Federal Reserve and other global central banks have announced fresh measures to improve US dollar liquidity as global financial markets reel from the turmoil hitting the banking sector.
In a joint statement released on Sunday, the world’s leading central banks said that they will launch daily operations to make funding available via standing swap lines. Previously, those operations were conducted on a weekly basis.
The Fed, European Central Bank, Bank of England and the Swiss National Bank are among those involved in what was described as a “co-ordinated action”. They were joined by the Bank of Canada and the Bank of Japan.
“The network of swap lines among these central banks is a set of available standing facilities and serve as an important liquidity backstop to ease strains in global funding markets, thereby helping to mitigate the effects of such strains on the supply of credit to households and businesses,” the central banks said in a statement.
The move came hours after the SNB announced that its two largest banks, UBS and Credit Suisse, would merge after a frantic weekend of negotiations brokered by Swiss regulators to safeguard its banking system and attempt to prevent a crisis spreading across global financial markets.
FTSE 100 is expected to nurse heavy losses at the open on Monday after Asian bank debt and shares fell after the wipeout of US$17bn of Credit Suisse bonds in the takeover by UBS sparking concern of further turmoil in in European markets.
HSBC shares dropped 7.1% in Hong Kong, while Standard Chartered tumbled 7.7% while some bank bonds suffered steep declines.
Spread betting companies are calling London’s lead index down by around 100 points.
The baning sector will once again take centre stage following more drama over the weekend after UBS agreed to buy Credit Suisse in a US$3.2bn deal.
The two largest banks in Switzerland agreed the deal after a frantic weekend of talks brokered by Swiss regulators to safeguard its banking system and attempt to prevent a crisis spreading across global financial markets.
Under the terms of the deal shareholders of Credit Suisse will receive 1 share in UBS for every 22.48 shares in Credit Suisse.
Credit Suisse Group announces it has entered into a merger agreement with UBS. All details available here: https://t.co/IkG4X3wze5 pic.twitter.com/3Obz6zpxSC
— Credit Suisse (@CreditSuisse) March 19, 2023
Some SFr16bn of Credit Suisse’s Additional Tier 1 capital bonds, which are designed to take losses when institutions run into trouble and to transfer the risk of a bank failure from taxpayers to investors, are being wiped out.
Michael Hewson, chief market analyst at CMC Markets, said: “Some have suggested that UBS putting such a low-ball number on its interest means that Credit Suisse could be in more trouble than perhaps regulators are letting on, and while that might be true, it could also be UBS management being extremely cautious.”
Until the agreement is finalised the Swiss National Bank will grant Credit Suisse access to facilities that provide substantial additional liquidity.
The historic deal follows five days in which the Swiss establishment raced to end a deepening crisis at Credit Suisse that threatened to topple the country’s second-largest lender.
An emergency SFr50bn (US$54bn) credit line provided by the Swiss National Bank on Wednesday failed to arrest a steep decline in the share price, which was exacerbated by wider market turmoil caused by the sudden collapse of California-based Silicon Valley Bank.
“On Friday the liquidity outflows and market volatility showed it was no longer possible to restore market confidence, and a swift and stabilising solution was absolutely necessary,” Swiss president Alain Berset said at a press conference in Bern on Sunday evening. “This solution was the takeover of Credit Suisse by UBS.”
“This is no bailout. This is a commercial solution,” said Swiss finance minister Karin Keller-Sutter.
“The bankruptcy would have had huge collateral damage on the Swiss financial market and with a risk of contagion internationally.
“The US and UK were very grateful for this solution . . . they really feared a bankruptcy of Credit Suisse,” she added.
Axel Lehmann, Chairman of Credit Suisse said: “Given recent extraordinary and unprecedented circumstances, the announced merger represents the best available outcome.”
The merger is expected to be consummated by end of 2023 if possible.
In Asia on Monday, the Nikkei 225 index was down 1.4%. In China, the Shanghai Composite was down 0.4%, while the Hang Seng index in Hong Kong was down 3.2%.
No major UK corporate results are scheduled on Monday.
