Is Credit Suisse just the start of a global failure contagion among large global systemically important banks? How much more in bail outs will be needed? Two major banks in Europe look to regulators for reassurance https://www.reuters.com/business/fi...ok-regulators-reassurance-sources-2023-03-19/ LONDON, March 19 (Reuters) - At least two major banks in Europe are examining scenarios of contagion in the region's banking sector and are looking to the Federal Reserve and the ECB for stronger signals of support, two senior executives close to the discussions told Reuters. The fallout from the crisis of confidence in Credit Suisse Group AG (CSGN.S) and the failure of two U.S. banks could ripple through the financial system next week, the two executives separately told Reuters on Sunday. The two banks have held their own internal deliberations on how soon the European Central Bank should weigh in to highlight banks' resilience, specifically their capital and liquidity positions, the people said. A focus of these internal discussions is whether such statements might create even more alarm if they are made too soon, the people said. The executives said that their banks and the sector are well capitalised and liquidity is strong, but they fear that the crisis of confidence will sweep up more lenders. One of the executives said the Federal Reserve might have to move first as the failures of Silicon Valley Bank and Signature Bank in the United States earlier this month triggered the concerns in Europe. The ECB declined to comment. The Fed had no comment. A further selloff in banks could erode confidence depositors have in their lenders. Since the U.S. banks' collapse, savers have been moving funds to bigger lenders in a flight to safety that undermines the sector's ability to lend. In Europe, companies still rely mostly on bank loans to fund their growth, meaning the real economy is more sensitive to banks. The ECB on Thursday stuck with plans for a half-point rate rise to contain inflation. But it stressed it was monitoring market tensions and would respond as necessary to preserve price stability and financial stability in the currency bloc. As one of 30 global systemically important banks, Credit Suisse's problems could affect the entire financial system, industry executives have said. U.S. and European banking stocks (.SX7P) have slid 22% and 17% respectively so far in March, putting them on track for their biggest monthly drops since March 2020 when the COVID-19 crisis rattled markets. As regulators try to stop the loss of confidence in Credit Suisse before markets reopen on Monday, one source said the talks with UBS Group AG (UBSG.S) are encountering significant obstacles, and 10,000 jobs may have to be cut if the two banks combine, Reuters reported. The Swiss lender last week became the first global bank to receive an emergency liquidity line since the financial crisis. In a sign of further strain, a coalition of midsize U.S. banks, Mid-Size Bank Coalition of America (MBCA), has asked regulators to extend FDIC insurance to all deposits for the next two years, Bloomberg News reported on Saturday citing an MBCA letter to regulators. The letter said that extending insurance will stop the exodus of deposits from smaller banks, in turn helping to stabilise the banking sector, the report said. The U.S., UK and Swiss central banks all hold scheduled meetings this week. Despite still high inflation, the banking turmoil has forced traders to rapidly re-price expectations for further rates hikes as overly high interest rates can cause a fall in demands for new loans, damaging banks' profits. Markets price just a 60% chance of a quarter point rate hike at the Fed's meeting this week, a sharp turnaround from expectations for a bigger half-point move earlier this month.
Too big for Switzerland? Credit Suisse rescue creates bank twice the size of the economy https://www.cnn.com/2023/03/23/investing/credit-suisse-ubs-impact-switzerland/index.html The last-minute rescue of Credit Suisse may have prevented the current banking crisis from exploding, but it’s a raw deal for Switzerland. Worries that Credit Suisse’s downfall would spark a broader banking meltdown left Swiss regulators with few good options. A tie-up with its larger rival, UBS (UBS), offered the best chance of restoring stability in the banking sector globally and in Switzerland, and protecting the Swiss economy in the near term. But it leaves Switzerland exposed to a single massive financial institution, even as there is still huge uncertainty over how successful the mega merger will prove to be. “One of the most established facts in academic research is that bank mergers hardly ever work,” said Arturo Bris, a professor of finance at Swiss business school IMD. There are also concerns that the deal will lead to huge job losses in Switzerland and weaken competition in the country’s vital financial sector, which overall employs more than 5% of the national workforce, or nearly 212,000 people. Taxpayers, meanwhile, are nowon the hook for up to 9 billions Swiss francs ($9.8 billion) of future potential losses at UBS arising from certain Credit Suisse assets, provided those losses exceed 5 billion francs ($5.4 billion). The state has also explicitly guaranteed a 100 billion Swiss franc ($109 billion) lifeline to UBS, should it need it, although that would be repayable. Switzerland’s Social Democratic party hasalready called for an investigation into what went wrong at Credit Suisse, arguing that the newly created “super-megabank” increases risks for the Swiss economy. The demise of one of Switzerland’s oldest institutions has come as a shock to many of its citizens. Credit Suisse is “part of Switzerland’s identity,” said Hans Gersbach, a professor of macroeconomics at ETH university in Zurich. The bank “has been instrumental in the development of modern Switzerland.” Its collapse has also tainted Switzerland’s reputation as a safe and stable global financial center, particularly after the government effectively stripped shareholders of voting rights to get the deal done. Swiss authorities also wiped out some bondholders ahead of shareholders, upending the traditional hierarchy of losses in a bank failure and dealing another blow to the country’s reputation among investors. “The repercussions for Switzerland are terrible,” said Bris of IMD. “For a start, the reputation of Switzerland has been damaged forever.” That will benefit other wealth management centers, including Singapore, he told CNN. Singaporeans are “celebrating… because there is going to be a huge inflow of funds into other wealth management jurisdictions.” Too big to fail? At roughly $1.7 trillion, the combined assets of the new entity amount to double the size of Switzerland’s annual economic output. By deposits and loans to Swiss customers, UBS will now be bigger than the next two local banks combined. With a roughly 30% market share in Swiss banking, “we see too much concentration risk and market share control,” JPMorgan analysts wrote in a note last week before the deal was done. They suggested that the combined entity would need to exit or IPO some businesses. The problem with having one single large bank in a small economy is that if it faces a bank run or needs a bailout — which UBS did during the 2008 crisis — the government’s financial firepower may be insufficient. At 333 billion francs ($363 billion), local deposits in the new entity equal 45% of GDP — an enormous amount even for a country with healthy public finances and low levels of debt. On the other hand,UBS is in a much stronger financial position than it was during the 2008 crisis and it will be required to build up an even bigger financial buffer as a result of the deal. The Swiss financial regulator, FINMA, has said it will “very closely monitor the transaction and compliance with all requirements under supervisory law.” UBS chairman Colm Kelleher underscored the health of UBS’s balance sheet Sunday at a press conference onthe deal. “Having been chief financial officer [at Morgan Stanley] during the last global financial crisis, I’m well aware of the importance of a solid balance sheet. UBS will remain rock-solid,” he said. Kelleher added that UBS would trim Credit Suisse’s investment bank “and align it with our conservative risk culture.” Andrew Kenningham, chief Europe economist at Capital Economics, said “the question of market concentration in Switzerland is something to address in future.” “30% [market share] is higher than you might ideally want but not so high that it’s a major problem.” The deal has “surgically removed the most worrying part of [Switzerland’s] banking system,” leaving it stronger, Kenningham added. Jobs and competition The dealwill have an adverse affect on jobs, though, likely adding to the 9,000 cuts that Credit Suisse already announced as part of an earlier turnaround plan. For Switzerland, the threat is acute. The two banks collectively employ more than 37,000 people in the country, about 18% of the financial sector’s workforce, and there is bound to be overlap. “The Credit Suisse branch in the city where I live is right in front of UBS’s, meaning one of the two will certainly close,” Bris of IMD wrote in a note Monday. In a call with analysts Sunday night, UBS CEO Ralph Hamers said the bank would try to remove 8 billion francs ($8.9 billion) of costs a year by 2027, 6 billion francs ($6.5 billion) of which would come fromreducing staff numbers. “We are clearly cognizant of Swiss societal and economic factors. We will be considerate employers, but we need to do this in a rational way,” Kelleher told reporters. Not only does the deal, done in a hurry, fail to protect jobs in Switzerland, but it contains no special provisions on competition issues. UBS now has “quasi-monopoly power,” which could increase the cost of banking services inthe country, according to Bris. Although Switzerland has dozens of smaller regional and savings banks, including 24 cantonal banks, UBS is now an even more dominant player. “Everything they do… will influence the market,” said Gersbach of ETH. Credit Suisse’s Swiss banking arm, arguably its crown jewel, could have been subject to a future sale as part of the terms of the deal, he added. A spinoff of the domestic bank now looks unlikely, however, after UBS made clear that it intended to hold onto it. “The Credit Suisse Swiss bank is a fine asset that we are very determined to keep,” Kelleher said Sunday. Integration is difficult At $3.25 billion, UBS got Credit Suisse for 60% less than the bank was worth when markets closed two days prior. Whether that ultimately turns out to be a steal remains to be seen. Large mergers arenotoriously fraught with risk and often don’t deliver the promised returns to shareholders. UBS argues that by expanding its global wealth and asset management franchise, the deal will drive long-term shareholder value. “UBS’s strength and our familiarity with Credit Suisse’s business puts us in a unique position to execute this integration efficiently and effectively,” Kelleher said. UBS expects the deal to increase its profit by 2027. The transaction is expected to close in the coming months, but fully integrating the two institutions will take three to five years, according to Phillip Straley, the president of data analytics company FNA. “There’s a huge amount of integration risk,” he said. Moody’s on Tuesday affirmed its credit ratings on UBS but changed the outlook on some of its debt from stable to negative, judging that the “complexity, extent and duration of the integration” posed risks to the bank. It pointed to challenges retaining key Credit Suisse staff, minimizing the loss of overlapping clients in Switzerland and unifying the cultures of “two somewhat different organizations.” According to Kenningham of Capital Economics, the “track record of shotgun marriages in the banking sector is mixed.” “Some, such as the 1995 purchase of Barings by ING, have proved long-lasting. But others, including several during the global financial crisis, soon brought into question the viability of the acquiring bank, while others have proven very difficult to implement.”
European banks are a disaster waiting to happen. The 10 biggest banks in Europe are all trading at a price to book of less than 1. This is bigger than just credit suisse. If they mismanage this too badly it will all come down like dominos.
%% LOL\ nothing like a penny stock for many months to send a message on their mess. Matter of public record=CS mess. They should have listened to Dave ramsey ''not so much drama'' SCHW + others pay 4.44% on money market. Sorry regional banks underpaid on interest for so long Regional banks got hammered so hard by bears[SVB deserved every down tic LOL]; good trade. Interesting NOV Sat/Sun 12,2023, WSJ article about bank's bond risk=SVB, WFC, BAC. Possible\ but not likely most counterparties would be overloaded with one banks products, especially CS, SVB\WFC...................