UBS to Buy Credit Suisse in Heated Market

Articles From: Briefing.com
Website: Briefing.com

By:

Chief Market Analyst

The equity futures market has been a bit jumpy this morning, vacillating between negative and positive territory as market participants face ongoing consternation about banking issues that may or may not be a systemic problem.

That uncertainty is what has the market on edge, digesting a spate of news that doesn’t make it sound necessarily as if all problems have been solved:

  • UBS (UBS) agreed to acquire Credit Suisse (CS) for $3.2 billion in a brokered “emergency rescue” by the Swiss National Bank, which also equates to a “takeunder.” Shares of CS are indicated 56% lower while shares of UBS are up 2.5%.
  • Credit Suisse has been informed by FINMA that FINMA has determined that Credit Suisse’s Additional Tier 1 Capital (deriving from the issuance of Tier 1 Capital Notes) in the aggregate nominal amount of approximately CHF 16 billion will be written off to zero.
  • The FDIC is going to extend the bid window for Silicon Valley Bridge Bank, N.A. amid “substantial interest from multiple parties”
  • A New York Community Bank (NYCB) subsidiary is acquiring certain assets and assumes certain liabilities of Signature Bridge Bank from the FDIC
  • Warren Buffett has engaged White House about the regional bank crisis, according to Bloomberg
  • The Federal Reserve announced a coordinated central bank action with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank to enhance provision of U.S. dollar liquidity

At the same time, Treasury Secretary Yellen and Fed Chair Powell reassured everyone that “the capital and liquidity positions of the U.S. banking system are strong, and the U.S. financial system is resilient.”

Their faith in matters has been slow to be rewarded.

Currently, the S&P 500 futures are up 11 points and are trading 0.2% above fair value, the Nasdaq 100 futures are up 23 points and are trading 0.2% above fair value, and the Dow Jones Industrial Average futures are up  113 points and are trading 0.3% above fair value.

The Treasury market has been another area that has seen a good bit of price vacillation. Overnight, the 2-yr note yield slumped as many as 18 basis points to 3.64% and the 10-yr note yield dropped as many as 10 basis points to 3.30%. The 2-yr yield is now at 3.87% and the 10-yr yield is now at 3.44%.

The banking issues are both background noise and foreground clatter, making it all the more difficult for market participants to discern if the Fed will raise rates again this week at its March 21-22 FOMC meeting and whether a pause or another hike will be interpreted positively or negatively by the market.

Some have argued that a pause will make it appear as if the banking issue is a bigger problem than it is, while others have said a rate hike will make a deteriorating economic environment, exacerbated by the banking crisis, even worse. This FOMC meeting will also feature the release of an updated Summary of Economic Projections that will likely include some wider-than-usual forecast ranges.

All reactions leading up to that announcement — and immediately thereafter — will be heat of the moment reactions because this is a heated market that looks pleased and disturbed with this banking situation and the response to it all at once.

The only conclusion to be drawn at this point from any of it is that market volatility will remain high.

Originally Posted March 20, 2023 – UBS to buy Credit Suisse in heated market

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