Stocks jumped on Monday in London and New York after central bankers and politicians sought to calm tensions over the emergency rescue of Credit Suisse over the weekend.
Central banks in the UK and the eurozone issued statements aimed at reassuring investors that – unlike the controversial approach taken by the Swiss authorities in the Credit Suisse deal – their jurisdictions will follow a hierarchy in which equity holders lose out to bond holders.
“The Bank of England’s decision framework has a clear legal regime in which shareholders and creditors suffer losses in a settlement or bankruptcy scenario,” the Bank of England said in a statement on Monday.
Meanwhile, the prime minister’s official spokesperson also sought to offer reassurance as UK bank stocks fell in early trade on Monday, telling reporters that Britain’s banking system “remains safe and well-capitalised”.
The FSTE 100 rose 1%, or 75 points, in the afternoon, after starting the day strongly in the red. London-listed bank shares also rebounded mainly into positive territory on Monday, after selling off first thing. Standard Chartered and Barclays remained down 2.5% and 1.8%, respectively.
European banking stocks according to the Stoxx Europe 600 Banking Index rose 2% on Monday afternoon, after falling 3% during the morning. UBS bounced back 2% after the deal to bail out its Swiss bank and rival Credit Suisse over the weekend. Credit Suisse shares fell 56%.
Previous tensions were driven in part by the terms of the bailout deal, which saw the demise of $17bn (£14bn) of Credit Suisse notes – Additional Level 1s (AT1s) – while equity investors were not badly affected.
Global litigation firm Quinn Emanuel Urquhart & Sullivan announced that it is in discussions with a number of Credit Suisse AT1 capital instrument holders about potential legal action in response to the terms of the bailout deal. She said she was assembling a team of lawyers from Switzerland, the United States and the United Kingdom.
Shares in troubled San Francisco-based First Republic Bank fell more than 18% even as US bank stocks rose.
The losses followed further downgrades of its debt rating by S&P Global. Moving the bank’s credit rating into junk territory, Standard & Poor’s said the lender’s recent deposit infusion of $30bn (£24bn) from 11 big banks may not solve its liquidity problems.
Eurozone regulators also issued a statement on Monday morning in an attempt to reassure markets that the Credit Suisse deal did not change its position in the debt hierarchy when a bank fails.
The Single Decision Board (SRB), the European Banking Authority and the European Central Bank’s banking supervisor said they welcomed the “comprehensive set of measures taken”. [on Sunday] by the Swiss authorities.
They then made it clear to investors that they would impose losses on equity holders, before the investors held the AT1 bond, although the Credit Suisse deal reversed this by eliminating the AT1 bond, or “CoCo”.
German Chancellor Olaf Scholz added his voice to the chorus of leaders welcoming the measure taken by the Swiss authorities over the weekend, while also noting the stability of the German banking system: “The situation cannot be compared to what happened in 2008-2009,” his spokesperson said. “The German banking system is in good shape,” they added.
The various moves seemed to ease concerns, as all major European indices turned positive after the statement was issued, after being negative when trading started on Monday morning.
While investors’ nerves appeared to be somewhat fixed, concerns about what the UBS-Credit Suisse alliance might mean for jobs began to surface.
Canary Wharf in London is home to Credit Suisse’s approximately 5,500 employees, ranging from investment bankers and asset managers to technology, risk and compliance teams.
UBS has said it would threaten the investment bank division of Credit Suisse, and Mark Yallop, former UK chief executive of UBS, told BBC Radio 4’s Today program he believed job losses were “inevitable” in the merger process.
“I would imagine those would be concentrated in the risky investment banking business of Credit Suisse, which is partly the cause of the problems the company is facing,” he said.
It’s unclear what the merger will mean for UBS employees either. It has offices in the UK in London, Birmingham, Manchester, Leeds, Newcastle upon Tyne and Edinburgh.
However, concerns about future employment opportunities will not prevent employees from receiving bonuses at Credit Suisse.
Concerns about job cuts come after central banks took concerted action Sunday night to try to boost confidence by agreeing measures to ensure banks in Canada, the United Kingdom, Japan, Switzerland and the eurozone have the dollars they need to operate.
The US Federal Reserve, Bank of Canada, Bank of England, Bank of Japan, European Central Bank and Swiss National Bank announced that they will increase liquidity through daily US dollar swaps.
The change is a modest expansion of an existing program in which each week the Federal Reserve pays dollars to other central banks for the local currency.
Earlier on Monday, shares in HSBC and Standard Chartered banks fell in the Asian stock market as details of UBS’ $3.2 billion “emergency takeover” of Credit Suisse rattled global investors.
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