The takeover of Credit Suisse by UBS, the largest bank in Switzerland, was meant to calm the growing concern across markets about the health of the financial sector. That anxiety persisted on Monday, with bank stocks falling and markets around the world fluctuating between gains and losses, as investors warily assessed the fallout from the hastily arranged deal on Sunday by Swiss regulators to rescue Credit Suisse from the brink of a disorderly bankruptcy.
Markets fell in Asia and European stocks dropped at the open before paring their losses. Futures in the United States were volatile, swinging from losses to gains. The choppy trade follows relatively steep losses recorded on Friday, implying that the weekend’s moves to shore up banks — which in addition to the Credit Suisse takeover included a deal between major central banks to make dollar funding more readily available and an acquisition of parts of the collapsed Signature Bank in New York — have not put nerves at ease.
European markets opened lower, with banks in the spotlight. Shares of UBS fell nearly 10 percent in Zurich, as the risks and complexity of absorbing Credit Suisse gave investors’ pause. An index tracking Europe’s biggest banks slipped nearly 2 percent, amid a reassessment of the value of banks in general.
In Asia, markets closed with losses, with Tokyo’s Nikkei 225 down more than 1 percent and Hong Kong’s Hang Seng down more than 2 percent.
Stock futures for the S&P 500, which give investors the ability to bet on the index before the start of trading, were roughly flat, after posting losses in early trading. On Friday, the S&P 500 slid 1.1 percent, its sharpest decline in a week.
First Republic Bank, which had been the subject of a rescue attempt by larger rivals that injected billions into the San Francisco-based institution, fell more than 30 percent on Friday and premarket trading indicates another steep slide when markets open on Monday. First Republic’s credit rating was downgraded by S&P Global on Sunday, for the second time in less than a week.
The uncertainty continued to weigh on oil prices, reflecting worries that banking problems would put a damper on economic growth. Brent crude, the international benchmark, slid to nearly $70 a gallon, its lowest since late 2021, before edging higher. West Texas Intermediate oil briefly slipped to $64.12 a gallon, also the lowest in more than a year.
The $3.2 billion acquisition by UBS of Credit Suisse, a hefty discount to the bank’s market value, was announced on Sunday by the Swiss Financial Markets Supervisory Authority. The country’s central bank, the Swiss National Bank, will lend up to 100 billion Swiss francs ($108 billion) to UBS to help it complete the takeover.
The deal brought to an end long-running doubts over the health of Credit Suisse that had been fanned by the recent collapse of California-based Silicon Valley Bank.
Shortly after the UBS acquisition of Credit Suisse was announced, the Federal Reserve and five other central banks, including the Swiss National Bank, unveiled a coordinated action to make sure dollars would remain readily available for short-term lending across the global financial system.
Separately on Sunday night, the Federal Deposit Insurance Corporation said it had entered into an agreement to sell the 40 former branches of Signature Bank, which was taken over by U.S. regulators on March 12, to New York Community Bancorp.
The UBS acquisition of Credit Suisse, which was brokered by the Swiss authorities, came after another weekend of frenzied activity by U.S. and European banking regulators.
“The worst was averted but as cooler heads prevail the question is whether UBS just got Credit Suisse very cheaply, or is the banking system as a whole very overvalued,” said Peter Tchir, global market strategist at Academy Securities.
Investors said they also expect Sunday’s Credit Suisse deal to cause ructions in debt markets because it wiped out a group of the bank’s bondholders. Investors who own stock in a company are typically last in line to be paid when a company is wiped out. But in this case, owners of stock in Credit Suisse received one UBS share for every 22.48 shares they owned, according to the terms of the deal.
The Credit Suisse bonds that were rendered worthless were a special form of risky bank debt, known as AT1 bonds, that are designed to absorb losses during times of stress. On Monday, banking regulators and supervisors in the European Union, of which Switzerland is not a member, issued a statement reiterating that in their jurisdiction shareholders bear losses at banks before bondholders.
A London-traded fund that tracks AT1 bond performance dropped more than 10 percent in trading on Monday.
The crisis in the banking sector continues ahead of a crucial meeting of the Federal Reserve on Wednesday. Many economists expect Fed policymakers to raise rates by a quarter-point, but market pricing suggests that traders are evenly split on whether the central bank will raise interest rates, continuing to turn the screws on an economy already showing signs of slipping from a year of rapid rate rises, or keep them unchanged. That is a remarkable turnaround from just a few weeks ago, when traders put a high probability on the Fed raising rates by half a point.
“Economists often underestimate the viciousness of market moves,” Holger Schmieding of Berenberg Bank wrote in a research note on Monday. “As fear begets fear, markets can fall by more and for longer than fundamentals can justify.”
Jason Karaian and Kevin Granville contributed reporting.