London open: Banks pace decline after UBS agrees to buy Credit Suisse
By Michele Maatouk
Date: Monday 20 Mar 2023
(Sharecast News) - London stocks slid in early trade on Monday, taking their cue from heavy losses in Asia, with banks under the cosh again after Credit Suisse agreed to be bought by rival UBS.
At 0830 GMT, the FTSE 100 was down 1.3% at 7,237.57.
UBS agreed to buy Credit Suisse for around $3.25bn in an all-share transaction. As part of the deal, Switzerland's central bank will make available a CHF100bn liquidity line to UBS.
Under the terms of the agreement, should UBS incur in more than CHF5bn in losses from Credit Suisse's assets, the Swiss government would shoulder the next CHF9bn in red ink, with UBS taking any losses above that amount.
Investors were concerned about the huge hit some Credit Suisse bondholders will take as a result of the deal, as $17bn worth of riskier AT1 bonds will be wiped out.
UBS shares tumbled 14% in early trade, while Credit Suisse was a whopping 62% lower.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: "Investors in Asia initially welcomed the action, but fresh worries are now coming to the surface about what could happen next. 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.
"It is not yet known exactly where more pain will emerge in the banking sector, but investors fear the problems are not yet over. Shares in Standard Chartered and HSBC listed in Hong Kong fell by 7% after immediate relief at the Credit Suisse deal evaporated. Smaller lenders will be in focus again, particularly in the US, after First Republic Bank shares tanked by more than 30% despite the $30 billion lifeline given to it by large US banks.
"Bigger lenders are still considered to be much better insulated from the chill winds still blowing through the banking sector. They have built up much bigger capital cushions since the financial crisis, have more stable deposits, and some are seeing greater inflows of cash as companies and individuals seek out safer havens to put their money. They are also much less likely to have to sell off bonds, they may have a paper loss on right now, but instead will be able to hang onto them until they mature.
"But as risk aversion grips the sector, the worry is that overall banks will become more cautious in their lending, which could be another blow for already fragile housing markets in particular. Worries are rattling investors about what repercussions a potential lending squeeze will have on the global economy."
On home shores, a survey out earlier showed that property asking prices rose by 0.8% in March from the prior month and showed signs of stabilising after last year's 'mini-budget', which created severe market volatility.
Rightmove said the market still faced challenges from higher interest rates and economic headwinds.
Optimism about a recovery was tempered by the fact that March's growth was below the 1% average monthly increase for the month over the last 20 years with sellers more cautious than usual about pricing.
Rightmove director Tim Bannister said 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".
"While higher mortgage rates and economic headwinds raise challenges, many potential home movers who were effectively side-lined in the frenetic bidding wars of the last two years will find that a slower-paced market gives them time to plan and secure their next move as we enter the traditionally busy spring-buying season," Bannister said.
In equity markets, banks were the biggest fallers again, with Standard Chartered, Barclays, NatWest, Lloyds and HSBC all sharply lower.
Precious metals miners were the standout gainers as gold prices rose, with Endeavour Mining, Fresnillo and Centamin all up.
There wasn't a whole lot happening on the corporate front, but FirstGroup said the government had extended its current contract for its troubled West Coast rail contract to October 15.
Elsewhere, Intertek announced the appointment of Colm Deasy as group chief financial officer and as an Executive Board director. It also said it was establishing a new Group Executive Committee effective immediately.
Market Movers
FTSE 100 (UKX) 7,237.57 -1.33%
FTSE 250 (MCX) 18,189.21 -1.52%
techMARK (TASX) 4,416.25 -0.93%
FTSE 100 - Risers
Endeavour Mining (EDV) 1,865.00p 5.97%
Fresnillo (FRES) 733.20p 3.27%
Severn Trent (SVT) 2,846.00p 1.17%
National Grid (NG.) 1,051.00p 1.15%
United Utilities Group (UU.) 1,054.00p 0.96%
Diageo (DGE) 3,503.50p 0.82%
Unilever (ULVR) 4,071.00p 0.58%
Anglo American (AAL) 2,513.00p 0.36%
Rentokil Initial (RTO) 548.20p 0.26%
Croda International (CRDA) 6,354.00p 0.22%
FTSE 100 - Fallers
Standard Chartered (STAN) 588.00p -7.26%
Barclays (BARC) 130.78p -6.29%
Prudential (PRU) 947.00p -6.05%
NATWEST GROUP (NWG) 243.30p -5.70%
Rolls-Royce Holdings (RR.) 132.80p -5.35%
HSBC Holdings (HSBA) 517.10p -4.61%
Lloyds Banking Group (LLOY) 44.31p -4.19%
Legal & General Group (LGEN) 218.00p -3.80%
M&G (MNG) 171.15p -3.74%
Aviva (AV.) 387.70p -3.61%
FTSE 250 - Risers
Centamin (DI) (CEY) 106.15p 5.46%
Ithaca Energy (ITH) 154.80p 1.51%
HGCapital Trust (HGT) 341.50p 0.59%
International Public Partnerships Ltd. (INPP) 145.00p 0.42%
Bytes Technology Group (BYIT) 370.20p 0.33%
Warehouse Reit (WHR) 99.00p 0.30%
Pennon Group (PNN) 863.50p 0.29%
Personal Assets Trust (PNL) 473.00p 0.21%
Mediclinic International (MDC) 497.60p 0.00%
Vietnam Enterprise Investments (DI) (VEIL) 570.00p 0.00%
FTSE 250 - Fallers
Essentra (ESNT) 188.00p -12.15%
Harbour Energy (HBR) 231.10p -6.70%
Intermediate Capital Group (ICP) 1,090.00p -5.75%
ASOS (ASC) 696.00p -5.63%
Tullow Oil (TLW) 27.32p -5.60%
Molten Ventures (GROW) 280.00p -5.53%
Just Group (JUST) 75.60p -5.26%
Bank of Georgia Group (BGEO) 2,280.00p -4.80%
Investec (INVP) 419.00p -4.77%
Man Group (EMG) 214.40p -4.50%
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