ZURICH: Moves by the authorities to avert world banking issues appeared to have lifted market confidence on Monday as investors welcomed the emergency dollar liquidity from main central banks and a historic Swiss-backed acquisition of problematic Credit Suisse by UBS Group. In a package orchestrated by Swiss regulators, UBS Group AG would pay 3 billion Swiss francs for 167 years old Credit Suisse Group AG and assume up to 5.4 billion dollars in losses.
Central banks
Main central banks, faced with the high risk of a fast-approaching loss of confidence in the financial system, scrambled on Sunday to bolster the flow of cash around the globe with a series of coordinated currency swaps to make sure banks have the dollars required to operate. The Swiss banking marriage is backed by a huge government guarantee, helping prevent what would have been one of the massive banking collapses since the fall of Lehman Brothers in 2008.
The financial markets staged a modest relief rally in Asia but are wary about various risks, including contagion, the fragile state of United States (US) regional banks, and moral hazard.
“Policy makers would be hoping that the weekend’s UBS buyout of troubled Credit Suisse would draw a line under recent market stresses,” said ANZ head of G3 economics in London, Brian Martin.
“Central banks were facing the conundrum of ‘how much is enough?’ in the face of strong labour markets, given the lags with which their policy decisions affect economies. They now have a fresh problem: ‘how much is too much?’ for financial stability?”
Pressure on UBS helped seal Sunday’s deal. Kelleher said, “It’s a historic day in Switzerland, and a day frankly, we hoped, wouldn’t come,” UBS Chairman Colm Kelleher told analysts. “I would like to make it clear that while we didn’t initiate discussions, we believe this transaction is financially attractive for UBS shareholders,”
UBS CEO Ralph Hamers said several details still needed to be worked through. “I know there must be still questions that we haven’t been able to answer,” he said. “I understand that and even want to apologize for it.”
In a world response not seen since the peak of the pandemic, the Fed said it had joined central banks in Canada, Japan, England, the European Union (EU), and Switzerland in a coordinated action to enhance market liquidity. The European Central Bank vowed to support eurozone banks with loans if required, adding the Swiss rescue of Credit Suisse was “instrumental” in restoring calm.
