Monday, March 20, 2023

Markets rise on hopes Credit Suisse rescue will contain bank crisis

Dow jumped 336, advancers over decliners 3-1 & NAZ gained 35.  The MLP index went up 2+ to the 216s & the REIT index gained 4+ to the 363s.  Junk bond funds hardly changed after recent selling & Treasuries were sold, raising yields (more below).  Oil slid lower in the 66s & gold was only steady at 1973.

AMJ (Alerian MLP Index tracking fund)


 

 




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Shares of First Republic Bank, which have become the barometer of the regional bank crisis, slid once again today after Standard & Poor's cut the credit rating of the institution, but shares of rival banks were moving higher.  S&P reduced its credit rating for First Republic to B+ from BB+ yesterday after first lowering it to junk status just last week.  The rating remains on CreditWatch Negative, said S&P.  The stock fell 15% today, adding to a decline of more than 80% already this month that came as the collapse of Silicon Valley Bank caused investors to rethink other banks with large uninsured deposit bases.  SPDR S&P Regional Banking ETF gained 4.9% today.  PacWest Bancorp jumped 1%, while KeyCorp & Zions Bancorp climbed 4.7% & 7.8%, respectively.  And shares of New York Community Bancorp, which agreed to buy shuttered Signature Bank over the weekend, jumped more than 30%.  On Thurs, a group of major banks agreed to deposit $30B in First Republic to shore up confidence in regional banks.  But the bank also suspended its div & said it had just about $34B in cash thru Mar 15, not counting the new deposits.

First Republic continues tanking, but other regional banks are rallying on Monday

UBS agreed to buy its embattled rival Credit Suisse for 3B Swiss francs ($3.2B), with Swiss regulators playing a key part in the deal as govs looked to stem a contagion threatening the global banking system.  "With the takeover of Credit Suisse by UBS, a solution has been found to secure financial stability and protect the Swiss economy in this exceptional situation," read a statement from the Swiss National Bank, which noted the central bank worked with the Swiss gov & the Swiss Financial Market Supervisory Authority to bring about the combination of the country's 2 largest banks.  The terms of the deal will see Credit Suisse shareholders receive 1 UBS share for every 22.48 Credit Suisse shares they hold.  “This acquisition is attractive for UBS shareholders but, let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue. We have structured a transaction which will preserve the value left in the business while limiting our downside exposure,” said UBS Chairn Colm Kelleher.  The combined bank will have $5T of invested assets.  “We are committed to making this deal a great success.  There are no options in this,” Kelleher said when asked if the bank could back out of the deal.  “This is absolutely essential to the financial structure of Switzerland and ... to global finance.”  The Swiss National Bank pledged a loan of up to 100B Swiss francs ($108B) to support the takeover.  The Swiss gov also granted a guarantee to assume losses up to 9B Swiss francs from certain assets over a preset threshold “in order to reduce any risks for UBS,” said a separate gov statement.  News of the deal was welcomed by Treasury Secretary Janet Yellen & Federal Reserve Chair Jerome Powell.  “The capital & liquidity positions of the US banking system are strong & the US financial system is resilient. We have been in close contact with our intl counterparts to support their implementation,” they added.

UBS buys Credit Suisse for $3.2 billion as regulators look to shore up the global banking system

Treasury yields rose as investors considered the stability of the banking sector after Swiss bank UBS agreed to buy its rival Credit Suisse.  The yield on the 10-year Treasury was up by 7 basis points at 3.466% & the 2-year Treasury yield was trading at around 3.916% after rebounding to trade 7 basis points higher.  Yields & prices move in opposite directions & one basis point equals 0.01%.  Investors weighed the outlook for the banking sector as regulators worked to curb concerns about a banking sector crisis affecting both regional & global financial institutions.  Yesterday, the Fed announced a joint liquidity operation with several other central banks around the world.  In a statement, the Fed said the new measure would “serve as an important liquidity backstop to ease strains in global funding markets, thereby helping to mitigate the effects of such strains on the supply of credit to households and businesses.”  The Fed's next meeting is due to begin tomorrow, with a fresh interest rate policy decision expected Wed.  A 25 basis point rate increase is widely expected as many believe the central bank will aim to find a middle ground between pursuing its goal of cooling the economy & supporting the financial system’s stability.

Treasury yields rise to start the week after UBS’ takeover of Credit Suisse

Fed officials will have a lot to discuss in their meeting over the next 2 days.  In the meantime, investors will have more news to evaluate while drama runs high.

Dow Jones Industrials

 






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