FTAdviser looks at the latest developments, and what this means for your clients. The team will update this breaking story as the situation unfolds.
The chairperson of Credit Suisse, Axel Lehmann, has apologised to Credit Suisse’s shareholders
In the company’s last annual general meeting yesterday (April 4), Axel Lehmann said it was a “sad day”.
“Until the end, we fought hard to find a solution, but ultimately there were only two options: deal or bankruptcy,” he said.
Lehmann told attendees in Zurich that the company put all its energy and efforts into turning the situation around and putting the bank on track, but did not have time to do so and its plans were eventually “disrupted”.
“For that I am truly sorry.
“I apologize that we were no longer able to stem the loss of trust that had accumulated over the years, and for disappointing you.”
The meeting was the final AGM for the company before it is taken over by UBS, a deal arranged in haste by Swiss authorities to prevent further contagion in the banking sector after the collapse of Silicon Valley Bank led to falls in banks' share price.
UBS has appointed a former chief executive back into the role as it prepares for the merger with Credit Suisse.
Sergio Ermotti, who was chief executive of the swiss bank between 2011 to 2020, before becoming chairperson of Swiss Re, will take over from Ralph Hamers
UBS's shares rose on the news, and on Thursday (March 30) had risen 3.4 per cent.
The investment team at Candriam believe that the longer-term consequence of the Credit Suisse collapse could be that commercial banks tighten their lending conditions in order to preserve capital.
This might have the result that financial tightening happens at a pace faster than central banks are tightening interest rates, meaning that the impact of tighter monetary policy is amplified in the real economy and making it more likely equities fall in value.
Rates of change
One outcome of the financial market turbulence of recent days may be that central banks pause rate rises, and this would be expected to lead to a drop in mortgage rates, according to Matt Megens, who runs the fintech site HyperJar.
He said: "What has emerged from the chaos is the reduction in swap rates, a move that is set to be welcomed by borrowers. Swap rates, a market indicator used by banks and building societies to gauge future borrowing costs, began to climb before the crash of SVB. However, they have since fallen by 0.4 per cent which spells good news for those looking to fix in the near future. This will also have a knock-on effect on lenders, who are likely to release lower fixed-rate mortgages."
The completion of the deal has seen UBS downgraded by analysts at Moodys, but that has not prevented a relief rally in the shares both of the Swiss lender, whose stock is up over 3 per cent at the time of pixel, and of banks and equity markets more generally, as contagion fears recede.
Focus on central banks
Christine Lagarde, president of the European Central Bank, said today the bank is "ready to respond as necessary" to ensure financial stability in the EU.
She told MEPs that the EU's banking sector was "resilient, with strong capital and liquidity positions", and said the takeover of Credit Suisse was “instrumental for restoring orderly market conditions and ensuring financial stability”.
The Bank of England's monetary policy committee is meeting on Thursday (March 23) to discuss whether or not to raise the base rate of interest in the UK.
Advisers have called for stability. Amit Patel, adviser at Trinity Finance, said the BoE must vote to leave rates on hold, or decrease the base rate following UBS's acquisition of Credit Suisse.
This is having major negative reverberations across the sector.Victoria Scholar, Interactive Investor
"We need financial stability in the UK now more than ever and I think if they were to raise rates then this will catastrophically backfire. We have been here before, and sadly once again it's the ordinary people that will suffer."
Olivier d’Assier, head of Applied Research at Qontigo, said markets are pricing in a 25 basis point rise in the interest rate decision by the BoE, and a similar rise at the Federal Reserve's meeting this week.
"Anything that deviates from this expectation will be interpreted in the context of a declining sentiment and increasingly nervous investors.”
Victoria Scholar, head of investment, Interactive Investor, said: "Investors clearly remain extremely cautious towards the banking sector.
"A key underlying cause has the backdrop of inflation-combative rising interest rates after the longstanding punchbowl of cheap money was removed.
"This is having major negative reverberations across the sector and wider markets globally.”
Bondholders in uproar
Credit Suisse bondholders are in ‘uproar’ and the European Central Bank has raised concerns after $17bn in bonds was wiped out.
Additional tier 1 bank debt (AT1), contingent convertible securities which are seen as a risky form of debt, can be converted into equity if a bank’s capital ratio falls below a certain level.
The Swiss authorities have written down the value of Credit Suisse’s AT1 debt to zero. One AT1 holder told the Financial Times he thinks the move is against the law.
Markets opened down after fears grew over the stability of the banking sector after UBS agreed a deal to buy beleaguered fellow Swiss bank, Credit Suisse.
UBS will buy Credit Suisse for $3.25bn, more than triple the figure quoted in initial reports. The deal, which was brokered by the Swiss regulator, will create the world’s biggest wealth manager.
The Swiss National Bank agreed to offer a $100bn (£81.8bn) liquidity line to UBS as part of the deal, according to the Financial Times.
The Bank of England released a statement saying it welcomed the "comprehensive set of actions" set out by the Swiss Authorities.
The UK banking system is well capitalised and funded, and remains safe and sound."