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Another wild weekend has seen regulators attempt to stave off a banking crisis that's quickly spreading across global markets. In an emergency deal brokered by Swiss authorities, UBS (NYSE:UBS) agreed to scoop up longtime rival Credit Suisse (NYSE:CS) for $3.25B, which was less than half of the latter's market valuation at the close of trading on Friday. Without a deal, Credit Suisse would've likely collapsed this week, spreading further financial contagion that began in the U.S. with the implosion of Silvergate Capital (SI), Silicon Valley Bank (SIVB) and Signature Bank (SBNY) (First Republic (FRC) is also facing trouble with additional cuts to its ratings).
What's in it for UBS? By swallowing Credit Suisse, the bank has the opportunity to "scale up materially and instantaneously bringing on significant additional AUM and AUS," wrote SA contributor IP Banking Research, predicting the deal ahead of the announcement and calling it a shotgun wedding. "Operational leverage and significant synergies that can be derived would be exceptionally high and UBS would likely only need to pay a token amount," he continued. One of the biggest factors for UBS is also the fact that the Swiss government now has its back after it "managed to negotiate the deal of the century."
Market sentiment took a turn for the better following the emergency rescue, which would limit contagion through the financial system, only to drop lower as things were fully digested. With big losses on tap for shareholders and bondholders, the Fed, ECB and other major central banks took "coordinated action" to ensure dollar liquidity, while the Swiss National Bank promised access to liquidity facilities for both banks involved in the transaction. In premarket trading, UBS (UBS) and Credit Suisse (CS) opened down 11% and 59%, respectively, with regulator FINMA adding that about $17B worth of Credit Suisse's risky AT1 bonds will become worthless to guarantee that private investors help bear some of the costs.
Outlook: Market participants are hoping that the game of whack-a-mole in the latest banking crisis will end well, but there are deeper considerations at play in terms of the health of the overall economy. While moves by the government may limit wider contagion among financial institutions, tightening standards among lenders, greater scrutiny and raising capital ratios all have the potential to slow economic activity. Combined with higher interest rates from the Federal Reserve, it can all but guarantee a coming recession, but what other options does the central bank have as it looks to vanquish inflation? (47 comments)
In light of the current banking crisis, what will the Fed do this week at its March policy meeting?
· Hold rates (not introducing any more risk)
· 25 bps hike (price pressures are still a problem)
· Raise by 50 bps (biggest job is to tackle inflation)
Take the survey and see the results here
Billionaire investor Warren Buffett has reportedly been in contact with senior officials in the Biden administration in recent days regarding the regional banking crisis. Note that the Oracle of Omaha has been a savior to the banking sector in the past. The chairman of Berkshire Hathaway (NYSE:BRK.B) invested $5B in Bank of America (BAC) in 2011 as he tried to bolster the bank due to its losses tied to subprime mortgages, and also came to the aid of Goldman Sachs (GS) in 2008. Elsewhere, a group representing mid-size U.S. banks sent a letter to the FDIC asking the agency to ensure all bank deposits for the next two years as debate takes place over the current cap of $250K. (312 comments)
An agreement that allows Ukraine to export grains from Black Sea ports has been renewed beyond its March 18 deadline. While Ukraine officials said the pact was renewed for another 120 days, a spokesperson for Russia's Foreign Ministry announced it agreed to a 60-day extension, after warning that a lengthier extension would depend on the removal of some Western sanctions. The Black Sea grain agreement has allowed more than 25M tons of crop shipments from Ukraine since it was first brokered by the United Nations and Turkey last July, and before its renewal, Chicago wheat futures (W_1:COM) scored their first weekly gain in five. Chinese leader Xi Jinping also arrived in Moscow today for a three-day visit amid fresh ground offensives by Russian forces in a grinding war of attrition. (11 comments)
The banking crisis has seen some interesting winners and losers, and more will be revealed (or change) as new developments play out. While equities are still making up their mind, traders have been fleeing financial stocks to snap up safe-haven assets like bonds, gold and even crypto. The yellow metal has rocketed to over $2,000 an ounce, while Bitcoin (BTC-USD) breached the $28,000 level for the first time since June 2022. On the other side of the fence is WTI crude oil (CL1:COM), which just fell to $65/bbl, after closing out its worst weekly loss in nearly three years. (55 comments)
In Asia, Japan -1.4%. Hong Kong -2.7%. China -0.5%. India -0.6%.
In Europe, at midday, London +0.3%. Paris +0.8%. Frankfurt +0.5%.
Futures at 6:30, Dow flat. S&P +0.1%. Nasdaq +0.1%. Crude -1.5% to $65.89. Gold +1.4% to $2002.40. Bitcoin +4.5% to $28,346.
Ten-year Treasury Yield -3 bps to 3.37%
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What else is happening...
Fed, Treasury support Swiss authorities' moves on financial stability.
NY Community Bancorp (NYCB) unit buys Signature Bank (SBNY) deposits.
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Calling for protest, Trump says he expects to be arrested on Tuesday.
Macron's leadership at risk as tensions grow over French pensions.
Pfizer (PFE) CEO Bourla pockets $33M for 2022 after 36% pay hike.
TikTok's 'moment of truth' is coming and fallout could spread far and wide.
Microsoft (MSFT) offers remedies in EU deal review of Activision (ATVI).
Silicon Valley Bank (SIVB) called a 'hedge fund in drag.'
Housing market slump to worsen on mortgage rate volatility - Fitch.
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