European stocks bounce off lows as utilities offset CS deal jitters

"Today's focus is on European banks, given that the takeover design of Credit Suisse is creating steep losses for the additional tier 1 holders and sending shockwaves through an important funding market for banks," said Peter Garnry, head of equity strategy at Saxo Bank. However, markets came off their early lows, with utilities and miners leading the gainers as investors digested the weekend's actions.


Reuters | Updated: 20-03-2023 16:16 IST | Created: 20-03-2023 16:10 IST
European stocks bounce off lows as utilities offset CS deal jitters
Representative Image Image Credit: Piqsels

European stocks bounced off early lows on Monday as utilities and miners gained, offsetting some losses in bank stocks that were sparked by UBS' shotgun deal to buy Credit Suisse for a fraction of its market value.

The pan-European STOXX 600 index was flat, having fallen nearly 2% at the market open. Shares of Credit Suisse slumped 60% to a fresh record low of 0.73 francs after rival UBS Group AG said it will pay 3 billion Swiss francs ($3.23 billion) for the 167-year-old bank and assume up to $5.4 billion in losses.

Shares of UBS dropped 7.8%. The bank said it would temporarily suspend stock buybacks. Investors were also spooked by news that Credit Suisse's additional tier-1 bonds - or AT1 bonds - with a notional value of $17 billion will be valued at zero, angering some of the holders of the debt who thought they would be better protected than shareholders.

"We are surprised how they are going about this AT1 capital," said Teeuwe Mevissen, senior macro strategist at Rabobank. "If you look at the seniority of both, equity holders should be the first ones to lose their money. Now doubt has been cast on this principle ... markets participants are confused and the decision comes with a lot of uncertainty."

The wider European banking index slid 1.8%, but recouped from sharp declines of 6% earlier when it hit a three-month low. "Today's focus is on European banks, given that the takeover design of Credit Suisse is creating steep losses for the additional tier 1 holders and sending shockwaves through an important funding market for banks," said Peter Garnry, head of equity strategy at Saxo Bank.

However, markets came off their early lows, with utilities and miners leading the gainers as investors digested the weekend's actions. All eyes will be on the Federal Reserve's policy decision on Wednesday, with traders largely divided on whether the U.S. central bank will hike interest rates by 25 basis points or leave it unchanged.

The benchmark STOXX 600, which racked up a 10% year-to-date gain at one point, is up just 2.7% so far this year after the collapse of Silicon Valley Bank and Signature Bank and troubles at Credit Suisse fuelled worries about the health of the global banking system. The Fed

offered daily currency swaps to ensure banks in Canada, Britain, Japan, Switzerland and the eurozone would have the dollars needed to operate.

 

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)

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