Shares in major banks are sliding this morning, as initial relief over the emergency rescue of Credit Suisse fades.
Investors are concerned about the massive hit some Credit Suisse bondholders would take under the UBS acquisition, given that $17bn worth of riskier AT1 bonds are being wiped out under the deal (see opening post).
That decision, by the Swiss regulator, has angered some debt holders thought they would be better protected than shareholders in the takeover deal announced on Sunday.
This has created worries about what that might mean for holders of AT1 bonds issued by other banks , at a time of high nervousness about the financial system.
Shares in Standard Chartered have fallen 5% in Hong Kong trading, while HSBC has tumbled 7%, pulling the Hang Seng index down by other 3%.
European markets are set for fresh losses, with the FTSE 100 index being called down over 1% when trading begins at 8am.
Having come off the worst week for European equity markets this year, volatility looks set to continue this week, warns Michael Hewson of CMC Markets.
Hewson explains:
With Credit Suisse shareholders and some bondholders taking a huge hit, banks in Asia have taken a hit on similar concern about their AT1 bond holding values, while the weekend deal still presents the Swiss National Bank and Swiss Government with untold headaches, with the size of the newly merged bank set to dwarf the size of the Swiss economy. The phrase too big to fail really does spring to mind here, and this morning’s weakness in Asia markets serves to reinforce concerns about these types of writedowns and any spillover effects on the rest of the banking sector. As for Credit Suisse, it is in no position to dictate the price of any rescue package given the problems it was facing, and if its shareholders are unhappy with the price they’ve got, they should have stumped up the extra cash themselves!
Source: The Guardian
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