Fears of a global banking crisis failed to recede last night despite the Swiss-government-backed takeover of Credit Suisse by rival UBS.
The £2.6bn emergency shotgun deal, designed to stave off the collapse of Credit Suisse creating a “so-called “Lehmann moment” and sparking a wider global bank shock, has continued to cause market turmoil around the world.
The deal, initially praised for lessening the dangers of a systemic banking failure, led to Asian and European stock markets and bank shares suffering additional losses after it became clear that some of the solutions Swiss regulators opted for could create further problems.
That anxiety was fuelled last night when shares in the troubled American First Republic Bank continued to fall despite an injection of $30bn last week from major US banks, in a move that had been designed to reassure people the wider US banking system is safe for deposits. Shares in San Francisco-based First Republic fell 35 per cent at one point yesterday.
The Credit Suisse deal faces legal action from angry bank bondholders who suffered losses of $17bn when the Swiss regulator decided they would not be compensated to help improve the chances of UBS successfully taking over its Swiss rival.
Experts warned the decision not to compensate would undermine a $250bn market in the bonds affected, which were orginally designed to spread the risk of bank failure to investors rather than taxpayers following the 2008 financial crisis.
The Bank of England and other European regulators moved quickly to reassure investors about such bonds after it was feared bank shares would continue to fall.
The Credit Suisse deal also attracted widespread criticism from Swiss politicians. Roger Nordmann, a Social Democrat MP, warned the support package amounted to an “enormous risk”.
“The new UBS is also another massive risk – it’s going to have more than 1,500 billion francs in assets, and it’s simply too big for Switzerland,” he said.
“What has happened is terrible for the credibility of Switzerland. It’s a warning shot for Switzerland about having banks which are just too big. I’m very concerned about the new UBS.”
The turmoil that has recently gripped banks was triggered by the collapse of US lenders Silicon Valley Bank and Signature Bank, quickly ensnaring Credit Suisse as investors fretted about other ticking timebombs in the banking system.
Regulators in the US and Europe insist the current turmoil is different than the global financial crisis 15 years ago as banks are better capitalised and funds more easily available.
However, central banks also made available large sums of dollars for banks to improve their liquidity if needed, and to prevent any further jitters from snowballing into a bigger crisis.