FTSE 100: UK markets drop after UBS rescues Credit Suisse
Finance expert Louise Cooper explains the latest stock markets fall out after the emergency sale of bank Credit Suisse
The FTSE 100 has lost almost 2% of its value on Monday after struggling bank Credit Suisse was sold to Swiss rival UBS.
London’s top index fell by as much as 129 points shortly after it opened trading, following a bruising session last week.
Standard Chartered's shares fell by more than 7% at one point, while Barclays was just under 6% down.
Markets in Asia were also struggling earlier in the morning, with shares in Hong Kong falling by more than 3% as the banking sector took a battering.
The Bank of England on Sunday insisted the UK's financial system remains 'safe and sound,' following news of the emergency rescue deal.
The Bank welcomed the Swiss authorities' action, and moved to reassure UK consumers and financial markets.
Its statement on Sunday said: “The UK banking system is well capitalised and funded, and remains safe and sound.”
“With Credit Suisse shareholders and some bondholders taking a huge hit, banks in Asia have taken a hit on similar concerns about (some of their) bond-holding values,” said Michael Hewson, chief market analyst at CMC Markets.
“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 write-downs and any spillover effects on the rest of the banking sector.”
The Credit Suisse deal was announced on Sunday evening, as UBS agreed to pay around £2.7 billion for its former rival.
The deal was brokered by the same Swiss regulators which had on Wednesday said they would lend up to £45 billion to Credit Suisse to keep it afloat.
The bank has had troubles for years but was pushed over the edge last week because of market jitters sparked by the failure of Silicon Valley Bank in the US, which was a mid-sized lender.
But the rescue deal with UBS is not expected to calm markets much. Around 17 billion dollars (£14 billion) worth of Credit Suisse bonds were wiped out as part of the deal.
“Having come off the worst week for European equity markets this year, volatility looks set to continue this week now that the fate of Credit Suisse appears to have finally been sealed,” Mr Hewson said.
The bank has a UK base in Canary Wharf and all its UK businesses remain open, with customers able to access their deposits.
Credit Suisse said that under the terms of the deal UBS expressed its confidence that the employment of its staff will be continued.
Heavy uncertainty has gripped the banking sector ever since the US’s 16th largest lender, Silicon Valley Bank, said it needed to raise money to stay afloat.
Since then shares in London’s FTSE 100 index have fallen by close to 9%, and several other banks in the US and Europe have struggled to keep their doors open.
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