Hong Kong/London(CNN) Stocks in Europe and Asia weakened Monday, despite coordinated moves by central banks around the world to boost the flow of US dollars through financial markets and the emergency rescue of Credit Suisse by bigger Swiss rival UBS.
Banking stocks were leading the way lower. The Stoxx Europe 600 Banks index, which tracks 42 big EU and UK banks, fell 2.2%. In Asia, HSBC and Standard Chartered slumped in Hong Kong trading.
Shares in UBS (UBS), which agreed Sunday to buy Credit Suisse for $3.25 billion, plunged 8.8%. Credit Suisse (CS) shares crashed 61% in morning trade, in line with the value of the UBS offer.
The deal was aimed at stemming market panic unleashed by the failure of two US banks earlier this month. But investors were unnerved by the losses imposed on owners of $17 billion worth of Credit Suisse bonds as one of the conditions of the rescue.
“The UBS-CS deal avoided an abrupt bankruptcy, but the price tag speaks to the complicated issues that CS had,” Leon Qi, regional head of Asian financials, fintech and healthtech research at Daiwa Capital Markets, told CNN.
“These developments have inevitably caused risk-averse sentiment in Asian markets and towards financial stocks,” he added.
Other European banks also fell, posting deeper losses than the broader Stoxx Europe 600 (SXXL) index, which ticked down 0.1%. Germany’s DAX (DAX), France’s CAC 40 (CAC40) and London’s bank-heavy FTSE 100 (UKX) were steady, recovering from earlier drops.
“As fear begets fear, markets can fall by more and for longer than fundamentals can justify,” Berenberg economists wrote in a note Monday.
The Federal Reserve and other major central banks “can contain any financial crisis,” they added. “They are in ‘whatever it takes’ mode to stop contagion.”
But Stephen Innes, managing partner of SPI Asset Management, said “the more policymakers do, the more investors expect more bad news.” It’s “almost as if investors are asking themselves, ‘What do they know we do not know?'” he told CNN.
In Hong Kong, the Hang Seng Index (HSI) closed 2.7% lower. HSBC (HSBC) led index losses, shedding 6.2%. Standard Chartered (SCBFF) shares in the city fell 7.3%. Both lenders are headquartered in London, but make most of their money in Asia.
By market close, China’s Shanghai Composite (SHCOMP) was 0.5% down, Japan’s Nikkei (N225) 1.4% lower and South Korea’s Kospi (KOSPI) lost 0.7%. The S&P/ASX 200 in Australia decreased by 1.4%.
Credit Suisse rescued
UBS agreed to pay 3 billion Swiss francs ($3.25 billion) for Credit Suisse, about 60% less than the amount the bank was worth when markets closed on Friday.
The Swiss National Bank said in a statement that the agreement would “secure financial stability and protect the Swiss economy.” Credit Suisse is one of 30 banks that are particularly important to the global financial system.
Just hours after the deal was announced, the Fed and several other major central banks announced a coordinated effort to boost liquidity in the global financial system with the aim of keeping credit flowing to households and businesses.
It’s likely that investors will ultimately take into account the fact that “the global and Asian financial system as a whole is more resilient than it was 15 years ago, given the many regulatory overhauls since then,” said Daiwa’s Qi.
“This should cause a relatively short period of pain in the markets,” he told CNN.
According to Innes, HSBC and Standard Chartered are facing greater scrutiny Monday as two banks that, similarly to Credit Suisse, have had “had their share of ups and downs.”
For Standard Chartered, recent speculation that the lender was a “takeover target” may be weighing on the stock, he said. Standard Chartered’s CEO told CNBC last month that the bank was “absolutely not” for sale.
HSBC, meanwhile, could be subject to investor jitters after buying the UK arm of Silicon Valley Bank, the lender that collapsed earlier this month, Innes said.
Calming nerves
On Monday, Hong Kong’s de facto central bank and securities regulator joined the chorus of central banks in welcoming the announcement from Zurich and sought to reassure the public that business would continue as usual.
“The exposures of the local banking sector to Credit Suisse are insignificant,” the Hong Kong Monetary Authority (HKMA) said in a statement, adding that the assets of Credit Suisse’s local branch were worth approximately 100 billion Hong Kong dollars ($12.7 billion) or “less than 0.5% of the total assets of the Hong Kong banking sector.”
The lender’s customers in the city will be able to “continue to access their deposits with the branch and trading services” as normal, the HKMA added. “Their overall exposures to the Hong Kong market are not significant.”
In Australia, Christopher Kent, the assistant governor of financial markets at the Reserve Bank of Australia (RBA), also weighed in, noting the recent strain on investors.
“Volatility in Australian financial markets has picked up,” he told a conference Monday. “But markets are still functioning and, most importantly, Australian banks are unquestionably strong — the banks’ capital and liquidity positions are well above [regulators’] requirements.”
Assurances from Singapore, the Philippines
Similarly, the Monetary Authority of Singapore (MAS) said Monday that Credit Suisse, which has operated in the city since 1973, would continue serving customers “with no interruptions or restrictions, following the announced takeover.”
“Customers of CS will continue to have full access to their accounts,” it said in a statement, noting that the Swiss lender primarily catered to private banking and investment banking clients, not retail customers, in the city state.
“The takeover is not expected to have an impact on the stability of Singapore’s banking system,” it added.
The Philippines, too, moved to assuage fears.
On Friday, the country’s central bank declared that “the Philippine banking system remains safe and sound.”
“We have shown our resilience through the pandemic, and we continue to be strong in the face of the ongoing turbulence in the global markets,” it said in a statement.
— Mark Thompson and Juliana Liu contributed to this report.
