(BFM Bourse) – The CAC 40 is moving in the green during a volatile session. If the arranged marriage between UBS and Credit Suisse reduces the risk on the financial system, certain details of this operation remain worrying.
The Paris Stock Exchange does not really know on which foot to dance. After having opened clearly in the red, the CAC 40 is now moving up at mid-session on Monday, taking 0.9% to 6,990.27 points, the market dissecting the agreement to buy Credit Suisse by UBS.
This marriage arranged – not to say forced – by the Swiss authorities reassures regarding the risks that the entire financial system runs. “In our view, the acquisition of Credit Suisse by UBS eliminates immediate sector risks, but it also raises questions,” Jefferies said.
UBS has agreed to buy Credit Suisse, but at a knockdown price. The 3 billion Swiss francs granted represent a discount of 59% compared to the closing price on Friday, hence the fall in Credit Suisse shares on Monday by 60.5%. UBS, it lost 6.7%, because although the operation is done at a good price, analysts point to many risks (legal, execution), the fact that Credit Suisse is in loss, and that UBS has renounced its share buyback program.
Banks under pressure
Moreover, this operation is carried out to the detriment of certain creditors, the holders of AT1 bonds, which can be converted into capital if the bank finds itself in a serious emergency situation. The Swiss authorities have decided that the intervention of the government, which provides guarantees to UBS in this operation, triggered a total loss on these debt securities, of a total of 16 billion Swiss francs. This calls into question the hierarchy of payments, the shareholders normally passing following the creditors in the order of reimbursement.
“The move is controversial given that common equity – which is generally considered junior to AT1s in the capital structure – has not been entirely wiped out,” Capital Economics points out.
“This decision might lead to a repricing of AT1s and other bailout bonds from other banks,” Capital Economics said. “Secondly, the agreement might be subject to legal challenges, which would prolong the process and create additional uncertainty,” the think tank adds.
After initially sinking, the banks have recovered and are now limiting their losses. Societe Generale gives up 4.3% while BNP Paribas loses 3.5%. In Frankfurt, Deutsche Bank fell 3.6%.
Thales and luxury stand out
In addition, the major central banks launched concerted action on Sunday evening to improve access to liquidity and try to reassure the markets. The institutions have decided to reinforce the “swap lines”, a device which facilitates the access of foreign central banks to dollars.
“The events of the weekend show that governments, central banks and regulators are ready to intervene if necessary to support systemically important banks and provide liquidity. We continue to consider the European banking sector to be sound overall, but investor confidence is hard to predict,” UBS market strategists point out.
On values, apart from banks, Thales gains 3% benefiting from an increase in recommendation to “overweight” from JPMorgan.
Luxury still drives the CAC 40, L’Oréal taking more than 2% just like Hermès and LVMH.
In other markets, theeuro recovered 0.3% once morest the dollar at 1.0696 dollars. Oil prices are trending down. The North Sea Brent contract for May delivery fell 1.8% to $71.64 a barrel while the April contract for New York-listed WTI fell 1.9% to $65.48 a barrel .
The fact remains that gold is benefiting from this movement of distrust, and this morning exceeded the bar of 2,000 dollars an ounce.
Julien Marion – ©2023 BFM Bourse
