European banking stocks fall after Credit Suisse takeover
The Credit Suisse-UBS deal has sparked a sell-off on banks. Credit Suisse and UBS shares are moving lower in premarket ahead of the Wall Street open. Credit default swaps are moving higher.
(Video Transcript)
UBS/Credit Suisse deal reaction
Now the reaction to UBS' purchase of Credit Suisse coming in thick and fast and it's not good.
Share price charts
Let's take a look at UBS shares. First is down around 13%. And I want to show you Credit Suisse as well, because it's an even bigger move there down 62%.
What's also really telling is the impact of the rest on the rest of the banking sector. We've got Credit Agricole also down. Societe Generale also showing a big drop there. And we also see the credit default swaps for Credit Suisse and the other banks head lower.
Now, this is all to do with the reaction to UBS' purchase of Credit Suisse. Let's get you through the details and recap that for you. UBS agreed to buy Credit Suisse in a historic government-backed deal. The Swiss bank paid some three billion francs. That's $3.3 billion for those in the US, for its rival in an all share deal. It includes extensive government guarantees and liquidity provisions as well.
What's staggering is the price per share is a 99% decline from Credit Suisse's peak. If you look at the shares here from its peak in 2007, if I can get far back far enough.
Now, what does UBS get? Well, it's Credit Suisse' crown jewel - it's profitable and domestic bank in Switzerland. So where is the salad dressing?
The question now is what happens to all those exotic high risk bonds? Risky bonds, rather, on Credit Suisse balance sheets? Will those bondholders get the money back or just lose them? And this could cause contagion out into the broader markets. And perhaps that is why the US-listed shares of Credit Suisse and UBS are falling sharply in pre-market.
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