Bank shares whipsaw after €3bn Credit Suisse takeover

Shares in Ireland’s banks whipsawed on Monday as investors digested the details of Swiss investment bank UBS’s historic takeover of its rival, Credit Suisse, and assessed the risk of contagion.

UBS agreed to buy Credit Suisse for €3 billion on Sunday night after a frantic weekend of negotiations brokered by Swiss regulators to safeguard their banking system and attempt to prevent a crisis spreading across global financial markets.

[ Cliff Taylor: We are seeing echoes now of the run-up to the 2008 crash ]

Shares in UBS tumbled as much as 15 per cent when markets opened on Monday amid concerns about the health of the balance sheet it acquired after five days of panic before surging in the afternoon to end the day up 3.9 per cent. The deal makes UBS a behemoth in Swiss banking and strengthens its business in wealth management. Credit Suisse’s share price, meanwhile, has collapsed by about 60 per cent.

In Dublin, Irish banks ended the day higher too. AIB climbed 6 per cent, while Bank of Ireland jumped 3.5 per cent. Permanent TSB added 2.5 per cent.

Irish banks face higher costs but appear insulated from wider Credit Suisse fallout, analysts say

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We are seeing echoes now of the run-up to the 2008 crash

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David McWilliams: We are heading into global financial crises. Will it be 2008 all over again?

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Credit Suisse staff see deferred bonuses frozen by Swiss government

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“The Irish and European banking systems are in an immeasurably different place today than in the past and Irish banks stand out from a rate of change point of view,” Davy analysts Diarmaid Sheridan and Antonio Duarte wrote in a note to clients on Monday. “Irish banks are retail-oriented franchises with strong capital, funding and liquidity positions to weather the current market concerns,” the added.

Bank shares initially declined across Europe after the Swiss regulator’s decision to burn holders of AT1 bonds in Credit Suisse ahead of ordinary shareholders who are usually first to lose their money when a bank goes out of business. That decision spooked investors, amid concerns such a move could be replicated in the future. The slide was only halted after the European Central Bank and Bank of England both clarified that shareholders remain behind AT1 bond holders in the queue to get their money back if a bank collapses in the future.

Spanish banks BBVA and Santander, their French counterpart BNP Paribas and ING all fell sharply in the morning too, before ending the day higher.

[ ECB ready to help banks after frantic €3bn rescue of Credit Suisse by rival ]

Separately, European Central Bank president Christine Lagarde has again insisted there is no conflict between monetary tightening and financial market stability while warning European banks to prepare for tougher times ahead.

In an address to the European Parliament’s Committee on Economic and Monetary Affairs, she said Frankfurt would not be deflected from its inflation-taming mission by the current string of high-profile banking blowouts.

“Price stability goes with financial stability, and they are both present and come together – but there is no trade-off,” Ms Lagarde said.

“As inflation is projected to remain too high for too long, the Governing Council last week decided to increase the three key ECB interest rates by 50 basis points, in line with our determination to ensure the timely return of inflation to our 2 per cent medium-term target,” she said.

The ECB’s latest economic projections – which were finalised before the failure of Silicon Valley Bank and UBS’s agreed take over embattled rival Credit Suisse – see inflation closer to the central bank’s 2 per cent target by 2025, but still lingering above it.

Amid the uncertain climate, Ms Lagarde warned banks to brace themselves for slower economic growth, higher funding costs and lower lending volumes.

“Individual financial institutions should carefully preserve their current levels of resilience, to ensure that they could weather a potentially less favourable environment,” she told European Parliament MPs.