Relief over Credit Suisse rescue short-lived as bank shares sink

The shares of Credit Suisse slumped to a new low in premarket trade on Monday, after early relief on its merger with UBS faded fast.

Credit Suisse shares slumped 62% while UBS lost 7.1%. Those sharp moves followed a day of heavy selling in Asian financial markets as early investor optimism about official efforts to stem a banking crisis quickly evaporated. Once markets opened, shares in UBS fell by as much as 16% in early trading, the most since September 2008.

In particular, investor focus has shifted to the massive hit some Credit Suisse bondholders would take under the UBS acquisition, which has added to anxiety about other key risks including contagion, the fragile state of US regional banks and the challenges for central banks as they seek to contain inflation and financial risks.

Banking stocks and bonds plummeted after UBS Group sealed a state-backed takeover of troubled peer Credit Suisse Group AG, a deal that was orchestrated in an attempt to restore confidence in a battered sector.

In a package engineered by Swiss regulators on Sunday, UBS Group AG will pay 3 billion Swiss francs ($3.24bn) for 167-year-old Credit Suisse Group AG and assume up to $5.4bn in losses.

Credit Suisse’s Additional Tier 1 bonds dropped sharply in early European trade with a number of dollar-denominated issues being bid at 2 cents on the dollar, Tradeweb data showed.

The Swiss banks’ share tumble comes on top of what was already a rough day for banks, as investors shrugged off earlier promises by top central banks over the weekend to provide dollar liquidity to stabilise the financial system.

Standard Chartered Plc and HSBC shares each fell more than 6% in Hong Kong on Monday to more than two-month lows, with HSBC facing the possibility of posting its largest one-day drop in six months. The MSCI index for financial stocks in Asia ex-Japan was down 1.3%.