San Francisco Frontiers - Bank shares wobble after Credit Suisse buyout

UBS agreed to take over Credit Suisse for $3 billion Swiss francs ($3.25 billion) in a government-brokered deal over the weekend following days of market upheaval over the health of the banking sector.

Hours later, the US Federal Reserve and other major central banks announced a coordinated effort to improve banks' access to liquidity.

The broader stock markets fluctuated, with Asia closing lower while Wall Street opened mixed and European indices bounced after a starting the day in the red as investors pore over details of the deal.

The Credit Suisse deal "may have some effect in reducing anxiety levels in financial markets, but it may only be short-lived, with traders left wondering which bank could be next to hit the headlines for all the wrong reasons," said Tim Waterer, analyst at Kohle Capital Markets.

Shares in Credit Suisse and lenders worldwide had already sunk last week over concerns of contagion to the rest of the sector from the failure of US regional banks.

The Swiss bank had been shaken by other scandals, including its exposure to the 2021 collapses of investment firms Archegos and Greensill.

One concern from Sunday's deal was the effect it could have on the high-risk debt market as holders of such bonds at Credit Suisse, known as AT1, will lose $17.3 billion after authorities required that they be written off.

AT1 bonds, which offer high returns but also carry high risks, were created following the 2008 global financial crisis to put the burden of losses on investors instead of taxpayers.

"Sentiment vis-a-vis the AT1 bond asset class will likely remain weak following last night's deal," said Stephen Innes, managing partner at SPI Asset Management.

The sector's Stoxx Europe 600 Banks index seesawed while UBS shares rose after falling as much as 12 percent earlier in the day. French banking giant BNP Paribas also recovered while Germany's Deutsche Bank steadied.

Credit Suisse shares clawed back massive losses but were still down 51 percent.

In the United States, troubled First Republic Bank shares continued their decline, plunging more than 19 percent after a coalition of US lenders injected $30 billion into their peer.

Bigger US banks including JP Morgan, Bank of America and Citigroup opened higher.

Authorities sought to reassure the markets.

The European Central Bank on Monday described the continent's financial system as "resilient" with sufficient liquidity.

EU Economy Commissioner Paolo Gentiloni said the reaction of "monetary authorities has been strong and rapid".

- Fed focus -

The market volatility came ahead of the Fed's monetary policy meeting this week, with speculation mounting that it will pause its interest rate hikes to provide some stability to markets.

The more dovish Fed outlook weighed on the dollar.

The collapse this month of US regional lenders Silicon Valley Bank, Signature Bank and Silvergate sparked fears of contagion as worried customers withdrew cash.

It led US authorities last week to promise support for other lenders and depositors, while Wall Street titans including JP Morgan, Bank of America and Citigroup pledged to inject $30 billion into under-pressure lender First Republic Bank.

"Investors are likely keeping a look over their shoulder for the next disaster in a high-interest rate (and inflationary) environment, so at best we might see markets recover some of last week's losses," said analyst Matt Simpson at City Index.

In other markets, oil prices fell slightly amid fears the fallout would slow the global economy, which was already struggling to avoid recession as inflation remains elevated.

"If banks face tighter regulation and pressure to further improve their capital ratios, it could suggest that many consumers and businesses will find it harder to borrow money and that could feed into weaker economic activity," Russ Mould, investment director at AJ Bell, noted on Monday.

Gold, seen as a safe store of value in times of economic turmoil, topped $2,000 per ounce for the first time in more than a year before paring down gains.

- Key figures around 1440 GMT -

New York - Dow: UP 0.6 percent at 32,049.72 points

London - FTSE 100: UP 0.5 percent at 7,370.96

Frankfurt - DAX: UP 0.8 percent at 14,881.12

Paris - CAC 40: UP 1.0 percent at 6,997.58

EURO STOXX 50: UP 1.0 percent at 4,105.74

Tokyo - Nikkei 225: DOWN 1.4 percent at 26,945.67 (close)

Hong Kong - Hang Seng Index: DOWN 2.7 percent at 19,000.71 (close)

Shanghai - Composite: DOWN 0.5 percent at 3,234.91 (close)

Euro/dollar: UP at $1.0706 from $1.0671 on Friday

Pound/dollar: UP at $1.2228 from $1.2174

Euro/pound: DOWN at 87.56 pence from 87.59 pence

Dollar/yen: DOWN at 131.04 yen from 131.80 yen

West Texas Intermediate: DOWN 0.4 percent at $66.68 per barrel

Brent North Sea crude: DOWN 0.4 percent at $72.69 per barrel

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G.Miller--SFF