The Swiss banking sector has been in the spotlight recently due to growing concerns about its health, culminating in the takeover of Credit Suisse by UBS. The move was intended to calm the market, but anxiety persisted on Monday, with bank stocks falling and markets fluctuating between gains and losses. Investors were wary of the fallout from the hastily arranged deal on Sunday by Swiss regulators to rescue Credit Suisse from the brink of a disorderly bankruptcy.
Markets fell in Asia, with Tokyo’s Nikkei 225 down more than 1% and Hong Kong’s Hang Seng down more than 2%. European stocks also dropped at the open, with banks in the spotlight. Shares of UBS fell about 5% in Zurich, as the risks and complexity of absorbing Credit Suisse gave investors pause. An index tracking Europe’s biggest banks slipped about 2%, amid a reassessment of the value of banks in general.
Stock futures for the S&P 500 were roughly flat, after posting losses in early trading. On Friday, the S&P 500 slid 1.1%, its sharpest decline in a week. The Sensex on Monday sank nearly 361 points, and the Nifty fell below the 17000 mark at the start of what promises to be another volatile week as investors worried over the stress in the global banking sector. Though the benchmark indices clawed back from their steep losses earlier during the day, lingering concerns over financial contagion are expected to keep stocks under pressure.
Market circles pointed out that Monday’s crash was also on account of the two-day US Fed meeting that commences Tuesday. There are apprehensions that despite the crisis faced by the US banking sector, the Fed is likely to continue its rate hike albeit by a lesser margin of 25 basis points. The takeover of UBS by Credit Suisse also pinned down the markets, as the investors were spooked by the plan to write-down $17 billion of additional tier-I (AT1) bonds of Credit Suisse.
The bumpy session saw the Sensex opening lower at 57773.55 and plunging around 905 points to hit 57084.91. It recovered some of the losses and closed at 57628.95. The market’s reaction to the UBS takeover of Credit Suisse highlights the fragility of the global banking sector, and investors will continue to monitor developments closely in the coming days and weeks.