Saturday, July 13, 2024

Not everyone is happy with UBS’s purchase of Credit Suisse


A construction site security guard at a branch of Credit Suisse Group AG bank in Bern, Switzerland, on Monday, March 20, 2023.

Stefan Wermut | bloomberg | Getty Images

This report is from today’s CNBC Daily Open, the new newsletter for international markets. The CNBC Daily Open updates investors everything they need to know quickly, no matter where they are. Like what do you see? You can subscribe here.

UBS’ planned takeover of Credit Suisse has cooled the market a bit. However, broader market conditions remain unstable.

  • The other big loser: the owners of Credit Suisse’s additional so-called Tier 1 bonds, which were worth 16 billion Swiss francs ($17 billion) — but are now worth nothing. Not surprisingly, bondholders aren’t happy about that.
  • forefront UBS’ takeover of Credit Suisse could give it big gains – and other large US banks could benefit, analysts said. As Mike Mayo of Wells Fargo puts it, “Goliath wins.”

The “Minsky moment,” named after the economist Hyman Minsky, is a sudden market crash after a long period of violent speculation brought on by easy money. Markets may soon experience a Minsky moment, warned Marko Kolanovic, chief market strategist at JPMorgan Chase and co-head of global research.

The markets did not collapse. Some bank stocks are in the doldrums, yes, but the SPDR S&P Regional Banking ETF, a fund of regional bank stocks, was up 1.11% on Monday. Major indices also rose yesterday. The Dow Jones Industrial Average rose 1.2%, the S&P 500 rose 0.89% and the Nasdaq Composite rose 0.39%.

But there are signs that market instability is increasing. Eric Deaton, president and managing director of The Wealth Alliance, said the banking crisis had caused regional banks – which account for about a third of total lending in the US – to cut back on their loans. In other words, the availability of money in the economy slows down even without the Federal Reserve increasing interest rates.

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Speaking of interest rates, analysts seem to think that there is no good way forward for the Fed. Michael Darda, chief economist at MKM Partners, told CNBC that a rate hike “would be a mistake.” On the other hand, the pause could cause “a panicked reaction from stock and bond investors,” according to Nationwide’s Mark Hackett. This suggests that the markets are already so nervous that whatever the Fed does – even nothing – could cause widespread instability.

With that in mind, investors may want to heed Kolanovic’s warning that a Minsky moment could be on the horizon.

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Rosario Tejeda
Rosario Tejeda
"Infuriatingly humble analyst. Bacon maven. Proud food specialist. Certified reader. Avid writer. Zombie advocate. Incurable problem solver."