The stock markets in doubt after the takeover of Credit Suisse by UBS

(Paris) The financial markets were in full doubt Monday morning the day after the hasty closing of the takeover of Credit Suisse by UBS, a rescue operation which left skeptical investors frightened by the risks of destabilization of the banking system.

European indices continued to decline in Paris (-0.63%), Frankfurt (-1.10%), London (-1.17%) and Milan (-2.73%), after a dark week in the sector bank which has weighed down all the markets. European stock markets were weighed down by the fall in the banking sector, a sign of great investor mistrust.

Asian stocks were the first to suffer: Tokyo dropped 1.42%, Shanghai 0.48% and Hong Kong dropped 2.50% around 4:15 a.m. EST.

The sharp decline in oil prices and the rise in “safe havens” gold and the yen are further signs that investors are “still spooked”, noted Stephen Innes of SPI Asset Management.

After intense negotiations this weekend, the first Swiss banking group UBS agreed on Sunday to buy for a pittance its ailing rival Credit Suisse, with important guarantees from the government of Bern and cash from the SNB, the country’s central bank.

The amount of the takeover of Credit Suisse, which has been going through an intense phase of turbulence since the beginning of last week, amounts to 3 billion Swiss francs (3.02 billion euros), payable in UBS shares, for a bank which was worth almost triple Friday at the close of trading.

Credit Suisse shares fell below UBS’s offer price on Monday morning, collapsing more than 62% and UBS shares fell more than 13%.

In the wake of this announcement, the central banks of the United States, Europe, Switzerland, England, Canada and Japan are taking coordinated action to improve access to liquidity, an exceptional measure to restore confidence in the financial system.

But “the more policymakers act, the more bad news investors expect, which creates a horribly negative feedback loop, as if investors are asking themselves, ‘what do they know that we don’t know? ” , believes Mr. Innes.

As investors consider the details of the deal, “the outlook remains remarkably uncertain” and “the deal structure that forces bondholders to accept losses while protecting equity holders does not help” , also observes Neil Shearing, economist of Capital Economics.

The takeover of Credit Suisse by UBS will cause risky bondholders to lose 16 billion Swiss francs.

Holders of these debt securities normally come before shareholders in the order of priority for reimbursement in the event of bankruptcy.

However, the Swiss authorities have simply decided to make them bear part of the financial burden in the context of the takeover of Credit Suisse.

The regulatory authorities and the federal government have had to face immense pressure from Switzerland’s main economic partners to clean up the situation, in a context of turbulence in the banking sector which raises fears of a significant risk of contagion following bank failures in the UNITED STATES.

For the past two years, Credit Suisse has been going from high profile scandals to setbacks and suddenly found it difficult to access liquidity at reasonable prices.

UBS will benefit from a guarantee of around 9 billion francs from the state, which serves as insurance if problems were to be discovered in Credit Suisse portfolios.

The Swiss central bank also grants a liquidity line of up to 100 billion Swiss francs to the two institutions.

In Europe, the banking sector index, the Stoxx Europe 600/Banks, fell more than 5% at 4:25 a.m. (Eastern time). The French BNP Paribas and Société Générale lost more than 6%, Deutsche Bank more than 9%, Commerzbank more than 7% in Frankfurt. In London, HSBC dropped more than 4%, Standard Chartered more than 7%.

The yen rose against the dollar on Monday, regaining for the occasion its status as a “safe haven” in the event of bad weather on the financial markets: a dollar was worth 130.62 yen around 4:30 a.m. (Eastern time), against 131.85 yen on Friday evening.

The euro was down 0.30% against the greenback at 1.0637 to the dollar.

On the oil market, the barrel of American WTI slipped 3.34% to 64.51 dollars around 4:30 a.m. (Eastern time) and the barrel of Brent from the North Sea yielded 3.70% to 70 $.27.