Coffee With Greta: Banks Still In Focus
DJIA Futures: +125 (+0.4%)
SPX Futures: +13 (+0.3%)
NASDAQ Futures: +32 (+0.3%)
Good morning friends!
Futures are rising as a crucial Fed week begins and uncertainty remains about the global banking system.
Let’s get right to it!
UBS Buys Credit Suisse
Credit Suisse (CS) shares are plunging 56.7% ahead of the open after UBS Group (UBS) bought the Swiss bank over the weekend.
UBS shares are up 1.8%.
UBS agreed to buy Credit Suisse for $3.2 billion in a deal orchestrated by Swiss regulators and the Swiss National Bank.
The Swiss National Bank pledged a loan of up to $108 billion to support the takeover and said, “With the takeover of Credit Suisse by UBS, a solution has been found to secure financial stability and protect the Swiss economy in this exceptional situation.”
The Swiss government meantime granted a guarantee to assume losses up to 9 billion Swiss francs from certain assets over a preset threshold “in order to reduce any risks for UBS”.
Credit Suisse shareholders will receive 1 UBS share for every 22.48 Credit Suisse shares they hold.
The UBS Chairman said, “This acquisition is attractive for UBS shareholders but, let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue. We have structured a transaction which will preserve the value left in the business while limiting our downside exposure.”
The combined bank will have $5 trillion worth of invested assets.
First Republic Slides On Credit Rating Downgrade
First Republic (FRC) shares are tumbling 17.2% in premarket trade after S&P cut the bank’s credit rating again.
S&P reduced its rating on the bank to B+ from BB+ on Sunday.
That grade is in the “junk” rating category and signifies the bank is risky and has a higher than average chance of default.
S&P said, “The deposit infusion from 11 U.S. banks, the company’s disclosure that borrowings from the Fed range from $20 billion to $109 billion and borrowings from the Federal Home Loan Bank (FHLB) increased by $10 billion, and the suspension of its common stock dividend collectively lead us to the view that the bank was likely under high liquidity stress with substantial deposit outflows over the past week.”
FDIC To Sell Signature Bank Assets To Flagstar Bank
New York Community Bancorp (NYCB) shares are jumping 29.2% ahead of the open after the FDIC announced an agreement to sell Signature Bank’s assets to the bank’s subsidiary, Flagstar Bank.
Flagstar will assume basically all of Signature’s deposits, some of its loan portfolios, and all 40 of its former branches.
Roughly $60 billion of loans and $4 billion of deposits will remain in control of the regulator.
Under the arrangement, Flagstar will buy $12.9 billion of loans for $2.7 billion.
The FDIC estimates the deal will cost its Deposit Insurance Fund approximately $2.5 billion.
Fed Week Begins
The Fed kicks off its next policy meeting on Tuesday with the rate hike decision on Wednesday.
CME Group’s FedWatch Tool shows nearly 68% of traders expecting a 25 basis point hike this week with 32% anticipating no hike.
The lower expectations come after turmoil spread across the banking sector following the collapse of Silicon Valley Bank and Signature Bank.
Traders will be paying close attention to Fed Chair Jerome Powell’s press conference on Wednesday to hear his comments about the banking system.