Yields Rise After UBS Acquires Credit Suisse

Week opens with risk-on sentiment. Markets showed a slight recovery in risk appetite today, with equities (including the KRE) rising and Treasurys falling. The move came after UBS announced its purchase of Credit Suisse, which offered another source of hope for continued financial stability within the banking sector. The 2-year yield shot up 14bps on the day to 3.98%, far higher than the session low of 3.63%. The 10-year yield also rebounded significantly from its morning trough (3.29%), finishing the day at 3.48%.

Credit Suisse, one of the world’s largest banks, to be acquired by UBS. Credit Suisse, the 167-year-old Swiss Bank, will be acquired by its chief rival UBS in a deal organized by Swiss financial regulators. The bank has faced numerous operational and financial issues in recent years and has been undergoing a strategic overhaul. Following the recent troubles in the U.S. banking system, the bank’s stock price declined as markets saw potential vulnerabilities due to rising rates. The first domino to fall in recent days was the discovery of material weakness in the bank’s financial reporting controls last week, followed by an announcement by the bank’s largest shareholder that they would cease purchasing additional stock. UBS will purchase the bank for a total of ~$3 billion, a 59% discount to the bank’s closing share price on Friday. The deal is expected to be EPS-accretive, with UBS expecting annualized cost savings of ~$8 billion by 2027. Speaking about the transaction, UBS Chairman Colm Kelleher 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.” 

Day ahead. Tomorrow’s session will be quiet by way of data releases. Existing home sale figures will be released at 10 AM ET, which are expected to increase from last month’s figures. Crude oil stock changes will follow at 4:30 PM.