A look at the day ahead in European and global markets from Anshuman Daga

Market gyrations are common but the scale of recent moves across asset classes due to a slew of bank takeovers has shocked even the most experienced traders and investors.

Safe-havens such as gold and Treasuries are in high demand along with more speculative instruments, such as tech stocks and bitcoin, as worries over the banking crisis are boosting disparate assets.

While UBS shares were hammered in early trading on Monday after its shotgun marriage with troubled Credit Suisse following an intervention by Swiss authorities, the bank’s shares pared most of the losses towards the close.

The biggest pain seems to have been inflicted on holders of Credit Suisse’s risky debt, leading lawyers from Switzerland, the U.S. and Britain to talk to many Additional Tier 1 (AT1) bond holders about possible legal action, a law firm said.

On Tuesday, Asian equities staged a tentative recovery as the buyout of Credit Suisse eased immediate worries of a knock-on effect to other banks, while the U.S. dollar was stuck near a five-week low.

European Central Bank President Christine Lagarde said the market turmoil might do some of the ECB’s work for it in dampening demand and inflation.

Markets have been on high alert for central banks to raise interest rates sharply to cope with high inflation.

However, there could be some surprises now.

ECB policymaker Robert Holzmann watered down his recent call for three more rate increases of 50 basis points in quick succession.

Holzmann, who heads the Austrian National Bank, told German business daily Handelsblatt two weeks ago the ECB should raise rates by 50 basis points at each of its next four meetings.

The ECB made one such increase at its meeting last week.

Meanwhile, just hours after the state-backed takeover by UBS of troubled Credit Suisse was announced, memorabilia bearing the 167-year-old bank’s name and logo was being put up for sale in Switzerland, marking the end of an era for Credit Suisse.

Over $95 billion in market value wiped out in 2 weeks https://www.reuters.com/graphics/GLOBAL-BANKS/USA/myvmobkeovr/graphic.jpg

Key developments that could influence markets on Tuesday:

Meetings: Chinese President Xi Jinping and Russian President Vladimir Putin are set to engage in formal talks regarding Beijing’s proposals for a war resolution

Meetings: Britain’s finance minister speaks to the Economic Affairs Committee

Central bank meetings: The Federal Reserve convenes for its two-day monetary policy meeting. Policy decision is on Wednesday

(Reporting by Anshuman Daga; Editing by Bradley Perrett)

By Lawrence White, Sinead Cruise and Iain Withers

LONDON (Reuters) -Bankers in London braced for hundreds of potential job losses and a hit to Britain’s already-dented financial sector after the historic rescue of Credit Suisse by Swiss rival UBS.

Credit Suisse staff had already been seeking to jump ship in recent weeks, sources told Reuters. With that trend potentially accelerating after Sunday’s takeover announcement, senior bankers at rival firms feared not all of the around 5,000 people it employs in London will keep their jobs or find new roles.

“Many Credit Suisse bankers had already been talking to a lot of people for a while [about leaving the Swiss bank]. Those who were more loyal and didn’t do so are now talking to headhunters,” said Stephane Rambosson, co-founder of Vici Advisory which specialises in hiring senior investment bankers.

An executive at a rival London-based wealth manager said they had seen a steady flow of CVs coming in from Credit Suisse bankers.

UBS told Credit Suisse wealth bankers on Monday that it was weighing financial sweeteners for them to stay, as it seeks to reassure key staff.

Credit Suisse employees are wary of what could be massive job cuts, with 10,000 positions potentially on the line globally, sources told Reuters on Saturday ahead of the takeover deal being completed.

The giant lender’s demise could also deal a potential blow to Canary Wharf Group, which manages the financial hub of the same name in London’s regenerated docklands.

Credit Suisse was one of the first major banks to be lured to the area by the prospect of cheaper office space in the early 1990s and houses the bulk of its UK staff in the One Cabot Square building in the western part of the estate.

“Obviously any overall contraction in financial services does risk from Canary Wharf’s point of view that more businesses will consolidate in the traditional City rather than in Canary Wharf,” said Tony Travers, director of the London School of Economics’ London research group.

The uncertainty surrounding a major banking tenant comes at a delicate time for Canary Wharf, with Europe’s largest bank HSBC separately reviewing its commitment to a 45-floor tower elsewhere on the estate.

UBS has its own headquarters in London’s historic Square Mile, a gleaming 700,000 square foot “groundscraper” where the bank had already begun sub-letting some space after more of its staff took up flexible working since the COVID-19 pandemic.

UBS and Canary Wharf Group both declined to comment.

Outside Credit Suisse’s offices on Monday there was little sign of the tumult. One man who walked out of the building told Reuters that inside the atmosphere was business as usual.

“When you work in banking, these things happen, and there’s no point worrying,” he said, refusing to give any further details.

FUTURE OF THE CITY

In a memo seen by Reuters that was sent to staff on Sunday after the deal announcement, Credit Suisse reassured staff that their bonuses would be paid in full.

News of the emergency rescue comes amid wider concerns about London’s status as a global financial hub, following the slow drain of jobs and assets to other centres after Britain’s exit from the European Union.

However, the Brexit impact on jobs has so far been lower than initially estimated, with about 7,000 staff having moved, according to calculations by consultants EY last year.

Some experts have said Britain’s financial services industry could ultimately benefit from recent bouts of turmoil in the United States and Switzerland.

“London’s financial services industry remains by far the largest in Europe,” LSE’s Travers said, adding that Britain’s regulatory regime may be a pull for international finance at a time when questions are being raised about other jurisdictions.

But the sector is still expecting short-term pain. Credit Suisse’s demise comes amid deep rounds of job cuts by some global banks this year, including Goldman Sachs, which is axing 3,000 jobs.

These cutbacks have already dented demand, with a 23% fall in the number of financial services professionals seeking jobs in London in the fourth quarter of 2022, according to recruiting firm Morgan McKinley.

Veterans of the industry were bracing on Monday for the downturn.

“Given both CS and UBS have lots of overlap, I can imagine this will be painful, just another chapter in the industry’s consolidation,” said Tim Skeet, career banker and 42-year veteran of the City.

“It’s another reason why people in this industry always need a Plan B and should expect the unexpected,” he said.

(Reporting by Lawrence White, Sinead Cruise and Iain Withers, Additional reporting by Sachin Ravikumar, Editing by Catherine Evans)

By John O’Donnell and Andres Gonzalez

ZURICH (Reuters) -Days before a hastily convened press conference late on Sunday that would make the world’s front pages, Switzerland’s political elite were secretly preparing a move that would jolt the globe.

While the nation’s central bank and financial regulator publicly declared that Credit Suisse was sound, behind closed doors the race was on to rescue the nation’s second-biggest bank.

The chain of events, led to the erasure of one of Switzerland’s flagships, a merger backed by 260 billion Swiss francs ($280 billion) of state funds and a move that would upend global finance: favoring the bank’s shareholders to the detriment of bond investors.

The events that unfolded in the landlocked nation — long a bastion of political neutrality that has secured its standing as a safe-haven favourite for wealthy elites — go against one of the key lessons of the 2008 financial crisis. The rescue concentrates even greater risks into one banking behemoth, UBS Group AG.

What is more, making bondholders cushion the blow to stock investors from the UBS-Credit Suisse tie-up rattled lenders, pushing up their borrowing costs in a threat to world economic growth.

The Swiss National Bank declined to comment while the finance ministry did not respond to a request for comment.

Battered by years of scandals and losses, Credit Suisse for months had been battling a crisis of confidence of its own making. In a matter of days its demise was sealed.

Soon after news broke on March 12 that the United States would step in to guarantee all the deposits of two mid-sized lenders struggling to keep up with demands for cash, the spotlight was on Credit Suisse and how it would maintain depositor confidence.

Customers had already pulled $110 billion from the Zurich-based bank in the last three months of 2022, outflows that it was fighting to reverse.

A rainmaker who brokered a number of European bank rescues during the financial crisis, speaking on condition of anonymity, told Reuters that after seeing the U.S. banking collapses there was little doubt UBS would be called upon to shore up Credit Suisse.

The banker on March 13 rang up UBS warning the world’s biggest wealth manager that it should prepare to receive a call from Swiss authorities.

By Wednesday, two days later, Credit Suisse was swept up in a full-blown crisis. Comments by the chair of Saudi National Bank, Ammar Al Khudairy, who said that he could not invest further in the Swiss bank sent Credit Suisse shares into a tailspin. 

It mattered little that Credit Suisse’s biggest investor also reiterated confidence in the lender. “They’re a globally systemically important bank so … monitored on a daily basis,” he told Reuters. “There’s no surprises like you would have in a middle-sized bank in the US. It’s a completely different ecosystem.”

Significant deposit outflows followed, the source who would go on to advise UBS on the merger told Reuters, declining to put a number on them.

In banking center Zurich and Bern, the Alpine state’s capital, pressure was building. Yet as the discussions to salvage Credit Suisse got underway, Swiss regulators FINMA and the Swiss National Bank said that “the problems of certain banks in the USA do not pose a direct risk of contagion for the Swiss financial markets”, conceding, however, that they would fund the bank with unlimited access to funding.

Credit Suisse too was conveying stability. The bank told Reuters on Thursday that its average liquidity coverage ratio, a key measure of how much cash-like assets the bank has, did not change between March 8 and March 14, despite the global banking crisis.

Swiss Finance Minister Karin Keller-Sutter, a former translator and teacher just months on the job, told the Sunday media conference that additional support for Credit Suisse had been agreed but held secret for fear of panicking people with a succession of emergency announcements.

She said was in close contact with U.S. Treasury Secretary Janet Yellen and British finance minister Jeremy Hunt. Both countries have large Credit Suisse subsidiaries employing thousands.

There was far less communication with the European Central Bank in Frankfurt, said one person familiar with the matter. Credit Suisse’s arms in Luxembourg, Spain and Germany were far smaller.

European regulators were, in particular, worried that the Swiss could impose losses on bondholders – a radical step that they did take, as the costs of a rescue spiralled for taxpayers.

“They did this on their own,” said the person, asking not to be named, describing the outcome as a “big surprise”.

A spokesperson for FINMA said that although it laid emphasis on Britain and the U.S. because of the scale of Credit Suisse’s business in those countries, it had also informed European authorities.

Not everyone, however, was kept in the dark.

Saudi investors, with roughly a 10% stake in the bank, put pressure on the Swiss, warning that they could take legal action if they did not recover some of their ill-fated investment, said another person with knowledge of the matter.

Saudi National Bank did not immediately respond to  a request for a comment

“The money had to come from somewhere,” said one of the officials involved in the negotiations.

The Credit Suisse board, interested in preserving some unity in an increasingly fractious setting, stood behind them, and argued for a payout to shareholders, said the person.

Regulators too wanted to avoid a wipeout for shareholders that would have resulted in the winding up of the bank, potentially a bigger headache for the nation and a loss of face just hours after standing by Credit Suisse.

In the end, the Swiss agreed, choosing to wipe out 16 billion of francs of bonds, compensating shareholders with 3 billion francs and turning a key principle of bank funding on its head – namely, that shareholders rather than bondholders take the first hit from a bank failure.

It marks an ignominious end for an institution founded by Alfred Escher, a Swiss magnate affectionately dubbed King Alfred I, who helped build the country’s railways. Credit Suisse banks many Swiss companies and citizens – including finance minister Keller-Sutter.

On Sunday, as a panel of Swiss officials and executives announced the deal, they were unrepentant.

“This is no bailout,” Keller-Sutter told journalists. Thomas Jordan, the central bank chief, defended the package, as necessary to counter any wider shock.

“The taxpayer in this scenario has less risk,” said Keller-Sutter. “The bankruptcy would have been the highest risk because the cost to the Swiss economy would have been huge.”

Still, markets are reeling from the extraordinary turn of events.

“When you are a bank for billionaires, deposits can fly away very quickly,” said one of the people involved. “You can die in three days.”

($1 = 0.9287 Swiss francs)

(Additional reporting by Stefania Spezzati, John Revill, Greg Roumeliotis, Saeed Azhar and Rachna Uppal in Dubai; editing by Elisa Martinuzzi and Anna Driver)

(Reuters) – The International Monetary Fund (IMF) has approved a nearly $3 billion bailout for Sri Lanka, which could help the country unlock up to $7 billion more from other lenders such as the World Bank and the Asian Development Bank.

Here are some key developments in the island nation’s worst economic crisis in about 75 years.

2022

MARCH 31: Demonstrators march to President Gotabaya Rajapaksa’s private residence to protest over worsening economic conditions.

MAY 9: Following widespread clashes between pro- and anti-government protesters, Prime Minister Mahinda Rajapaksa, the president’s elder brother, resigns. Countrywide violence leaves nine dead and about 300 injured.

MAY 18: Sri Lanka falls into default after a 30-day grace period on a $78 million coupon payment expires.

JULY 13: After protesters storm his office and residence, President Gotabaya Rajapaksa flees Sri Lanka, initially going to the Maldives, before moving on to Singapore.

JULY 15: Parliament accepts Gotabaya Rajapaksa’s resignation. Ranil Wickremesinghe, a six-time prime minister, is sworn in as acting president.

JULY 15: Sri Lankan lawmakers vote in Wickremesinghe as the new president.

AUG 9: The country’s power regulator approves a 75% hike in power tariffs.

SEPT 1: Sri Lanka reaches a preliminary agreement with the IMF for a loan of about $2.9 billion.

NOV 14: Sri Lanka’s budget lays down several measures, including reducing the government’s deficit in its efforts to secure the IMF bailout.

2023

JAN 17: India tells the IMF that it will support Sri Lanka’s debt restructuring plan.

JAN 24: Reuters reports the Export-Import Bank of China had offered Sri Lanka a two-year moratorium on its debt and said it would support the country’s efforts to secure the IMF loan. A Sri Lankan source it is not enough to secure an IMF deal.

FEB 7: The Paris Club of creditors gives financing assurances to support the IMF’s approval of an extended fund facility for Sri Lanka.

FEB 8: Sri Lanka’s economy is expected to grow again from the end of this year and the government hopes the country will emerge from an economic crisis by 2026, the president said, as hundreds protested a rise of up to 36% in income taxes amid high inflation.

FEB 16: The country raises electricity prices by 66%.

FEB 21: Government data shows Sri Lanka’s National Consumer Price Index eased year-on-year to 53.2% in January, after a 59.2% rise in December.

MARCH 8: The Export-Import Bank of China tells Sri Lanka it will try to finalise in the months ahead how it treats debt owed by the crisis-hit nation, according to a letter seen by Reuters, which also reiterated a moratorium for debt due in 2022 and 2023.

MARCH 20: The IMF says its executive board approved a nearly $3 billion bailout for Sri Lanka. The decision will allow an immediate disbursement of about $333 million.

(Compiled by by Shilpa Jamkhandikar, Devjyot Ghoshal and Uditha Jayasinghe; Editing by Raju Gopalakrishnan)

By David Morgan

WASHINGTON (Reuters) – Republican U.S. Senator Rick Scott said on Monday he will introduce legislation to create an independent inspector general to oversee the Federal Reserve, as he called the U.S. central bank “unable or unwilling to properly regulate” banks in a letter to Fed Chair Jerome Powell.

Scott, a Republican known for his hardline conservative positions, informed Powell of his plans in a March 20 letter that questioned the U.S. central bank’s ability to oversee the banking system, following the collapse of Silicon Valley Bank and Signature Bank earlier this month.

“I am proposing legislation to establish a presidentially-appointed and Senate-confirmed inspector general for the Federal Reserve,” Scott told Powell in the letter. “Would you support adding this much-needed level of accountability?”

“For too long, the Federal Reserve has used its claim of independence to thwart Congress and the American people while being unable or unwilling to properly regulate and supervise the large financial institutions under its care,” Scott wrote.

There was no immediate response from the Fed.

Scott is expected to introduce the legislation later this week, according to an aide.

Republicans and Democrats in Congress have pledged tighter oversight of banking regulators following the collapse of Silicon Valley Bank and Signature Bank, which has been followed by billions of dollars in losses for financial stocks.

The Federal Reserve is responsible for supervising – monitoring, inspecting and examining – certain financial institutions to ensure that they comply with rules and regulations, and that they operate in a safe and sound manner.

Some lawmakers have singled out the San Francisco Federal Reserve Bank for criticism, among them Democratic Senator Elizabeth Warren, who told an interviewer on Sunday that she does not have faith in the bank’s president, Mary Daly.

The San Francisco Fed was responsible for oversight of Silicon Valley Bank.

Scott’s legislation stems from concern in Congress that the Federal Reserve’s current inspector general is not independent enough to serve as a check on the central bank.

When Congress created Inspectors General in the 1970s, the Federal Reserve was a much smaller and less complicated entity, said Andrew Levin, an economics professor at Dartmouth and a former Fed official.

The Fed was assigned an internal IG that reports directly to the Fed board, rather than a completely independent auditor, like the Pentagon or other big agencies.

Scott also urged the Fed chief to use the central bank’s policy meeting this week to examine the bank failures and identify accountable Fed personnel. 

“The failures and malfeasance, not only of these banks, but their regulators, should be at the top of the agenda,” Scott said.

“Before the meeting concludes, it is my expectation that you name the individual(s) being fired for these failures, and make clear your support for significant accountability measures at both the Federal Reserve and our banks.” 

(This story has been refiled to remove an extraneous comma in the headline)

(Reporting by David Morgan and Heather Timmons; Editing by Leslie Adler)