LONDON/NEW YORK (Reuters) -UBS sealed a deal to buy rival Swiss bank Credit Suisse in an effort to avoid further market-shaking turmoil in global banking, Swiss authorities said on Sunday.

Meanwhile, global central banks said they would open daily dollar taps to their banks.

Here are comments from market analysts:

CITI FOREIGN EXCHANGE STRATEGISTS:

“To rectify banking stress, the best bet is to address undercapitalised institutions, provide transparency about asset quality and ample liquidity alongside. U.S. and Swiss authorities have provided timely access to ample liquidity (including the new Fed BTFP facility and Swiss emergency liquidity), three U.S. regional banks were closed and Credit Suisse taken over, plus increasing the availability of central bank USD swap lines.

These measures are important, but additional ones are likely required to stabilise confidence in regional U.S. banks in particular. Raising the FDIC cap on insured deposits (potentially uncapping it) would be helpful, but capital injections are likely to be more effective, and probably necessary.

Encouragingly, discovery of new asset quality weaknesses in this crisis so far has been limited, outside of regional U.S. banks. If that continues, we are hopeful that policymakers and private entities will address the remaining gaps fairly promptly, and we therefore do not see a spiraling (global) financial crisis, even if some stresses are unavoidable.”

JEFFERIES’ EUROPEAN ANALYSTS:

“It’s positive news that a deal could be found as there were not many alternatives, and a nationalisation or unwinding of CS would likely have increased sector risks.

“However, in terms of sector ramifications, while this deal significantly reduces the immediate systemic risk from CS’ weaknesses, we think two key negatives elements will also catch the eye: (1) that CS’ AT1 holders are wiped out whereas shareholders are not entirely, though normally more junior in creditworthiness, and (2) that shareholder approval was not asked on UBS’ side for this deal. We think the objective of this transaction, while solving CS’ situation & associated risks for the system, is to reach a win/win, where UBS shareholders also get value out of this deal over time.

“The low price paid (3 billion Swiss francs) and significant safety net provided to UBS (with government guarantee) are positive, while UBS’ strategy is unchanged. However, UBS embarks significant execution risk, litigation risk, the buyback is temporarily suspended (unclear how long), UBS’ capital requirement is likely to be revised up, and management focus will be captured by this deal for many quarters, maybe years.”

BRIAN MARTIN, ANZ HEAD OF G3 ECONOMICS, LONDON:

“Policy makers will be hoping that the weekend’s UBS buyout of troubled Credit Suisse will draw a line under recent market stresses. Central banks were already facing the conundrum of “how much is enough?” in the face of resilient labour markets, given the lags with which their policy decisions affect economies. They now have a new conundrum: “how much is too much?” for financial stability? It’s one thing to ask economies to take their medicine in terms of a near-term growth vs inflation trade-off, but financial instability isn’t medicine; it’s toxic.

“Central banks are trying to separate monetary policy and financial stability concerns, but that’s easier in theory than in practice. Nonetheless, inflation remains a major problem for the Fed, and as such a 25 basis points hike in the fed funds rate this week looks favoured in our view.”

MARK CHANDLER, CHIEF MARKET STRATEGIST, BANNOCKBURN GLOBAL FOREX, NEW YORK:

“People have known about Credit Suisse for a while, but it came to a head. The U.S. regional banking stress that we have is a different problem. The regional banks have come under pressure because they are less equipped to handle a withdrawal of deposits the way the big banks are. They are more susceptible to the leaving of deposits and when the Federal Reserve reduces reserves, it hits them disproportionately.”

JAMES BIANCO, PRESIDENT, BIANCO RESEARCH, CHICAGO:

“(The central bank action is) a form of QE right out of the COVID/2008 playbook. Couple that with the record discount window borrowing and the expansion of the balance sheet, and the tide is turning to an easier Fed.

“One of two things happens, they move too slowly and the financial crisis worsens. They move fast enough to stem the crisis, and the massive amount of stimulus means an even bigger inflation problem in 2H 2023 and into 2024.

“Only one good option, everyone decides on their own to transfer hundreds of billions of deposits back in regional banks. The point is there are only bad options and worse options as long as money is leaving regional banks.”

MICHAEL PURVES, CHIEF EXECUTIVE OF TALLBACKEN CAPITAL ADVISORS, NEW YORK:

“In March 2020, amid COVID, the Fed saw a surge in the dollar… So (the) Fed aggressively put in lines to every major central bank. Today, the Fed is pulling out the same playbook. Now you have a small country with two giant banks, one of them was obviously under a huge pressure. So this is sort of a tool the Fed has to alleviate this type of shock stress and it doesn’t necessarily cost them that much to do it.

“The Fed wants to make sure the Swiss Central Bank isn’t going to have any problems.

“The line doesn’t really necessarily cost the Fed that much and it’s not necessarily not overtly inflationary anyway.

“Whatever global macro crisis you want to look at, people rush to buy dollars – that can be very destabilising to some of international economies.”

EDWARD MOYA, SENIOR MARKET ANALYST, OANDA, NEW YORK:

“The global financial system is still at great risk, and central bankers are showing they learned lessons from GFC and are trying to get in front of this. More banks are at danger and coordinated action might buy some banks some time.”

JEFF GITTERMAN, CEO OF ESG-FOCUSED GITTERMAN ASSET MANAGEMENT, NEW JERSEY:

“(It) feels like ’08 again a bit.

“I think the rating agencies will have to keep up with more downgrades than this past week which will pressure the banks even more. This will most likely spook investors and more selling of regionals to continue. I don’t see how we don’t enter a recession, as most failures of banks or financial institutions immediately preceded a recession. So a 10% to 15% market drop (is) likely especially if the Fed still goes 25 which I think they probably will, although I would not bet on it.”

MARSHALL FRONT, CHIEF INVESTMENT OFFICER, FRONT BARNETT ASSOCIATES, CHICAGO:

“This (central bank action) is no surprise. They have done this on other occasions when there was a liquidity risk. Some on Wall Street also see the possibility (of) further Fed actions to shore up confidence in the US banking system to stem additional runs. For example, there is an explicit guarantee for depositors’ balances above $250,000 at certain institutions. Some expect those guarantees to be broadened, increasing and possibly extending the amount to other institutions.

“Given the fragility of the current situation, banking regulators will certainly have given these options consideration. Whether they act to do so is an open question.”

MIKE O’ROURKE, CHIEF MARKET STRATEGIST, JONES TRADING:

“It should be clear that after more than a week into the banking panic, and two interventions organised by the authorities, this problem is not going away. Quite the contrary, it has gone global. The reports that UBS is acquiring Credit Suisse will likely magnify Credit Suisse’s problems by moving them to UBS.

“The prime concern of every bank for the immediate future is preventing deposit flight. It should be clear that the most expedient and effective solution to this crisis is an expansion and modernisation of the FDIC deposit insurance regime. It has become vastly apparent that the banking industry and its regulators were not prepared for a banking crisis in the instantaneous information era.”

CHRIS MARINAC, DIRECTOR OF RESEARCH, JANNEY MONTGOMERY SCOTT:

“This (CS/UBS deal) is a transaction designed to clear the market so European credit access can move forward. The Credit Suisse issues are not new and needed to be resolved years ago. Thank goodness something finally happened.”

JOHANN SCHOLTZ, EQUITY ANALYST AT MORNINGSTAR, COVERING EUROPEAN BANKS, AMSTERDAM:

“Under normal circumstances, I would say it is an absolutely fantastic deal for UBS, but in the current environment it is a bit more complicated as there is a lot of uncertainty generally in the markets. One big fear would be that some of the concerns about Credit Suisse just spill to UBS.

“Some area of concern, which we need more clarity, is the extent of the outflows from Credit Suisse and also the restructuring costs that UBS will incur. I think they will be able to offset restructuring costs against large negative goodwill that they created through this deal.

“The franchise of Credit Suisse is worth much more than the price UBS is paying for it, so I think Credit Suisse shareholders will actually feel a little bit of grief.

“In the past, when a deal between Credit Suisse and UBS was discussed, a sticking point would be concentration, especially in the domestic market. An IPO of the domestic unit now is obviously an option for UBS, but it is also the most stable part of the business that generates quite a lot of cash. If UBS is not required to do an IPO of it, it could make sense for them to keep it. There are lots of synergies.”

JONATHAN MACEY, PROFESSOR OF CORPORATE LAW, CORPORATE FINANCE AND SECURITIES LAW, YALE UNIVERSITY:

“The lack of (a) shareholder vote reflects the dire condition of Credit Suisse and indicates how much time pressure the banks and the regulators were under to get this deal done in light of the huge outflows of funds from Credit Suisse since late 2022. About $17 billion of a bonds known as AT1s will be written off in this deal, which reflects a significant haircut for non-depositor creditors.

“Under Swiss law, UBS would have had to give shareholders six weeks to consider the acquisition, which was far too much time under the circumstances. Also, given the discount in the merger price to the market price of Credit Suisse’s stock, there was a real chance that shareholders would not have approved the transaction.”

BRIAN JACOBSEN, SENIOR INVESTMENT STRATEGIST AT ALLSPRING GLOBAL INVESTMENTS, U.S.:

“It seems like a very large and decisive intervention. Provided markets don’t sniff out other lingering problems, I’d think this should be pretty positive. Governments are intent on snuffing out the spark of contagion before the flames get out of control.

“The CS/UBS deal should be good enough to improve sentiment, but there will still be lingering questions about regional banks in the U.S. and whether there are hidden risks in European banks. There is always something to worry about.”

MICHAEL ROSEN, CHIEF INVESTMENT OFFICER, ANGELES INVESTMENTS, SANTA MONICA, CALIFORNIA:

“The UBS-CS deal is the best solution the market could have hoped for. CS shareholders are essentially wiped out, and some (AT1) bondholders will be wiped out, but the basic functioning of the banking system was protected.

“Bank stocks should rally on the news, but it is premature to signal all-clear. Monetary tightening has eviscerated bank margins, and a reversal of tight monetary policy is not possible with inflation significantly, and stubbornly, higher than target. More broadly, and more importantly, tight monetary policy and a fragility in the banking system raise the risks of recession, thus contributing to more fragility in the banking sector.

“Markets may celebrate the rescue of CS, but it will be a short celebration.”

OCTAVIO MARENZI, CEO, OPIMAS, VIENNA:

“Switzerland’s standing as a financial centre is shattered – the country will now be viewed as a financial banana republic.

“The Credit Suisse debacle will have serious ramifications for other Swiss financial institutions. A country-wide reputation with prudent financial management, sound regulatory oversight, and, frankly, for being somewhat dour and boring regarding investments, has been wiped away.

“This deal is bound to generate legal and political resistance. First, the Federal Council has made use of emergency powers to force this merger through. A legal challenge by Credit Suisse shareholders, who will claim that their property has been illegally confiscated, is guaranteed.

“UBS shareholders, for their part, could well revolt against this deal, seeing a risk that Credit Suisse could prove to be a millstone around UBS’ neck that will drag both banks under. Secondly, the guarantees are bound to be challenged politically through Switzerland’s system of direct democracy – getting the necessary 100,000 signatures to put this deal to a vote of the people will happen in a matter of days.”

MARCHEL ALEXANDROVICH, EUROPEAN ECONOMIST, SALTMARSH ECONOMICS, LONDON:

“Central banks are stepping in and the SNB (Swiss National Bank) is offering to provide liquidity if needed. There’s also fiscal policy, so policymakers are doing their bit.

“The ECB will be hoping that this draws a line under the events of the last 10 days and concern about financing conditions start to stabilise and ease.

“If you come in and see markets have taken this well, we should see a pricing in of further rate increases.

“If they don’t take it well, then the views on the ECB will not shift and potentially if the crisis continues focus, will be on what the ECB can to alleviate this.”

HOLGER SCHMIEDING, CHIEF ECONOMIST, BERENBERG, LONDON:

“They’ve (Swiss authorities) seen a problem, are dealing with it and that’s a very positive sign for markets.

“That doesn’t meant that it’s all over but there’s no need to panic. The relief for market is that systemic risk is contained.”

(Reporting by the finance and markets team, Carolina Mandl in New York, Ross Kerber in Boston; Compiled by Dhara Ranasinghe, Megan Davies and Anshuman Daga; Editing by Tommy Reggiori Wilkes, Jamie Freed and Jacqueline Wong)

By Leika Kihara

TOKYO (Reuters) -The Bank of Japan (BOJ) must be ready to work further towards improving market functions if needed, a central bank policymaker said at a March meeting, underscoring the bank’s concern over the rising cost of its bond yield control policy.

While global banking woes have taken some upward pressure off long-term interest rates, the debate underscores the challenge incoming BOJ Governor Kazuo Ueda faces in keeping borrowing costs low – without draining market liquidity with aggressive bond buying.

At the March meeting, the BOJ maintained its ultra-loose policy, including a controversial 0.5% cap for the 10-year bond yield that had come under attack from markets betting on a near-term interest rate hike.

Many BOJ board members said the central bank must maintain its massive stimulus to support the economy and ensure Japan would sustainably achieve its 2% inflation target, the summary of opinions at the March meeting showed on Monday.

But some members voiced concern over lingering distortions in the yield curve, which the BOJ sought to contain in December by raising the 10-year bond yield cap to 0.5% from 0.25%.

“Although the widening of issuance spreads on corporate bonds has paused, the effects of deterioration in the functioning of the Japanese government bond (JGB) market remain and warrant close monitoring,” according to one opinion.

While steps taken since December have been effective to a certain extent, market functions have not been fixed fundamentally, according to another.

“It’s necessary to ensure the transmission of the effects of monetary easing is sustainable and effective by, if necessary, working to improve market functioning, including that of the corporate bond and swap markets,” said the official who made the second opinion.

Some board members also saw the risk of inflation overshooting expectations as more companies pass on rising costs to consumers and hike wages, the summary showed.

Japan’s core consumer prices rose 4.2% in January from a year earlier, hitting a 41-year high on soaring fuel and raw material costs.

Analysts polled by Reuters expect core consumer prices to rise 3.1% in February from a year earlier, slower than the pace of increase in January but still far exceeding the BOJ’s target.

At the time of the March meeting, the BOJ had been forced to ramp up bond buying to defend its 0.5% cap for the 10-year bond yield. The tussle with market participants betting on a near-term rate hike kept the 10-year yield pinned at the 0.5% ceiling, instead of fluctuating more freely as the BOJ had hoped.

The 10-year bond yield was 0.250% on Monday, well off the BOJ’s 0.5% cap, as investors loaded up on JGBs that are considered safe-haven assets favoured in times of market stress.

(Reporting by Leika Kihara; Editing by Christopher Cushing, Bradley Perrett and Christian Schmollinger)

By David Lawder, David French and Lananh Nguyen

WASHINGTON/NEW YORK (Reuters) – A U.S. official said on Sunday that the deposit outflows that left many regional banks reeling in the wake of Silicon Valley Bank’s failure had slowed and in some cases reversed, as investors tried to ascertain whether the crisis was contained.

Shares of regional banks such as First Republic Bank, PacWest Bancorp and Western Alliance Bancorp have plunged since the banking crisis started on March 8 with the collapse of Silvergate Capital Corp and intensified as U.S. regulators took over Silicon Valley Bank and Signature Bank .

A U.S. official, speaking on condition of anonymity, told Reuters that deposits in the country’s banking system were stabilizing and that U.S. banks had limited exposure to Credit Suisse Group AG, the Swiss lender that teetered before larger peer UBS Group AG agreed to acquire it on Sunday.

Many of the regional banks have also said that their deposit base has stabilized. However, some of them, including First Republic and PacWest, have been seeking to raise capital privately but have been unsuccessful thus far, amid concerns from peers and private equity firms about potential losses in their investment portfolios and loan books, sources have told Reuters.

“The regional banks have come under pressure because they are less equipped to handle a withdrawal of deposits the way the big banks are,” said Mark Chandler, chief market strategist at Bannockburn Global Forex in New York.

In a move of solidarity, most of the major banks agreed on Thursday to deposit $30 billion in First Republic. Yet in a blow to the bank’s financial outlook on Sunday, S&P Global downgraded First Republic’s credit rating deeper into junk territory, and warned that another downgrade was possible, citing the impact of deposit outflows.

Sources said on Sunday that First Republic was still trying to put together a capital raise but that no deal was imminent.

First Republic said in a statement it was “well positioned to manage short-term deposit activity.”

At least four U.S. lawmakers said on Sunday they would consider whether a higher federal insurance limit on bank deposits than the current $250,000 threshold was needed to inspire more confidence in the system.

Billionaire investor Warren Buffett, who helped rescue some banks during the 2008 financial crisis, has held discussions with senior U.S. officials about the banking crisis, a source said on Saturday. Buffett has yet to prop up any of the regional banks.

The Federal Deposit Insurance Corporation (FDIC), the U.S. regulator that took over Silicon Valley Bank and Signature Bank, made some progress on Sunday in returning one of them to the private sector.

It said New York Community Bancorp would purchase deposits, loans and 40 branches from Signature Bank. New York Community will purchase $12.9 billion of loans at a discount of $2.7 billion. The FDIC estimated the deal would cost its Deposit Insurance Fund approximately $2.5 billion, highlighting the government backstop that was needed to clinch the deal.

The FDIC failed, however, in its effort to find a buyer for the entirety of Silicon Valley Bank this weekend and will now seek new bids for parts of the bank on Wednesday and Friday, sources told Reuters.

(Reporting by David Lawder in Wahington, D.C. and David French and Lananh Nguyen in New York; Writing by Greg Roumeliotis; editing by Diane Craft)

(Reuters) -Australia’s Alliance Aviation Services Ltd said on Monday the country’s competition regulator has delayed a review until April 20 of the proposed acquisition of the charter operator by Qantas Airways Ltd.

This marked the fourth delay so far by the Australian Competition & Consumer Commission (ACCC) on the carrier’s A$610.8 million ($409.97 million) acquisition offer of Alliance Aviation.

Last May, Qantas announced plans to buy the remaining 80% stake in Alliance Aviation in an all-stock deal to expand its footprint in the charter business.

“Due to recent announcements by Qantas and Alliance about key developments regarding their existing wet-lease agreement, and fleet expansions by Alliance, the ACCC requires more time to gather and consider further information from the parties,” an ACCC spokesperson said on Monday.

Under the agreement, Qantas said the number of wet-lease aircraft options available from Alliance Airlines, a unit of Alliance Aviation Services, will be up to 12 additional Embraer E190 aircraft.

Alliance Aviation said last month that it had entered an agreement to purchase additional 30 Embraer E190 jet aircraft, with deliveries and payments to be completed in January 2026.

Qantas, which has previously “expressed disappointment” at ACCC delaying its decision, said in an emailed response on Monday that its position on the matter has not changed.

Shares of the Australian carrier dropped 3.1% in early trade, versus a 0.6% decline in the broader market.

($1 = 1.4899 Australian dollars)

(Reporting by Upasana Singh and Navya Mittal in Bengaluru; Editing by Tom Hogue, Rashmi Aich and Sherry Jacob-Phillips)

By Dhara Ranasinghe, Amanda Cooper and Davide Barbuscia

LONDON (Reuters) – Financial markets were poised for relief on Monday after UBS Group AG agreed to buy Credit Suisse Group AG in a rescue orchestrated by the state, while major central banks announced a co-ordinated move to shore up liquidity in the financial system.

In an early sign that risk appetite was set for a bounce, the euro, sterling and the Australian dollar all edged up, data from trading platform EBS and Reuters Dealing showed. Crypto currency bitcoin rose over 5%.

UBS will buy rival Swiss bank Credit Suisse for 3 billion Swiss francs ($3.23 billion) and agreed to assume up to $5.4 billion in losses as it winds down the smaller peer’s investment bank after a shotgun merger engineered by Swiss authorities.

Meanwhile, in a coordinated global response, central banks including the Federal Reserve said they would enhance dollar swap lines, helping calm investors rattled by turmoil in the banking sector.

“To improve the swap lines’ effectiveness in providing U.S. dollar funding, the central banks currently offering U.S. dollar operations have agreed to increase the frequency of seven-day maturity operations from weekly to daily,” the Fed said in a statement issued alongside announcements from the Bank of Canada, Bank of England, Bank of Japan, European Central Bank and Swiss National Bank.

S&P 500 futures rose 0.2% in bumpy early trade in Asia. The safe-haven yen was steady.

“Given the timing and sequence of events this move to offer overseas USD liquidity is less of a bad signal and more like an effort to instill confidence with the added benefit of watching the situation for USD demand on a daily basis,” said George Goncalves, head of U.S. macro strategy at MUFG.

The failure of two U.S. banks and a rout in Credit Suisse shares have sent shock waves through markets over the past week, reviving memories of the 2008 financial crisis.

European banks slid almost 12% last week, their biggest weekly drop in just over a year, Japanese banks fell almost 11% – their biggest weekly drop since the March 2020 COVID-induced market turmoil – and U.S. bank shares have notched double-digit losses for two straight weeks.

Without Sunday’s Swiss intervention, the risk of further market stress had appeared likely.

At least two major banks in Europe were examining scenarios of contagion possibly spreading in the region’s banking sector, two senior executives with knowledge of the deliberations told Reuters earlier on Sunday, before the Credit Suisse deal was announced.

The U.S., UK and Swiss central banks are all scheduled to meet in the week ahead.

“The global financial system is still at great risk, and central bankers are showing they learned lessons from the global financial crisis and are trying to get in front of this,” said Edward Moya, senior market analyst at OANDA. “More banks are at danger and coordinated action might buy some banks some time.”

HIGH STAKES

The stakes are high for central banks and policymakers who have highlighted resilience of their banking sectors but are also mindful of the need to stem a crisis of confidence that could destabilise financial markets.

“There’s too much more opportunity for your money in either money market funds or Treasury bills … more and more money is going to leave the banking system and then if you add all this lack of confidence … then you have a full blown crisis,” said Andrew Brenner, head of international fixed income at National Alliance Securities.

Even after Sunday’s news on Credit Suisse, optimism from analysts was laced with caution and some scepticism.

“Switzerland’s standing as a financial centre is shattered – the country will now be viewed as a financial banana republic,” said Octavio Marenzi, CEO of Opimas in Vienna.

Others drew attention to the losses likely to be suffered by Credit Suisse junior bondholders.

The decision to write down the value of Credit Suisse’s Additional Tier 1 bonds to zero under the deal was “stunning and hard to understand,” bondholder Axiom said.

“CS shareholders are essentially wiped out, and some (AT1) bondholders will be wiped out, but the basic functioning of the banking system was protected,” said Michael Rosen, chief investment officer at Angeles Investments.

(Reporting by Dhara Ranasinghe, Amanda Cooper in London, Davide Barbuscia in New York; Additional reporting Carolina Mandl, Lawrence Delevigne and Tom Sims; Editing by Matthew Lewis and Anna Driver)

By Francesco Canepa and Howard Schneider

FRANKFURT/WASHINGTON (Reuters) – Top central banks, faced with the risk of a fast-moving loss of confidence in the stability of the financial system, moved on Sunday to bolster the flow of cash around the world.

In coordination with central banks elsewhere, the U.S. Federal Reserve offered daily currency swaps to ensure banks in Canada, Britain, Japan, Switzerland and the euro zone would have the dollars needed to operate.

The change announced Sunday is a modest expansion of an existing program in which the Fed each week pays dollars to other major central banks in exchange for local currency. By doing so, the Fed, in effect offers low-risk short-term loans that ensure the world’s major economies have adequate supply of the global reserve currency to meet local demands.

But the coordinated action on Sunday still struck a symbolic chord, echoing steps taken to offset the impact of the COVID-19 pandemic in 2020. It was perhaps even more analogous to efforts undergird the system after the U.S. housing market collapsed and stoked a global financial crisis and U.S. recession from 2007 to 2009.

The daily swaps, beginning Monday and extending until at least the end of April, will “serve as an important liquidity backstop to ease strains in global funding markets, thereby helping to mitigate the effects of such strains on the supply of credit to households and businesses,” the Fed said in a statement.

The central bank swap lines have shown little sign of crisis so far, with foreign central banks holding outstanding swaps with the Fed for only $472 million as of March 15, versus $446 billion at the beginning of the pandemic and a peak of $583 billion in 2008.

But trouble among U.S. midsized lenders as well as the announcement Sunday of an emergency rescue of Swiss giant Credit Suisse Group AG have raised concerns about a looming and possibly contractionary credit crunch. Such a crisis could arise if the public lost faith in banks or banks lost faith in each other and started to limit their exposure to new loans.

The trouble at Credit Suisse in particular – one of the world’s largest financial institutions – sent shock waves through global markets last week, raising fears of a new financial crisis and threatening to derail central bankers’ efforts to tackle high inflation.

Credit Suisse found itself in dire need of liquidity last week until it was thrown a lifeline by its own central bank.

CONTAGION SCENARIOS

The coordinated move announced on Sunday will allow the central banks of the euro zone, Britain, Japan and Canada to each day offer seven-day dollar loans to their banks.

At least two major banks in Europe are examining scenarios of contagion possibly spreading in the region’s banking sector and looking to the Fed and the European Central Bank to step in with stronger signals of support, two senior executives with knowledge of the deliberations told Reuters.

The Fed and Bank of England are due to hold meetings on interest-rate policy this week, when they will have to strike a difficult balance between their fight against inflation and worries about financial turmoil.

Analysts polled by Reuters expect both banks to raise rates by 25 basis points.

But LH Meyer economist Derek Tang wrote that the actions on Sunday suggested greater worry about “risk from financial contagion, and on the margin could put … a rate hike by the FOMC on Wednesday in a bit more doubt.”

“To announce joint action so decisively provides a sense of security but also reveals enough anxiety on their part that they feel the need for more insurance against bad outcomes.”

(Reporting by Francesco Canepa in Frankfurt and Howard Scheider in Washington; Additional reporting by Dan Burns in New York; Editing by Matthew Lewis and Bradley Perrett)

By Stefania Spezzati, Oliver Hirt and John O’Donnell

(Reuters) -Some of the world’s largest central banks came together on Sunday to stop a banking crisis from spreading as Swiss authorities persuaded UBS Group AG on Sunday to buy rival Credit Suisse Group AG in a historic deal.

UBS will pay 3 billion Swiss francs ($3.23 billion) for 167-year-old Credit Suisse and assume up to $5.4 billion in losses in a deal backed by a massive Swiss guarantee and expected to close by the end of 2023.

Soon after the announcement late on Sunday, the U.S. Federal Reserve, European Central Bank and other major central banks came out with statements to reassure markets that have been walloped by a banking crisis that started with the collapse of two regional U.S. banks earlier this month.

S&P 500 and Nasdaq futures were each up 0.4%, both giving back some earlier gains. New Zealand dipped at the open and Australian shares opened with a 0.5% loss. The safe-haven dollar lost ground against Sterling and the euro but was up versus the yen.

Pressure on UBS helped seal Sunday’s deal.

“It’s a historic day in Switzerland, and a day frankly, we hoped, would not come,” UBS Chair Colm Kelleher told analysts on a conference call. “I would like to make it clear that while we did not initiate discussions, we believe that this transaction is financially attractive for UBS shareholders,” Kelleher said.

UBS CEO Ralph Hamers said there were still many details to be worked through. 

“I know that there must be still questions that we have not been able to answer,” he said. “And I understand that and I even want to apologize for it.” 

In a global response not seen since the height of the pandemic, the Fed said it had joined with central banks in Canada, England, Japan, the EU and Switzerland in a coordinated action to enhance market liquidity. The ECB vowed to support euro zone banks with loans if needed, adding the Swiss rescue of Credit Suisse was “instrumental” for restoring calm.

Fed Chair Jerome Powell and U.S. Treasury Secretary Janet Yellen welcomed the announcement by the Swiss authorities. The Bank of England also praised the Swiss.

“The greater risk environment for financials leads to husbanding of capital and risk-taking, less and more conservative investing and lending, and inevitably, lower growth,” said Lloyd Blankfein, former chairman and CEO of Goldman Sachs Group Inc.

“While some banks have been hung up by poorly managed, concentrated risk, the overall banking system is extremely well capitalized and substantially more tightly regulated than in prior challenging times.”

The Swiss banking marriage follows efforts in Europe and the United States to support the sector since the collapse of U.S. lenders Silicon Valley Bank and Signature Bank.

Some investors welcomed the weekend steps but took a cautious stance.

“Provided markets don’t sniff out other lingering problems, I’d think this should be pretty positive,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments.

Problems remain in the U.S. banking sector, where bank stocks remained under pressure despite a move by several large banks to deposit $30 billion into First Republic Bank, an institution rocked by the failures of Silicon Valley and Signature Bank.

On Sunday, First Republic saw its credit ratings downgraded deeper into junk status by S&P Global, which said the deposit infusion may not solve its liquidity problems.

U.S. bank deposits have stabilized, with outflows slowing or stopping and in some cases reversing, a U.S. official said on Sunday, adding the problems of Credit Suisse are unrelated to recent deposit runs on U.S. banks and that U.S. banks have limited exposure to Credit Suisse.

The U.S. Federal Deposit Insurance Corp (FDIC), meanwhile, is planning to relaunch the sale process for Silicon Valley Bank, with the regulator seeking a potential breakup of the lender, according to people familiar with the matter.

‘DECISIVE INTERVENTION’

The intervention comes after two sources told Reuters earlier on Sunday that major banks in Europe were looking to the Fed and ECB to step in with stronger signals of support to stem contagion. 

The euro, the pound and the Australian dollar all rose by around 0.4% against the greenback, indicating a degree of risk appetite in markets. 

“Bank stocks should rally on the news, but it is premature to signal all-clear,” said Michael Rosen, chief investment officer for Angeles Investments in California.

UBS Chair Colm Kelleher said during a press conference that it will wind down Credit Suisse’s investment bank, which has thousands of employees worldwide. UBS said it expected annual cost savings of some $7 billion by 2027.

The Swiss central bank said Sunday’s deal includes 100 billion Swiss francs ($108 billion) in liquidity assistance for UBS and Credit Suisse.

Credit Suisse shareholders will receive 1 UBS share for every 22.48 Credit Suisse shares held, equivalent to 0.76 Swiss francs per share for a total consideration of 3 billion francs, UBS said.

Credit Suisse shares had lost a quarter of their value last week. The bank was forced to tap $54 billion in central bank funding as it tries to recover from scandals that have undermined confidence.

Under the deal with UBS, some Credit Suisse bondholders are major losers. The Swiss regulator decided that Credit Suisse bonds with a notional value of $17 billion will be valued at zero, angering some of the holders of the debt who thought they would be better protected than shareholders in a rescue deal announced on Sunday.

($1 = 0.9280 Swiss francs)

(Reporting by Stefania Spezzati, Oliver Hirt and John O’Donnell in Zurich; Additional reporting by Lananh Nguyen, Saeed Azhar and Hannah Langby and Reuters bureaus; Writing by Lincoln Feast, Conor Humphries and Nick Zieminski; Editing by William Mallard, Kirsten Donovan, Barbara Lewis, Hugh Lawson, David Holmes and Lisa Shumaker)

By David Lawder

WASHINGTON (Reuters) -U.S. bank deposits have stabilized, with outflows slowing or stopping and in some cases reversing, an official said on Sunday, adding the problems of Credit Suisse are unrelated to recent deposit runs on U.S. banks.

After officials in Switzerland announced a deal for UBS to acquire Credit Suisse on Sunday, the U.S. official said that U.S. banks have limited exposure to Credit Suisse, after reducing their exposures to the No. 2 Swiss lender in recent months.

Speaking on condition of anonymity, the official said that U.S. banking regulators were in touch with Swiss counterparts on the Credit Suisse situation.

The official’s comments on U.S. deposit outflows from smaller and mid-size banks to larger institutions prompted by Silicon Valley Bank’s failure follow similar comments by U.S. Deputy Treasury Secretary Wally Adeyemo on Friday.

“We’ve seen that over the course of the work week, deposit flows have stabilized in regional and small banks and in some cases, have modestly reversed,” he told CNBC.

Adeyemo attributed the stabilization to the systemic protection guarantees granted to uninsured depositors in Silicon Valley and Signature Bank, along with the creation of new Fed facilities that allow banks to access adequate liquidity to cover outflows.

(Reporting by David Lawder in Washington; Editing by Matthew Lewis and Sam Holmes)

By Pablo Mayo Cerqueiro, Chiara Elisei and Davide Barbuscia

LONDON/NEW YORK (Reuters) – Credit Suisse said 16 billion Swiss francs ($17.24 billion) of its Additional Tier 1 debt will be written down to zero on the orders of the Swiss regulator as part of its rescue merger with UBS, angering bondholders on Sunday.

FINMA, the Swiss regulator, said the decision would bolster the bank’s capital. The move reflects authorities’ desire to see private investors share the pain from Credit Suisse’s troubles.

Chair Marlene Amstad said FINMA had stuck to the country’s “too-big-to-fail” banking framework in making the decision.

It means AT1 bondholders appear to be left with nothing while shareholders, who sit below bonds in the priority ladder for repayment in a bankruptcy process, will receive $3.23 billion under the UBS deal.

Engineered in the wake of the global financial crisis, AT1 bonds are a form of junior debt that counts towards banks’ regulatory capital. They were designed as a way to transfer risks to investors and away from taxpayers if a bank gets into trouble.

The bonds can be converted into equity or written down when a lender’s capital buffers are eroded beyond a certain threshold.

“It’s stunning and hard to understand how they can reverse the hierarchy between AT1 holders and shareholders,” said Jerome Legras, head of research at Axiom Alternative Investments, an investor in Credit Suisse’s AT1 debt.

Reuters reported earlier on Sunday that Swiss authorities were considering imposing losses on bondholders as part of the rescue deal.

UBS’ CEO Ralph Hamers told analysts that the decision to write down the AT1 bonds to zero was taken by FINMA, so it would not create a liability for the bank.

Credit Suisse’s AT1 debt had rallied earlier on Sunday amid reports that shareholders would receive something in a deal with UBS, raising hopes that bondholders would be protected.

The bonds had sunk into distressed territory before the weekend due to mounting concerns over the health of the Swiss lender.

The move by the Swiss regulator could make it harder for other lenders to raise new AT1 debt, investors said.

“It’s going to make the AT1 bonds more expensive for all the other banks going forward, because now everyone else is going to see this extra risk,” said Michael Ashley Schulman, partner and chief investment officer at Running Point Capital Advisors.

AT1s pay higher interest as they carry more risk for investors than regular debt.

Prior to Sunday’s news, investors had been apprehensive about the prospect of banks extending outstanding AT1 bonds to avoid refinancing at worse terms because of higher interest rates.

($1 = 0.9280 Swiss francs)

(Reporting by Pablo Mayo Cerqueiro and Chiara Elisei and Davide Barbuscia; Additional reporting by Saeed Azhar in New York and John O’Donnell and Noele Illien in Zurich; Writing by Tommy Reggiori Wilkes; Editing by Hugh Lawson and Diane Craft)

By Jonathan Stempel and Anirudh Saligrama

(Reuters) -First Republic Bank saw its credit ratings downgraded deeper into junk status by S&P Global, which said the lender’s recent $30 billion deposit infusion from 11 big banks may not solve its liquidity problems.

S&P cut First Republic’s credit rating three notches to “B-plus” from “BB-plus,” and warned that another downgrade is possible. Other ratings were also lowered.

The agency said First Republic likely faced “high liquidity stress with substantial outflows” last week, reflecting its need for more deposits, increased borrowings from the Federal Reserve, and the suspension of its common stock dividend.

It said that while the deposit infusion should ease near-term liquidity pressures, it “may not solve the substantial business, liquidity, funding, and profitability challenges that we believe the bank is now likely facing.”

Sunday’s downgrade by S&P was the second in four days for First Republic, which previously held an “A-minus” credit rating.

It could add to market concerns about the San Francisco-based bank, which has scrambled to assure investors and depositors about its health following this month’s collapses of Silicon Valley Bank, which also served many wealthy clients, and Signature Bank.

Another rating agency, Moody’s Investors Service, downgraded First Republic to junk status on Friday.

In a statement following the S&P downgrade, First Republic said the new deposits and cash on hand leave it “well positioned to manage short-term deposit activity. This support reflects confidence in First Republic and its ability to continue to provide unwavering exceptional service to its clients and communities.”

The statement echoed a joint statement on Thursday from the four largest U.S. banks–JPMorgan Chase & Co, Bank of America Corp, Citigroup Inc and Wells Fargo & Co–that together deposited $20 billion.

First Republic shares plunged 32.8% on Friday to $23.03, reflecting concern that more trouble lies ahead.

The shares have fallen 80% since March 8, when Silicon Valley Bank’s parent SVB Financial Group shocked investors by revealing big investment losses and a need for new capital, sparking a bank run.

(Reporting by Jonathan Stempel in New York and Anirudh Saligrama in Bengaluru; Editing by Chris Reese and Diane Craft)