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[1/3] The logo of Swiss bank Credit Suisse is seen in front of a branch office in Bern, Switzerland November 29, 2022. REUTERS/Arnd Wiegmann/File PhotoWASHINGTON/FRANKFURT, March 26 (Reuters) - Stress in the banking sector is being closely monitored for its potential to trigger a credit crunch, a U.S. Federal Reserve policymaker said on Sunday, as a European Central Bank official also flagged a possible tightening in lending. "What's unclear for us is how much of these banking stresses are leading to a widespread credit crunch. Meanwhile in Europe, the ECB believes that recent banking sector turmoil may result in lower growth and inflation rates, its vice president Luis de Guindos said. Turbulence among banking stocks on both sides of the Atlantic continued into the end of the week, despite efforts by politicians, central banks and regulators to dispel concerns.
NEW YORK, March 26 (Reuters) - Some investors and analysts are calling for more coordinated interventions from central banks to restore financial stability, as they fear that tumult in the global banking sector will continue amid rising interest rates. On Friday, shares of Deutsche Bank (DBKGn.DE) plunged amid concerns that regulators and central banks have yet to contain the worst shock to the banking sector since the 2008 global financial crisis. Global central banks including the Federal Reserve have recently taken measures to enhance the provision of liquidity through the standing U.S. dollar swap line arrangements. "The issue with European banks and big U.S. banks at the moment is confidence. Meanwhile, overall deposits in the banking sector have declined by almost $600 billion since the Fed began to raise interest rates last year, the biggest banking sector deposit outflow on record, noted Torsten Slok, chief economist at Apollo Global Management.
Stocks fell on Wednesday, with the benchmark S&P 500 (.SPX) closing down 1.65% after swinging between gains and losses during Fed Chairman Jerome Powell's press conference following the meeting. Futures markets are now pricing a Fed funds rate of around 4.25% by year-end, compared with the range of 4.75% to 5% that took effect on Wednesday. US stock market during the Fed's hiking cycleUNCERTAIN OUTLOOKStocks have been resilient this year in the face of uncertainty, with the S&P 500 up 2.5% since the end of 2022. A drop in Treasury yields from recent highs has also given a tailwind to stocks, especially to big tech and growth names that are heavily weighted in the S&P 500. Corporate profits are another potential trouble spot, with S&P 500 earnings expected to post year-over-year declines in the first and second quarters after falling 3.2% in the fourth quarter of 2022, according to Refinitiv IBES.
LONDON, March 23 (Reuters) - Credit Suisse (CSGN.S) bondholders are seeking legal advice after the Swiss regulator ordered 16 billion Swiss francs ($17.5 billion) of Additional Tier-1 (AT1) debt to be wiped out under its rescue takeover by UBS (UBSG.S). Not only did bondholders expect protection, but UBS is paying $3.23 billion to Credit Suisse shareholders. One Paris-based manager of a debt fund that held Credit Suisse AT1s said he had been "spammed" with emails from lawyers. Facing any challenge could be Credit Suisse, its new owner UBS, Swiss regulator FINMA or the Swiss government. It also cited an emergency March 19 ordinance which it said authorised FINMA to instruct Credit Suisse to write off the bonds.
LONDON, March 21 (Reuters) - Distressed debt investors and large hedge funds are buying up Credit Suisse (CSGN.S) additional tier-1 bonds at rock-bottom prices after they were written down to zero in the Swiss bank's rescue by cross-town rival UBS (UBSG.S). AT1 bonds issued by other European banks tumbled on Monday as the treatment of Credit Suisse AT1 bondholders highlighted the risks of this type of debt. Buyers have included a mixture of hedge funds and deep distressed debt funds, which Southey expected would need to hold the bonds for an extended period before they paid off. Some of those buyers intend to join groups that would litigate to improve odds on cashing in on the bonds, Southey said. "It's quite possible that we will see demand from buyers of subordinated bank debt to have more explicit protections written into these bond prospectuses in the future."
Credit Suisse's (CSGN.S) Additional Tier 1 (AT1) bonds in PIMCO’s mutual funds had been worth about $340 million on Friday, the source familiar with the matter said. PIMCO's current holdings of Credit Suisse bonds, excluding the AT1 debt, were worth over $4 billion, said the source, who was speaking on condition of anonymity. Some Credit Suisse bonds rallied on Monday after the state-backed rescue of the embattled lender. AT1 bonds issued by other European banks, instead, fell sharply on Monday as the treatment of Credit Suisse AT1 bondholders highlighted the risks of investing in these securities. Meanwhile, law firm Quinn Emanuel Urquhart & Sullivan said it was talking to a number of Credit Suisse AT1 holders about possible legal action.
Some $17 billion worth of AT1 Credit Suisse bonds will be written down to zero on the orders of the Swiss regulator as part of a rescue merger with UBS (UBSG.S). Under the deal, holders of Credit Suisse AT1 bonds will get nothing, while shareholders, who usually rank below bondholders in terms of who gets paid when a bank or company collapses, will receive $3.23 billion. AT1 bonds issued by other European banks fell sharply on Monday as the treatment of Credit Suisse AT1 bondholders highlighted the risks of investing in this type of debt. AT1 bonds act as shock absorbers if a bank's capital levels fall below a certain threshold. Meanwhile, law firm Quinn Emanuel Urquhart & Sullivan said it was talking to a number of Credit Suisse AT1 holders about possible legal action.
LONDON, March 20 (Reuters) - Lawyers from Switzerland, the United States and UK are talking to a number of Credit Suisse (CSGN.S) Additional Tier 1 (AT1) bond holders about possible legal action after the state-backed rescue of Credit Suisse by UBS (UBSG.S) wiped out AT1 bonds, law firm Quinn Emanuel Urquhart & Sullivan said on Monday. Quinn Emanuel said it was in discussions with Credit Suisse AT1 bondholders representing a "significant percentage" of the total notional value the instruments. PIMCO had 3.49% of its 5.66 billion euro ($6.06 billion) GIS Capital Securities Fund in Credit Suisse AT1 bonds, the Morningstar data showed. Lazard Asset Management had 7.4% of its 1.45 billion euro Lazard Capital Fi SRI fund allocated to Credit Suisse AT1 debt. GAM's 1.15 billion euro Star Credit Opportunities fund's exposure to Credit Suisse AT1 debt was 4.81% at the end of last month, based on the Morningstar data.
[1/2] Logos of Swiss banks UBS and Credit Suisse are seen in Zurich, Switzerland March 19, 2023. 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. The U.S., UK and Swiss central banks are all scheduled to meet in the week ahead. Even after Sunday's news on Credit Suisse, optimism from analysts was laced with caution and some scepticism. Others drew attention to the losses likely to be suffered by Credit Suisse junior bondholders.
March 20 (Reuters) - Fears of a global banking crisis are continuing to swirl, with investors keeping a close eye on a dashboard of indicators that show how stress is rippling through markets and the banking system. Many of these are continuing to flash warnings, though they have not surpassed levels seen during the COVID-19-fueled market turbulence of 2020. But the spread, measuring the gap between the euro zone three-month forward rate agreement and the overnight index swap rate, is still relatively elevated at around -1 basis points in a sign of lingering concern about financial market stress. Cost of insuring European junk bondsThe cost of insuring exposure to European junk bonds rose to the highest since mid-November on Monday at over 516 basis points. This has risen over 130 basis points since March 7 as riskier assets have borne the brunt of bank turmoil on both sides of the Atlantic.
FINMA, the Swiss regulator, said the decision would bolster the bank's capital. Engineered in the wake of the global financial crisis, AT1 bonds are a form of junior debt that counts towards banks' regulatory capital. "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. 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 move by the Swiss regulator could make it harder for other lenders to raise new AT1 debt, investors said.
Separately, two days of chaos in China's $21 trillion bond market ended on Friday after Beijing allowed money brokers to resume providing data to third-party platforms. Jeffrey Gundlach, CEO of DoubleLine Capital, said he considered selling Treasuries earlier in the week but the market was "wildly illiquid." Bond market volatility spikesKEEPING WATCHThe heightened volatility has caught the eye of officials who play a role in ensuring financial markets stability. Analysts noted that bond volatility was exceptionally high not only because of a flight to safe-haven government debt, but also due to a massive repricing of rate-hike expectations. "If liquidity is deteriorating due to wild swings in safe-haven markets, that has implications for the functioning of financial markets and broader economic stability."
DoubleLine's Gundlach sees US recession within four months
  + stars: | 2023-03-16 | by ( )   time to read: 1 min
NEW YORK, March 16 (Reuters) - Jeffrey Gundlach, the chief executive of DoubleLine Capital, said a recession could happen within the next four months, as recent U.S. bank failures have exacerbated the tightening of financial conditions caused by higher borrowing rates. "With all that's going on I think a recession is probably within four months at the most," Gundlach said in a Twitter Spaces audio chat on Thursday. Reporting by Davide Barbuscia; Editing by Leslie AdlerOur Standards: The Thomson Reuters Trust Principles.
A reversal of low rates to stem rampant inflation has forced a risk rethink and exposed the vulnerability of firms such as Credit Suisse. Meanwhile, Credit Suisse still needs to push ahead with a radical restructuring it undertook in October to restore profitability. [1/2] The Credit Suisse logo adorns one of their buildings at their campus in Research Triangle Park in Morrisville, North Carolina, U.S., March 15, 2023. "Credit Suisse has been in our watch-list for a while," one senior executive told Reuters. The radical move by the Swiss central bank is aimed at banishing such doubts.
On the precipice: How Credit Suisse's day of drama unfolded
  + stars: | 2023-03-16 | by ( )   time to read: +5 min
Fifteen years later, Credit Suisse Group AG found itself on a similar precipice. By the time traders in New York were switching on screens on Wednesday, Credit Suisse had lost more than a fifth of its value. Credit Suisse did not comment for this story but noted recent interviews given by its CEO saying the bank was strong. STILL SMOLDERINGMarkets seemed to calm, but the fresh drama around Credit Suisse jogged memories that the financial system was not out of the woods yet. "We welcome the statement of support," Credit Suisse said.
But as the European Central Bank hiked rates by 50 basis points on Thursday, the U.S. central bank was expected to press on with a quarter-point interest-rate hike despite the banking sector turmoil. "They're going to be watching signs of more instability across the financial sector very carefully," Ivascyn told Reuters. "There certainly are scenarios where they pause, it'll likely be a hawkish pause if it's a pause, but our current thinking is they go 25." Ivascyn said he expected market volatility around banks to continue over the next few months with some "isolated areas of weakness," but said the global banking sector was well capitalized compared with the 2008 global financial crisis. "There are going to be weak links within the financial sector and within the credit sector more broadly," said Ivascyn.
Banking worries send US markets on dizzying ride
  + stars: | 2023-03-16 | by ( Lewis Krauskopf | )   time to read: +4 min
The S&P 500 banks index (.SPXBK) was rebounding modestly on Thursday, after sinking 15% in a week. Reuters GraphicsMarkets are also reflecting concern that stress in the banking system may be bringing a recession closer. Economically sensitive assets such as oil and small-cap stocks (.RUT), have headed lower since Silicon Valley Bank's problems made headlines on March 8. The CBOE Market Volatility Index (.VIX) recently hit its highest level since October. But the benchmark S&P 500 index (.SPX) was last down just over 1% since the Silicon Valley troubles arose, and is logging a modest gain for 2023.
It would help organize a $2.25 billion stock sale for SVB to fill the funding gap caused by the bond portfolio sale, two of the sources said. It is unclear whether Goldman has held onto all or part of the bond portfolio or sold it. In a regulatory filing on Tuesday, SVB said its bond portfolio sales to Goldman were done at "negotiated prices". Goldman was not paid the underwriting fee it had agreed for the stock sale because that deal fell through, two of the sources said. UNDISCLOSED ROLESVB did not disclose in its stock sale prospectus to investors that Goldman was the acquirer of the bond portfolio it sold at a loss.
Concerns have been heightened by the wild swings in market interest rates since the collapse of Silicon Valley Bank (SIVB.O) last week. Fund managers advise shunning high-yield bonds, despite their attractive yields, because of the risk these bonds could be hit by ratings downgrades, defaults and a squeeze in company earnings. Refinitiv Lipper data showed high-yield bond funds, after seeing an inflow of $7.63 billion in January, faced an outflow of $11.51 billion in February. Reuters GraphicsSo far this month, high-yield bond exchange-traded funds (ETFs) have seen a total outflow of $506 million. However, safer money market funds have attracted $28.76 billion, and government bond funds have seen an inflow of $15.52 billion since February.
Credit Suisse said in a statement that it welcomed the news. Credit Suisse shares plunged by as much as 30.8% earlier on Wednesday, leading a 7% drop in the European banking index (.SX7P). The U.S. Treasury said it is monitoring the situation at Credit Suisse and is in touch with global counterparts about it. “People are all examining their books, what open positions we have with Credit Suisse,” the source said. The European Central Bank (ECB) had contacted banks on its watch to quiz them about their exposures to Credit Suisse, two supervisory sources told Reuters.
Rising CDS spreads signal investors are hedging bets on a deterioration in credit quality. In money markets, a closely watched indicator of credit risk in the U.S. banking system edged up on Monday. With investors worried about possible bank runs, the Federal Reserve on Sunday unveiled a new program to ensure banks can meet needs of all their depositors. "Hedge funds are probably the ones that are buyers in this case," said Dan Bruzzo, a strategist at Santander US Capital Markets. Other banks with California exposure were taking the brunt of the selloff in the debt capital markets, he added.
NEW YORK, March 13 (Reuters) - Credit risk indicators flashed red on Monday, as investors worried about contagion risks across corporate debt markets after the collapse of Silicon Valley Bank (SVB) and New York's Signature Bank in the space of 72 hours. Investment grade credit spreads, which indicate the premium investors demand to hold corporate bonds over safer government debt securities, have also been widening. The BlackRock Investment Institute said that after recently trimming its 'overweight' recommendation for investment grade credit, it was reassessing its view due to tighter financial conditions. In money markets, a closely watched indicator of credit risk in the U.S. banking system edged up on Monday. Other banks with California exposure were taking the brunt of the sell-off in the debt capital markets, he added.
Big investors including Kyle Bass and Bill Ackman argue the government must take quick action to avoid Silicon Valley Bank's collapse sparking more widespread withdrawals in the banking system. That could be determined by how hard the world's central banks continue to push interest rates higher. The market is signaling contagion could factor into the Fed's calculus, possibly prompting it to slow down the pace of interest rate hikes. Silicon Valley Financial Group was deeply woven into the fabric of the technology industry. Bass and Ackman separately warned that the government would have to move quickly in resolving Silicon Valley Bank to assure depositors.
Some also worry that the Fed's messaging is becoming erratic as it reacts to successively weak then strong economic data. BlackRock, the world's biggest asset manager, was among the slew of big Wall Street names raising their views for how high policy rates could go, with a forecast of 6%. Reuters GraphicsFor some investors, a return to 50 and 75 basis point rate increases may be a bridge too far. "Investors fear the Fed is going to overdo it," said Jack Ablin, chief investment officer at Cresset Capital. A spate of hotter than expected data would soon show that the economy was stronger than the Fed had expected.
Entities rated by MSCI ESG Research include Adani Green Energy, Adani Power, Adani Total Gas, Adani Transmission and Adani Enterprises, according to the statement. This week, MSCI ESG Research flagged all its covered Adani Group entities for the metric of accounting investigations, while some were flagged for the securities valuations metric, it said. "Across various Adani Group entities, MSCI ESG Research has identified issues relating to governance, board independence, related party transactions, and controlling shareholders," the company said. Since the short-seller report release, MSCI ESG Research has added "Bribery and Fraud" and "Governance Structures" controversy cases to all Adani Group companies in its coverage, it said. Sustainability ratings company Sustainalytics downgraded corporate governance-related scores for some Adani Group companies last month.
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