After the emergency takeover of Credit Suisse by the major Swiss bank UBS, the situation on the financial markets eased somewhat on Monday. The Dax, which got off to a weak start, stabilized and by the afternoon was approaching the 15,000 point mark again with gains of around 1.2 percent. The emergency rescue of the ailing Credit Suisse intended to calm the financial markets by the politicians and monetary watchdogs came about with a slight delay. Tailwind also came from Wall Street, which had also strengthened.
The stock market turbulence of the past few days has continued with the violent price fluctuations: At the start of trading, the Dax had temporarily dropped to below 14,500 points - a low since January. The MDax of medium-sized companies also made up for its losses during the course of the day and gained slightly. The EuroStoxx 50, the leading index in the euro zone, advanced by 1.22 percent to 4114.77 points.
With billions in support from Switzerland and the local central bank SNB, the takeover of the major Swiss bank by its domestic competitor UBS was decided at the weekend. In addition, six major central banks, including the US Federal Reserve and the European Central Bank (ECB), increased their rate of supply of dollar liquidity to the financial system.
ECB President Christine Lagarde reiterated that eurozone banks have weathered the recent turmoil. "The euro area banking sector is resilient and in a strong capital and liquidity position," Lagarde told the European Parliament's Economic and Monetary Affairs Committee in Brussels on Monday. "In any case, the ECB's monetary policy toolkit is fully equipped to provide liquidity support to the euro area financial system."
At the beginning of the week, bank shares were able to shake off most of their daily losses in trading throughout Europe; nevertheless, worries about a possible involvement of the institutes in certain multi-billion dollar bonds of Credit Suisse weighed on them.
Banks, insurers and other investors have put a total of CHF 16 billion (EUR 16.2 billion) in subordinated bonds from Credit Suisse (known as AT1 paper). At the behest of the Swiss financial regulator Finma, this money is to be added to Credit Suisse's equity, and the holders of these papers lose the money they invested.
It was initially unclear which large investors were threatened with higher defaults as a result. Deutsche Bank shares have recently increased slightly. A spokesman said that the largest German financial institution had "almost zero" exposure to these equity-like AT1 bonds. According to its own statements, Commerzbank is not at all.
On Sunday evening it was announced that UBS would buy its smaller rival Credit Suisse for CHF 3 billion (a good EUR 3 billion). In addition, it is responsible for losses of up to five billion francs. There is also a state loss guarantee of CHF 9 billion and liquidity commitments of up to CHF 200 billion.
The Swiss National Bank (SNB) is supporting the transaction with liquidity assistance and granting the banks a loan of up to CHF 100 billion. In addition, the SNB could grant Credit Suisse a liquidity assistance loan of up to CHF 100 billion secured by a default guarantee from the federal government.
A takeover of the second largest Swiss bank Credit Suisse by the larger UBS is the most significant bank merger in Europe since the financial crisis 15 years ago. It means the end for the 167-year-old Credit Suisse, whose headquarters are across from its bitter rival UBS on Zurich's Paradeplatz.
The Swiss government in Bern was under considerable pressure to stabilize the situation and support Credit Suisse. Because Credit Suisse is one of the world's largest asset managers and is one of the 30 globally systemically important banks whose failure would shake the international financial system.
Swiss President Alain Berset said "the Federal Council is convinced that the takeover is the best solution to restore confidence". The transaction is important for the stability of the Swiss financial center, it said. Finance Minister Karin Keller-Suter said the federal government had given a guarantee of CHF 9 billion to absorb Credit Suisse risks. "The taxpayers have little risk" - any other scenario would have incurred more costs.
Credit Suisse had recently suffered from a significant loss of investor confidence. The share price had fallen to a record low after the bank's largest investor ruled out providing further capital and the institution continued to struggle with cash outflows. According to UBS, the emergency takeover to create a new industry giant will create a financial institution with more than $5 trillion in assets under management.