London midday: Stocks recover some poise after Credit Suisse takeover

Mon 20 Mar 2023

LONDON (SHARECAST) - (Sharecast News) - London stocks were up by midday on Monday, recovering some poise after a downbeat start, as investors mulled the implications of Credit Suisse's takeover by UBS.
The FTSE 100 was up 0.4% at 7,361.61, reversing earlier losses.

Stocks had kicked the session off sharply lower on news that UBS had agreed to buy rival Credit Suisse for 3 billion Swiss francs ($3.25bn), in a deal that see $17bns of bonds wiped out.

Under the terms of the deal, UBS will pay around CHF0.76 per share in its own shares. This compares to a closing Credit Suisse share price of CHF1.86 on Friday.

The Swiss National Bank will make available a CHF100bn liquidity line to UBS. Should UBS incur more than CHF5bn in losses from Credit Suisse's assets, the Swiss government would shoulder the next CHF9bn in red ink, with UBS taking any losses above that amount.

Also as part of the deal, around CHF16bn of Credit Suisse's Additional Tier 1 (AT1) capital bonds will be wiped out. AT1 bonds are high-yield securities that typically have loss-absorbing features, meaning they can be written off if a lender's capital falls below a crucial level.

Swiss regulators demanded that the AT1 bonds be written down to zero as part of the deal.

Andrew Kenningham, chief Europe economist at Capital Economics, said that firstly, the decision to write off the AT1 bonds is "controversial" given that the common equity - which is typically considered junior to AT1 in the capital structure - was not entirely wiped out.

"That decision could result in a re-pricing of AT1 and other bail-in bonds of other banks -indeed it appears that the prices of other banks' AT1 instruments have fallen in early trading this morning," he said..

"Second, there could be legal challenges to the agreement, prolonging the process and creating further uncertainty. And third, further substantial losses in the legacy bank cannot be ruled out and this could affect confidence in the enlarged UBS and/or prompt demands for further state support. So while the deal may yet prove to be a turning point in the current banking crisis, we will probably not know for certain for a while yet."

On home shores, a survey out earlier showed that property asking prices rose by 0.8% in March from the prior month and showed signs of stabilising after last year's 'mini-budget', which created severe market volatility.

Rightmove said the market still faced challenges from higher interest rates and economic headwinds.

Optimism about a recovery was tempered by the fact that March's growth was below the 1% average monthly increase for the month over the last 20 years with sellers more cautious than usual about pricing.

Rightmove director Tim Bannister said the pace of the market reached an "unsustainable level in the last two years, and was on track to slow to a more normal level, though the speed of this slowdown to more normality was accelerated by the reaction to September's mini-budget".

"While higher mortgage rates and economic headwinds raise challenges, many potential home movers who were effectively side-lined in the frenetic bidding wars of the last two years will find that a slower-paced market gives them time to plan and secure their next move as we enter the traditionally busy spring-buying season," Bannister said.

In equity markets, banks were again the biggest fallers, with Standard Chartered, Barclays, and HSBC all down, although losses were less pronounced than earlier.

Essentra slid as it traded without entitlement to the dividend.

On the upside, precious metals miners were the standout gainers as gold prices rose, with Endeavour Mining, Fresnillo and Centamin all up.

Miner Glencore was boosted by an upgrade to 'buy' from 'neutral' at UBS.

There wasn't a whole lot happening on the corporate front, but FirstGroup said the government had extended its current contract for its troubled West Coast rail contract to October 15.

Elsewhere, Intertek announced the appointment of Colm Deasy as group chief financial officer and as an Executive Board director. It also said it was establishing a new Group Executive Committee effective immediately.

Market Movers

FTSE 100 (UKX) 7,361.61 0.36%
FTSE 250 (MCX) 18,456.01 -0.08%
techMARK (TASX) 4,450.49 -0.16%

FTSE 100 - Risers

Endeavour Mining (EDV) 1,844.00p 4.77%
Fresnillo (FRES) 734.00p 3.38%
Anglo American (AAL) 2,581.50p 3.10%
Severn Trent (SVT) 2,891.00p 2.77%
Glencore (GLEN) 444.25p 2.68%
BAE Systems (BA.) 928.80p 2.56%
Antofagasta (ANTO) 1,477.50p 2.32%
Bunzl (BNZL) 3,042.00p 2.25%
United Utilities Group (UU.) 1,067.50p 2.25%
International Consolidated Airlines Group SA (CDI) (IAG) 136.18p 2.19%

FTSE 100 - Fallers

Standard Chartered (STAN) 609.40p -3.88%
Barclays (BARC) 135.88p -2.64%
Melrose Industries (MRO) 143.95p -2.27%
HSBC Holdings (HSBA) 530.10p -2.21%
Prudential (PRU) 985.80p -2.20%
Legal & General Group (LGEN) 221.70p -2.16%
Scottish Mortgage Inv Trust (SMT) 660.00p -1.67%
Phoenix Group Holdings (PHNX) 549.80p -1.65%
Ashtead Group (AHT) 4,795.00p -1.46%
Centrica (CNA) 99.94p -1.25%

FTSE 250 - Risers

Centamin (DI) (CEY) 106.40p 5.71%
Network International Holdings (NETW) 257.40p 2.31%
Currys (CURY) 60.60p 2.28%
PureTech Health (PRTC) 208.00p 2.21%
Balfour Beatty (BBY) 339.80p 1.98%
IG Group Holdings (IGG) 685.00p 1.71%
Bodycote (BOY) 625.50p 1.62%
Hill and Smith (HILS) 1,294.00p 1.57%
Volution Group (FAN) 421.50p 1.57%
Pennon Group (PNN) 873.00p 1.39%

FTSE 250 - Fallers

Essentra (ESNT) 189.40p -11.50%
Tullow Oil (TLW) 26.32p -9.05%
Wood Group (John) (WG.) 195.05p -5.27%
Apax Global Alpha Limited (APAX) 151.80p -5.01%
Petershill Partners (PHLL) 145.00p -4.86%
Molten Ventures (GROW) 284.40p -4.05%
Harbour Energy (HBR) 237.70p -4.04%
Syncona Limited NPV (SYNC) 139.40p -3.60%
Bakkavor Group (BAKK) 105.00p -3.31%
Vanquis Banking Group 20 (VANQ) 216.40p -3.31%
Archived Stories

02 Jun London midday: Stocks extend gains as investors eye payrolls
01 Jun London midday: Stocks stay up but Dr Martens tumbles on results
31 May London midday: Stocks stay down after China data; US debt deal eyed
30 May London midday: Stocks stay down amid US debt deal doubts
26 May London midday: Stocks up but off highs; miners rally