Stocks nudged higher in choppy trading on Monday, as investors’ cautiously welcomed moves over the weekend to shore up the global financial system.
The S&P 500 rose 0.3 percent, with many of the regional banks that came under pressure last week, following the collapse of Silicon Valley Bank in California, edging higher.
Authorities in Switzerland arranged a hasty takeover of Credit Suisse by its rival UBS on Sunday. Major central banks also moved to make dollar funding more readily available and federal regulators announced an acquisition of parts of the collapsed Signature Bank in New York.
Bank stocks remained the focus on Monday, with sharp variations in their fortunes. Credit Suisse’s share price slumped over 50 percent following the deal, which was agreed at a hefty discount to the bank’s market value on Friday, while shares of UBS gained more than 2 percent.
First Republic Bank, the subject of a rescue attempt by larger rivals that injected billions into the San Francisco-based institution last week, recorded another steep slide, losing more than 40 percent soon after midday. A plunge in its stock price this month has erased tens of billions of dollars of market value and put its future as an independent bank in doubt. First Republic’s credit rating was downgraded by S&P Global on Sunday, for the second time in less than a week.
However, outside of Credit Suisse and First Republic, banks that have wavered after the collapse of Silicon Valley Bank and Signature Bank fared better on Monday. Shares of PacWest rose, as did Comerica, Zions Bank and Fifth Third.
The volatility in the banking sector continues ahead of a crucial meeting of the Federal Reserve on Wednesday. Many economists expect Fed policymakers to raise rates by a quarter-point, but market pricing suggests that traders are evenly split on whether the central bank will raise interest rates at all.
The Fed has been raising interest rates to rein in stubbornly higher inflation, but investors are growing increasingly concerned about further turning the screws on an economy already showing signs of stress after a year of rapid rate rises. Just a few weeks ago, traders put a high probability on the Fed raising rates by half a percentage point.
The turbulence has also weighed on oil prices, reflecting worries that problems in the sector would put a damper on economic growth. Brent crude, the international benchmark, fell to nearly $70 a barrel, its lowest since late 2021, before recovering to trade modestly lower. West Texas Intermediate oil briefly slipped to just over $64 a barrel, also the lowest in more than a year.
Shortly after the UBS acquisition of Credit Suisse was announced, the Federal Reserve and five other central banks, including the Swiss National Bank, unveiled a coordinated action to make sure dollars would remain readily available for short-term lending across the global financial system. Modest uptake of the facility on Monday suggested that there was not an acute need for dollars.
Separately on Sunday night, the Federal Deposit Insurance Corporation said it had entered into an agreement to sell the 40 former branches of Signature Bank, which was taken over by U.S. regulators on March 12, to New York Community Bancorp.
The F.D.I.C. said on Monday that it would extend the bidding process through Wednesday for potential buyers of Silicon Valley Bank. That would give suitors more time to “explore all options in order to maximize value and achieve an optimal outcome,” the agency said, which could include partial offers for different units of the bank and pieces of its asset portfolio.
Investors said they expected the Credit Suisse deal to cause unease in debt markets because it wiped out a group of the bank’s bondholders. Investors who own stock in a company are typically last in line to be paid when a company is wiped out. But in this case, owners of stock in Credit Suisse received one UBS share for every 22.48 shares they owned, according to the terms of the deal.
The Credit Suisse bonds that were rendered worthless were a special form of risky bank debt, known as AT1 bonds, that are intended to absorb losses during times of stress. On Monday, banking regulators and supervisors in the European Union, of which Switzerland is not a member, issued a statement reiterating that in their jurisdiction shareholders bear losses at banks before bondholders.
A London-traded fund that tracks AT1 bond performance dropped in trading on Monday.
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