US markets subdued after Credit Suisse rescue deal

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We'll be pausing our live coverage shortly, after a busy few hours following the reaction to the Credit Suisse rescue deal, which saw the Swiss bank bought up by rival UBS.

Here's a reminder of what's been going on:

• Shares in European banks took a hit in early trading, despite efforts by authorities to portray the deal as good news
• European stock markets also started down, but later recovered - in the US, the Dow and the S&P 500 are up, but the Nasdaq is lower
• Shares in UBS, which initially sank on news that it would merge with troubled rival Credit Suisse, are now up more than 2.5%
• A spokesman for UK PM Rishi Sunak said the UK banking system "remains safe and well capitalised"
• Despite market turmoil in recent weeks, experts are not forecasting a repeat of the 2008 financial crisis
• But rising interest rates are putting pressure on some banks, some analysts say, and market turmoil may give central banks a reason to pause, or slow down, rate hikes

It has been a bumpy day of trading on share markets, where investors are trying to digest what recent moves to deal with troubled banks - particularly last night's rescue deal for Credit Suisse - might mean for the future.

Many of the big Asian markets closed down.

But major exchanges in Europe have recovered from early losses. In mid-afternoon trade, France’s CAC 40 and Germany’s DAX are up about 1% or more, while London's FTSE 100 has climbed about 0.6%.

In morning trade in the US, the Dow and the S&P 500 are up, but the Nasdaq is lower.

Gold - seen as a less risky asset in times of turmoil - is up. Oil prices, which tend to get hit if the outlook for economic growth wanes, are down.

The influential Wall Street bank Goldman Sachs has reduced its forecasts for economic growth in the Eurozone and the UK as a result of the problems at Credit Suisse and in the banking system more broadly.

It has cut its forecast for Eurozone growth in 2023 by 0.3% to 0.7%, and in the UK it has made a downgrade of 0.2, meaning it now expects growth of 0%.

It points out that this includes the boost from Jeremy Hunt's budget and is more optimistic than the Bank of England's most recent forecast.

It says that both Eurozone and UK banking systems "continue to look resilient" and have enough money.

However, it says the big concern is that banks will be more cautious about lending money and that will be a drag on economic growth.

It does caution that its new estimates are "subject to significant uncertainty".

The upheaval surrounding the banking sector could have a direct impact on what you pay for a mortgage or receive as a return on savings.

There is certainly plenty in the mix when the Bank of England's Monetary Policy Committee meets this week to decide on the benchmark interest rate, or Bank rate.

The need to control rising prices would push them towards another rise, while the current pressure on banks will pull them in the opposite direction. About 1.6 million mortgage borrowers on tracker or variable deals would likely see their monthly repayments change if the Bank rate moves.

So what are mortgage lenders making of it all? Again, it is a mixed picture, with a bit of movement. Ultimately, the rates on average fixed deals have been coming down since the start of the year, but are still higher than most homeowners are accustomed to.

For a typical two-year fixed deal, the rate is 5.32%, and for a five-year fix, it is 4.97%, according to the financial information service Moneyfacts.

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Despite the headlines being full of emergency meetings, central banks offering credit lifelines and tumbling bank shares, there is good news. Ordinary people have little reason to fear for their funds.

In the highly unlikely scenario that a bank or building society actually collapses, then deposit protection is in place.

In the UK, that means £85,000 per person, per institution is protected (or £170,000 in a joint account). So, if you have £85,000 in one bank, and another £85,000 in a separately licensed bank, then it is all safe if both went bust, under the Financial Services Compensation Scheme.

Similar protections exist in the EU and US.

• Read more on what the Credit Suisse buyout means for you

Two mid-size US banks have failed this month - and many are watching to see if others will follow.

Top of the watch list is San Francisco-based First Republic, which saw a big sell-off in shares last week amid reports that many customers were shifting their deposits elsewhere.

Last week, 11 of the biggest US banks announced they would inject billions into the bank, in a show of confidence.

But the move has not appeared to soothe the worries.

Shares sank roughly 70% last week and they are down more than 10% again this morning.

That comes a day after one of the big three ratings agencies, S&P Global Ratings, warned the rescue deal "may not solve the substantial ... challenges that we believe the bank is now likely facing".

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The main US stock markets are still subdued in early trading as investors weigh up the current situation.

Matt Orton, chief market strategist at Raymond Janes Investment Management, told the Reuters news agency that the markets were "digesting the shotgun wedding between UBS and Credit Suisse", which saw the former take over its rival in a state-backed rescue deal.

He said with risks to the wider financial system "a little bit more minimised", investors are now looking to what the US central bank, the Federal Reserve, is going to do.

The Federal Reserve will decide on Wednesday whether to hike interest rates again or not as it tries to curb rising consumer prices.

Recent rises in interest rates have in part led to some smaller banks in the US getting into trouble.

Shares in UBS, which initially sank on news that it would merge with troubled rival Credit Suisse, are now higher.

That’s a sign that investors are growing more optimistic that the deal won’t be all bad for the bank - even if it happened under pressure.

Analysts have been weighing in on the deal - among then Firdaus Ibrahim of CFRA research:

"The acquisition will strengthen UBS’s position as the leading Swiss-based global wealth manager. While there is still a lot of work to be done to fix Credit Suisse, we think the deal is likely to be value-enhancing for UBS and its shareholders, given the steeply discounted price and the downside protection given to UBS to carry out the necessary restructuring."

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Credit Suisse is being taken over by UBS. Both are giant Swiss banks, but their investment banking arms operate all over the world.

Swiss banking has the ultimate reputation for financial stability, so the slide into uncertainty for Credit Suisse, and the shotgun marriage to UBS, have left the Swiss rather dazed.

Two US banks had already gone under this month - Silicon Valley Bank and Signature Bank - both catering largely to the tech sector. While those are the biggest bank failures in the US since 2008, neither was anywhere near the size of Credit Suisse.

No other banks have collapsed, but central banks were worried enough to announce new measures to make extra cash available to make sure financial transactions continue as normal.

Read more here

Eyes are now turning across the Atlantic to the US, where stock markets there will open in the next ten minutes.

• It's been a choppy morning on the London Stock Exchange, with the UK's main stock index, the FTSE 100, dropping by almost 2% before recovering back into positive territory.
• Stock markets across the globe have been spooked by the rescue deal orchestrated by Swiss authorities over the weekend for Credit Suisse, a major global investment bank, to its rival UBS
• It follows the failure of two smaller US banks in recent weeks
• Banking stocks in London slid in value on Monday, but the UK government and the Bank of England both say the country's banking system remains "safe" in an effort to reassure investors and businesses
• UBS's shares were down around 5%, but seem to be recovering from heavier losses. Share price falls at other European banks are also recovering.

Stay with us, as attention focuses on the US over the next few hours to see how investors there react.

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There isn't the same system-wide problem that there was in 2008, when banks around the world suddenly found they were exposed to rotten investments in the US housing market. That lead to enormous government bailouts and a global economic recession.

Since then, banks have been ordered to hold more capital and regulations around risk have been tightened. So most experts believe the impact of these current troubles will be contained.

The bad news is that nervousness around the health of banks is often contagious. And if people start to worry about their deposits they can move them at the click of a mouse.

While we are unlikely to see the total breakdown in trust that characterised the financial crisis, we could still see regulators toughening up the rules further and banks pulling back on their willingness to lend.

That could put a chill on the global economy, at a time when it could do without it.

• Read our updated explainer article here

UK Prime Minister Rishi Sunak has been regularly updated on the situation by the Treasury and the Bank of England and has been in touch with the Swiss president too, his spokesman has said.

"We believe the UK banking system remains safe and well-capitalised," the spokesman added.

"We have a strong regulatory system and we have taken a number of steps over the past 15 years, together with the Bank of England, to strengthen that system."

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Economist Cornelia Meyer has been telling the BBC that the bank's troubles have "accumulated over time".

She says the bank has had issues ever since it took over US rival First Boston in a rescue deal way back in 1990.

Banks need to keep investors' and depositors' confidence, Meyer says - "if you lose that, you lose your shirt".

Meyer adds that the state-backed takeover of Credit Suisse by rival UBS was not perfect but probably the best deal possible at this time.

The Swiss government and regulators couldn't have moved faster, she says, and for now the deal has helped steady things in the country.

Some stability has returned to the banking sector.

UBS shares are down 5% today having been 14% lower this morning. Shares in other European banks have also recovered after early steep falls. Deutsche Bank was down 10% but is now 3% lower.

Regulators in Europe, the UK and the US will be breathing a sigh of relief that the deal for UBS to buy Credit Suisse at a knockdown rate, with offers of cheap credit and a ready supply of dollars has seemingly calmed frayed nerves.

This was an enormously complex deal to do over a weekend and it is perhaps no surprise that many feel it leaves some awkward loose ends. The fact that shareholders in Credit Suisse got $3bn from the deal while some lenders to the troubled bank got nothing at all is not what the way it's supposed to work.

Traders are mystified and alarmed that this deal ignored the practice of prioritising bond holders over shareholders and similar bonds in other banks have tumbled in value today.

The next test for the improvement in sentiment over the last three hours will be the opening of US financial markets.

The regulators have moved quickly and offered more help than banks have currently taken up - which means they either fear things could be worse than they look, or that they want to stay a step ahead of events at every turn they can.

Everyone hopes it's the latter.

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No banks have actually used the Bank of England’s dollar funding facility announced last night in coordination with other global central banks. The Bank offered dollars to the market this morning, but none were needed.

The Swiss National Bank facility was used, with $101m (£83m) drawn on, and there was small use of the European Central Bank’s offer - just $5 million. The Bank of Japan received zero bids.

The pre-emptive move did seek to allay fears that concerns over financial fragility could spread beyond Credit Suisse and US regional banks.

The fear is that the rising interest rate environment - and wild fluctuations in bank shares and government bond prices - are a recipe for further instability. Some US regulators have not appeared sure-footed in dealing with rapid movements in deposits in and out of some institutions.

For now, it appears that there is no lack of willingness among banks to lend dollars on the open market in the normal way.

With fears spreading through global stock markets, central banks rushed yesterday to keep cash flowing through the world's financial systems.

With investors nervous after the failures of two smaller US banks and the rescue of Credit Suisse, six central banks, including the Bank of England, announced they would boost the flow of US dollars from Monday.

Such measures were last taken during the 2008 financial crisis and at the height of the Covid pandemic.

Until at least the end of April, British banks can now go direct to the Bank of England to borrow money, instead of borrowing on the open market.

The central banks say this move will lessen the impact on the supply of credit to households and businesses.

Good afternooon. I'm taking over the page now, along with my colleagues Michael Race from the BBC's Business team, Laura Gozzi and Jemma Crew.

After a jittery morning in markets in Asia and Europe, things have steadied somewhat and reassurances that this is not like the financial crisis of 2008 keep coming.

We're gearing up to bring you reaction from the US markets when the New York Stock Exchange opens a little under an hour from now.

Stay with us for more live updates and analysis.

The turmoil enveloping some of the banking sector is highly unlikely to reach the scale of the financial crisis of 2008. But the fallout of market unease could actually soften the blow of the rising cost of living.

The wholesale price paid for gas in the UK, determined by global markets, has dropped to levels not seen in over 18 months. If sustained, that could bode well for lower energy bills - albeit in many months' time - though those would still be far pricier than a few years ago.

Motorists too may see some gains, as oil prices drop, with the most commonly quoted measure dropping by over $2 per barrel, to around $71.

As for those bracing to take out new mortgage deals or paying a home loan at a variable rate, they too may not be quite as pricey as previously feared. To limit the strain banks face, some economists expect the Bank of England to pause rate hikes – or even halt those altogether.