Aurelia Butler

(Reuters) – UBS Group AG (SIX:UBSG) has offered to buy Credit Suisse for up to $1 billion, with the Swiss government planning to change the country’s laws to bypass a shareholder vote on the transaction, the Financial Times reported on Sunday.Credit Suisse and UBS declined to comment, and the Swiss government did not immediately respond to a request for comment. Authorities have been scrambling to rescue the 167-year-old bank, among the world’s largest wealth managers, before financial markets reopen on Monday. As one of 30 global systemically important banks, Credit Suisse’s failure would ripple throughout the entire financial system. The Financial Times reported that the all-share deal was set to be signed as soon as Sunday.Citing people familiar with the matter, it said an offer was made Sunday morning at 0.25 Swiss francs ($0.27) per Credit Suisse share, well below Friday’s closing price of 1.86 Swiss francs and all but wiping out the bank’s existing shareholders.UBS has also insisted on a ‘material adverse change’ that voids the deal in the event its credit default spreads jump by 100 basis points or more, the report added. However, it noted that the situation was fast-moving and there was no guarantee that terms will remain the same or that a deal would be reached. A person with knowledge of the talks earlier told Reuters that UBS was seeking $6 billion from the Swiss government as part of a possible purchase of its rival.The guarantees UBS is seeking would cover the cost of winding down parts of Credit Suisse and potential litigation charges, two people told Reuters.One source previously cautioned the talks were encountering significant obstacles, and 10,000 jobs may have to be cut if the two banks combine. The Swiss Bank Employees Association on Sunday called for the immediate creation of a task force to deal with the risk to jobs.The frenzied weekend negotiations over the future of Credit Suisse follow a brutal week for banking stocks and efforts in Europe and the United States to shore up the sector following the collapse of U.S. lenders Silicon Valley Bank and Signature Bank (NASDAQ:SBNY).U.S. President Joe Biden’s administration moved to backstop consumer deposits while the Swiss central bank lent billions to Credit Suisse to stabilise its shaky balance sheet.UBS was under pressure from the Swiss authorities to take over its local rival to get the crisis under control, two people with knowledge of the matter said. The plan could see Credit Suisse’s Swiss business spun off, while Bloomberg reported that the takeover talks were throwing into doubt plans to hive off its investment bank under the First Boston brand. U.S. authorities are working with their Swiss counterparts to help broker a deal, Bloomberg reported, while Sky News said the Bank of England has indicated to international counterparts and to UBS that it would back the proposed takeover of Credit Suisse, which counts Britain as a key market. GRAPHIC: Tale of two banks – https://www.reuters.com/graphics/CREDITSUISSE-CRISIS/klvygqzoqvg/chart.png FORCEFUL RESPONSECredit Suisse shares lost a quarter of their value in the last week. The bank was forced to tap $54 billion in central bank funding as it tries to recover from a string of scandals that have undermined the confidence of investors and clients. “The last days of Credit Suisse”, proclaimed the front page of Swiss newspaper NZZ am Sonntag over an illustration of the bank’s headquarters in flames. GRAPHIC: Bank exposure – https://www.reuters.com/graphics/CREDITSUISSE-CRISIS/zgvobarewpd/chart.png The failure of California-based Silicon Valley Bank brought into focus how a relentless campaign of interest rate hikes by the U.S. Federal Reserve and other central banks – including the European Central Bank on Thursday – was pressuring the banking sector.SVB and Signature’s collapses are the largest bank failures in U.S. history behind the demise of Washington Mutual during the global financial crisis in 2008. U.S. Senator Elizabeth Warren, who is pushing tighter banking regulation, has called for an investigation into the two failures, the Wall Street Journal reported.Banking stocks globally have been battered with the S&P Banks index falling 22% in its largest two-week loss since the pandemic shook markets in March 2020. U.S. banks have sought a record $153 billion in emergency liquidity from the Federal Reserve in recent days and big lenders threw a $30 billion lifeline to smaller lender First Republic.First Citizens BancShares is evaluating an offer for SVB along with at least one other suitor, while the Mid-Size Bank Coalition of America asked regulators to extend federal insurance to all deposits for the next two years, Bloomberg reported. In Washington, focus has turned to greater oversight to ensure that banks and their executives are held accountable with Biden calling on Congress to give regulators greater power over the sector.The swift and dramatic events may mean big banks get bigger, smaller banks may strain to keep up and more regional lenders may shut.”People are actually moving their money around, all these banks are going to look fundamentally different in three months, six months,” said Keith Noreika, vice president of Patomak Global Partners (NYSE:GLP) and a Republican former U.S. comptroller of the currency. More

How will bank failures affect Federal Reserve policy? Before the collapse of Silicon Valley Bank over a week ago, investors were betting that the US Federal Reserve would raise interest rates by 0.5 percentage points at its March meeting, forced to reaccelerate the pace of tightening after recent strong jobs and inflation data. But the outlook for the Fed is no longer so clear. The drama in some parts of the US banking system has suggested to investors that the central bank is done, or nearly done, with its monetary tightening. Although the banking issues have little to do with inflation, a shift towards more aggressive policy could lead to panic in markets and more problems with banks, which in turn would require further intervention from the Fed.Pricing in the futures market currently suggests that most investors are expecting the Fed to lift rates by 0.25 percentage points when it meets on Tuesday and Wednesday. Those expectations have been shifting rapidly, however, and earlier this week, the chances of any hike at all were near zero. The meeting comes after inflation data showed that consumer prices continued to cool in February, though the improvement was smaller than economists had anticipated. The CPI index rose 6 per cent in February, year over year, with core inflation — which strips out the volatile food and energy sectors — up 5.5 per cent. Kate DuguidWhich way will the BoE ‘knife-edge’ decision go?Economists say the next monetary policy decision by the Bank of England, on Thursday, is a “nail-biter”. Governor Andrew Bailey has already opened the door to a pause in increasing policy rates, but inflation remains stubbornly high.Markets have priced in an almost equal probability of a 0.25 percentage point increase and no change.The BoE has raised its policy rate at every meeting since November 2021, when the benchmark rate was at a historical low of 0.1 per cent, to the current rate of 4 per cent. The economy is feeling the impact of rising borrowing costs and the cost of living crisis, contracting in the third quarter and stagnating in the last three months of 2022. Turbulence in the banking sector with the collapse of Silicon Valley Bank last week has added to investor concerns over the impact of rising borrowing costs on the banking sector and activity.However, inflation is still in double figures and the labour market remains tight, fuelling economists’ fears of more persistent price pressures.Elizabeth Martins, an economist at HSBC, said the move is “a nail-biter, but on balance, we think the BoE will press on and hike to 4.25 per cent.”She added that UK inflation data for February, which is released on Wednesday, the day before the policy meeting, could still change the outcome of the vote. Weak price pressure would tilt the decision to a no change. “Whether the Bank hikes or not next week, we think it is approaching the end of its tightening journey, for now at least,” Martins added. Valentina RomeiWill the eurozone economy remain resilient?The eurozone economy is expected to show further resilience in the face of the cost of living crisis, with a leading business survey forecast to show activity continuing to expand in March.Economists polled by Reuters expect the flash eurozone composite purchasing managers’ index, a closely watched barometer of private sector activity, to come in at 52 in March. This would be unchanged from February and above 50, which indicates a majority of businesses reporting an expansion compared with the previous month.The PMIs, released on Friday, are expected to show that eurozone growth was driven by services, with that sector index expected to come in at 52.6, largely unchanged from the previous month. Manufacturing, which has been severely affected by high energy prices, is forecast to still be in contraction but marginally better than in the previous month. Ryan Djajasaputra, an economist at Investec, said that in February the eurozone PMI showed improving confidence, rising demand in the service sector and a continued easing of supply chain pressures. He expects that “this trend continued in March”.That would be in line with expectations of improving activity forecast by the European Central Bank.“The economy looks set to recover over the coming quarters,” ECB president Christine Lagarde said at a press conference on Thursday after announcing a 0.5 percentage point increase in the deposit interest rates.“Industrial production should pick up as supply conditions improve further, confidence continues to recover, and firms work off large order backlogs,” she said. “Rising wages and falling energy prices will partly offset the loss of purchasing power that many households are experiencing as a result of high inflation.” Valentina Romei More

BEIRUT (Reuters) – When Caroline Sadaka buys groceries in the Lebanese capital Beirut, she keeps her phone in hand – not to check her shopping list but to calculate the spiralling costs of goods now priced at volatile exchange rates that vary by store and sector. As Lebanon’s economy continues to collapse, an array of exchange rates for the local pound has emerged, complicating personal accounting and dimming hopes of fulfilling a reform requirement set out by the International Monetary Fund.The government’s official exchange rate was set at 15,000 pounds to the U.S. dollar in February, a nearly 90% devaluation from the longtime peg of 1507.5. But the Central Bank is selling dollars at a rate of 79,000 to the greenback while the finance minister intends to calculate tariffs for imported goods at 45,000 pounds. The parallel market rate is meanwhile hovering around 107,000 pounds and changing daily. Supermarkets and fuel stations are required to post signs with the value they’ve adopted for the day, but the rate is changing so fast that many are pricing in the relatively stable U.S dollar instead. Examining a can of tuna, Sadaka illustrated the daily quandary faced by shoppers. “This doesn’t have a (logical) price. If you look, it’s in Lebanese pounds, so is this the price? Or is this an old price, and there’s now a price in dollars?,” she wondered. She quit her job as a school teacher which paid her in local currency, the value of which has decreased by more than 98% against the dollar on the parallel market since 2019.That’s when the economy began unravelling after decades of unsound financial policies and alleged corruption. To solve the exchange rate confusion, the government needs to implement one unified rate. This is among pre-conditions set by the International Monetary Fund nearly a year ago for Lebanon to get a $3 billion bailout.But the lender of last resort says reforms have been too slow. They have met resistance from politicians who are shielding vested interests and dodging accountability.  In the meantime, the country has been moving towards a cash-based and dollarized economy given spiralling inflation and restrictions by banks on transactions.Shop owner Mahmoud Chaar told Reuters the exchange rate was changing so fast that his business was losing money overnight. Like many business owners, Chaar has to pay in U.S. dollars to import goods but sells in Lebanese pounds. One day, he had sold all his goods based on one rate but woke up the next to find it had jumped nearly 10,000 pounds per U.S. dollar. “Basically, we lost in the exchange rate difference what we had made in profit,” Chaar told Reuters. Economist Samir Nasr said the varying rates across sectors were making personal accounting “messy” for Lebanese and unifying them was more urgent than ever. “What is required is a full group of reforms and steps that will allow for the economic situation to stabilize in general – and would then allow the exchange rate to be unified,” he said. More