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INVESTOR FEARS APPEAR TO EASE AS UK AND US SHARE PRICES RISE

Published
2 days ago

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Image source, Getty Images
By Daniel Thomas & Michael Race
Business reporter, BBC News


Fears in financial markets appeared to ease, a day after regulators agreed a
rescue deal for troubled lending giant Credit Suisse.

The bank was bought by rival UBS on Sunday after regulators worked around the
clock to secure the takeover.

Along with the collapse of two smaller US banks, its struggles had sparked fears
over the global financial system.

Hope that the deal would help contain the crisis helped lift shares in Europe
and the US.

London's FTSE 100 closed up roughly 0.9%, recovering ground after early losses.
Major indexes in Europe also ended higher, with UBS climbing roughly 1.5% by the
end of the day.

In the US, the three major exchanges also gained, despite worries about another
regional bank, First Republic.



Shares in the San Francisco-based firm sank more than 40%, as the injection of
funds by 11 of America's biggest banks last week failed to restore confidence in
the bank's future.

There were reports of another effort to stabilise the bank - which has seen
shares plunge as customers transfer their money - as authorities sought to keep
the crisis contained.

Shares of some other banks in the US and Europe also remained under pressure.

In the UK, a spokesperson for Prime Minister Rishi Sunak aimed to reassure
investors saying UK banks were "safe and well capitalised" after the emergency
rescue of Credit Suisse.

It came after central banks around the globe made similar comments.

Six central banks, including the US Federal Reserve, also announced they would
boost the flow of dollars in the global financial system to make sure banks had
easy access to cash.


 * Is this a banking crisis - how worried should I be?
 * Central banks to boost flow of US dollars



Despite the panic, experts do not expect a repeat of 2008 when banks stopped
lending to each other. The situation was so dire then it sparked a global
recession.

Banks have been struggling with the recent rise in interest rates which has left
some sitting on substantial losses.

It led to the collapse of Silicon Valley Bank and Signature Bank - two medium
sized lenders - in the US last week and sparked concerns other banks could get
into trouble.

Credit Suisse - which had been loss-making for some time but which was otherwise
well capitalised - has been hit by this crisis of confidence.

The 167-year-old institution is one of around 30 banks worldwide deemed too big
to fail because they are of such importance to the banking system.

Switzerland's second largest lender, which has struggled with a string of
scandals over the last few years, was sold to UBS at just over $3.15bn (£2.6bn),
a fraction of its $8bn price tag on Friday.



Mark Yallop, the former UK chief executive of UBS, said the deal "should" do the
job of reassuring investors.

"This is a takeover of a challenged institution with particular idiosyncratic
problems that relate to it specifically [and are] not reflective of broader
issues in the banking markets," he told the BBC's Today programme.

Image source, EPA
Image caption,
The chairmen of both banks spoke at a news conference in Bern on Sunday

UBS chairman Colm Kelleher said it would wind down Credit Suisse's investment
banking operations but that it was "too early" to say what would happen about
jobs.

Credit Suisse has around 74,000 staff, around 5,000 of them in the UK.

"We need to do this in a rational way thoughtfully, when we've sat down and
analysed what we need to do," he said.



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.

There is also a higher temporary limit of £1m for six months, if you get a
sudden influx of funds, such as an inheritance.

Protection is similar in the EU, and the US government has safeguarded deposits
of up to $250,000 for a long time.

Read more here




MORE ON THIS STORY

 * Credit Suisse to borrow $54bn to shore up finances
   
   6 days ago
   
   

 * UK banking system 'safe' after Credit Suisse rescue
   
   2 days ago
   
   

 * Multi-billion dollar rescue deal for US bank
   
   6 days ago
   
   

 * Credit Suisse cuts 9,000 jobs to stem losses
   
   27 October 2022
   
   





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