US and European stock markets rose, but bank shares wavered in volatile trading yesterday, after financial authorities scrambled to ease fears of a crisis in the banking system.

UBS agreed to take over Credit Suisse for three billion Swiss francs (RM14.5 billion) in a government-brokered deal on Sunday, following days of market upheaval.

Hours later, the US Federal Reserve and other major central banks announced a coordinated effort to improve banks’ access to liquidity.

European indices and Wall Street rose in choppy trading as investors remain on edge, a week after US authorities stepped in to prevent bank runs following the collapse of several US regional lenders.

Asian markets closed in the red.

“This is now the second weekend that central banks, governments, and regulators have spent putting out fires,” said Craig Erlam, analyst at Oanda trading platform.

“While markets are recovering today, I’m not sure anyone is confident that all flames have been extinguished,” Erlam said.

He added, however, that the speedy and decisive reaction of authorities will provide “some reassurances amid all of the uncertainty.”

Andy Kapyrin of RegentAtlantic said: “I think the market is breathing a sigh of relief, that something much worse could have happened. And so far, it hasn’t.”

But he cautioned “it’s too early to say that the whole thing’s over.”

Investors pored over the Credit Suisse buyout, which sought to prevent a wider crisis as it is among 30 global banks considered “too big to fail”.

Amid US banking woes, Credit Suisse shares went into free fall last week over fears that the lender – already shaken by other scandals – would be the next domino to fall. 

The buyout “may have some effect in reducing anxiety levels in financial markets, but it may only be short-lived, with traders left wondering which bank could be next,” said Tim Waterer, analyst at Kohle Capital Markets.

One concern from Sunday’s deal was the effect it could have on the high-risk debt market as holders of such bonds at Credit Suisse, known as AT1s, will lose US$17.3 (RM77.6) billion after authorities required that they be written off.

AT1 or “CoCo” bonds, which offer high returns but also carry high risks, were created following the 2008 global financial crisis to put the burden of losses on investors instead of taxpayers.

‘Strong’ reaction

Officials have sought to reassure markets.

EU Economy Commissioner Paolo Gentiloni said the reaction of “monetary authorities has been strong and rapid.”

European Central Bank president Christine Lagarde added that capital buffers and liquidity of eurozone banks were “way in excess” of what is required while their exposure to Credit Suisse’s AT1 bonds was “very limited.”

The sector’s Stoxx Europe 600 Banks index rose 1.3% after trading in the red earlier in the day, but some banks fared better than others.

UBS shares rose after dropping sharply at the open. Credit Suisse fell more than 55% after paring down losses.

British banks Standard Chartered and Barclays fell but French giant BNP Paribas and Germany’s Commerzbank were up.

On Wall Street, shares in US banking giants JPMorgan Chase rose but Bank of America and Citigroup fell.

Troubled First Republic Bank’s stock price continued its decline, plunging more than 47% even though a coalition of US lenders said they would inject US$30 billion into it.

This month’s collapse of US lenders Silicon Valley Bank (SVB), Signature Bank and Silvergate sparked fears of contagion as worried customers withdrew cash.

It led US authorities last week to reassure depositors.

Looking ahead, investors will turn their focus to the Fed’s monetary policy meeting this week, with speculation mounting that it will pause its interest rate hikes to provide some stability to markets.

SVB took a big financial hit as the value of its bond portfolio fell due to the rising rates.

Key figures around 2100 GMT

New York - Dow: UP 1.2% at 32,244.58 (close)

New York - S&P 500: UP 0.9% at 3,951.57 (close)

New York - Nasdaq: UP 0.4% at 11,675.53 (close)

London - FTSE 100: UP 0.9% at 7,403.85 (close)

Frankfurt - DAX: UP 1.1% at 14,933.38 (close)

Paris - CAC 40: UP 1.3% at 7,013.14 (close)

EURO STOXX 50: UP 1.3% at 4,119.42 (close)

Tokyo - Nikkei 225: DOWN 1.4% at 26,945.67 (close)

Hong Kong - Hang Seng Index: DOWN 2.7% at 19,000.71 (close)

Shanghai - Composite: DOWN 0.5% at 3,234.91 (close)

Euro/dollar: UP at US$1.0726 from US$1.0671 on Friday

Pound/dollar: UP at US$1.2280 from US$1.2174

Euro/pound: DOWN at 87.32 pence from 87.59 pence

Dollar/yen: DOWN at  ¥131.32 from  ¥131.80 

West Texas Intermediate: UP 1.3% at US$67.64 per barrel

Brent North Sea crude: UP 1.1% at US$73.79 per barrel – AFP, March 21, 2023.