Hong Kong and Tokyo: Why Asian markets declined after Credit Suisse’ takeover

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Asian stock markets fell on Monday after Swiss authorities arranged the takeover of troubled Credit Suisse amid fears of a global banking crisis.

Ahead of a Federal Reserve meeting to decide on more possible interest rate hikes, markets in Hong Kong, Tokyo and Sydney declined. While in Shanghai, stocks edged up. Oil prices also retreated.

Swiss authorities on Sunday announced UBS would acquire its smaller rival as regulators try to ease fears about banks following the collapse of two US lenders.

Central banks announced coordinated efforts to stabilise lenders including a facility to borrow US dollars if necessary.

Investors worry banks are cracking under the strain of unexpectedly fast, large rate hikes over the past year to cool economic activity and inflation. That caused prices of bonds and other assets on their books to fall, fuelling unease about the industry’s financial health.

“Investors are waiting to see where the dust settles on the banking saga before making any bold moves,” Stephen Innes of SPI Asset Management said in a report.

The Hang Seng in Hong Kong lost 2.5 per cent  to 19,023.69 and the Nikkei 225 in Tokyo shed 1.1 per cent  to 27,030.90. The Shanghai Composite Index gained 0.1 per cent  to 3,254.81.

The Kospi in Seoul retreated 0.4 per cent  to 2,387.06 and Sydney’s S&P-ASX 200 lost 1.2 per cent  to 6,913.80. New Zealand and Southeast Asian markets also declined.

The Swiss government said UBS will acquire Credit Suisse for almost 3.25 billion dollars (£2.6 billion) after a plan for the troubled lender to borrow as much as 54 billion dollars from Switzerland’s central bank failed to reassure investors and customers.

US regulators have also sought to calm fears over threats to banking systems. The Federal Reserve said cash-short banks had borrowed about 300 billion dollars from the Federal Reserve in the week up to Thursday.

Separately, New York Community Bank agreed to buy a significant chunk of the failed Signature Bank in a 2.7 billion dollar (£2.2 billion) deal, the Federal Deposit Insurance Corp (FDIC) said late on Sunday. The FDIC said 60 billion dollars in Signature Bank’s loans will remain in receivership and are expected to be sold off in time.

That fuelled concern about other lenders with shaky finances. Credit Suisse is among 30 institutions known as globally systemically important banks. Ahead of its takeover, Wall Street’s benchmark S&P 500 index lost 1.1 per cent  on Friday to 3,916.64.

Shares of First Republic Bank sank nearly 33 per cent  to bring their plunge for the week to 71.8 per cent .

The Dow Jones Industrial Average lost 1.2 per cent  to 31,861.98. The Nasdaq composite fell 0.7 per cent  to 11,630.51.

The unexpectedly large, fast rate hikes by the Fed and other central banks to cool inflation that is close to multi-decade highs have caused prices of bonds and other assets on their books to fall.

Traders expect last week’s turmoil to push the Fed to limit a rate hike at its meeting this week to 0.25 percentage points. That would be the same as the previous increase and half the margin traders expected earlier.

Press Association – Joe McDonald, Associated Press