Global markets mixed as investors weigh Credit Suisse takeover

European markets moved higher in choppy trading, with the Pan-European Stoxx 600 index climbing nearly 1.2 percent, Britain’s FTSE 100 gaining 1.1 percent and Germany’s DAX adding 1.3 percent. But Asian markets slumped, with Hong Kong’s Hang Seng Index tumbling 2.7 percent and Japan’s Nikkei shedding 1.4 percent.

The global banking sector has been in upheaval for the past 10 days, after Silicon Valley Bank suddenly failed and regulators stepped in to take over. That failure led to greater scrutiny on other financial institutions in the United States and abroad, and fellow tech-heavy Signature Bank was closed shortly after.

Government officials have tried to quell fears in the banking market, assuring depositors that their full accounts would be accessible and issuing public statements that the smaller banks’ failures did not mean the larger market was at risk.

Treasury Secretary Janet L. Yellen and Federal Reserve Chair Jerome H. Powell issued a joint statement to emphasize that, “The capital and liquidity positions of the U.S. banking system are strong, and the U.S. financial system is resilient.”

Still, flutters of concern have rippled through the sector as customers, worried about their savings, moved their money to bigger banks. Fed officials are scheduled to meet this week to decide whether to raise interest rates again in the central bank’s ongoing effort to bring down high inflation, which has vexed the nation for close to two years.

But the interest rate strategy, which is partially responsible for the banking upheaval, has to be balanced with a need to maintain stability in the banking market.

The Credit Suisse takeover announced Sunday was engineered by the Swiss government, capping several days of speculation over its fate.

“The Credit Suisse Group is experiencing a crisis of confidence, which has manifested in considerable outflows of client funds,” the Swiss government’s financial regulator, FINMA, said in a release Sunday. “This was intensified by the upheavals in the US banking market in March 2023.”

As part of the UBS takeover, the Swiss government said its support would “trigger a complete write-down” of about $17 billion worth of Credit Suisse debt held in contingent convertible bonds.

The type of bond, used in Europe, can sometimes be converted into equity and sometimes be written down. But in this case, bondholders are angry that their bonds would be written down while shareholders receive a payout, according to Bloomberg News.

That, in turn, could provoke wariness in the contingent convertible bond market, which was debuted in Europe after the global financial crisis as a way to push the risk of losses onto bondholders instead of taxpayers, according to the Wall Street Journal.

Domestically, the Federal Deposit Insurance Corp. said Monday there was “substantial interest from multiple parties” to acquire the SVB bridge bank officials set up. The FDIC extended the bidding period for more vetting time for the offers, and will allow parties to submit separate bids for the bridge bank and subsidiary Silicon Valley Private Bank.

This is a developing story and will be updated.