European banks gain as traders eye UBS-Credit Suisse deal fallout

By Scott Kanowsky 

Investing.com — European bank stocks climbed on Tuesday, as investor fears over the impact of UBS’ government-brokered rescue of Credit Suisse eased.

By 04:42 EST (08:42 GMT), the index, which has been on a wild ride in March, was higher by 2.66%, continuing a rebound from a sharp initial drop at the start of trading on Monday morning. Some of the region’s largest lenders, including Spain’s Banco Santander (BME:) and Deutsche Bank (ETR:) in Germany, were among the biggest gainers.

Aiding sentiment around the banking sector was a recovery in Asia and Europe of Additional Tier 1 bonds, a riskier class of debt that became a focus for traders in the wake of the $3.25 billion takeover of Credit Suisse Group AG (SIX:) by UBS Group AG (SIX:).

Many investors were surprised to learn, following the announcement of the deal, that Credit Suisse’s AT1 bonds would be wiped out, upending the typical hierarchy of debt during a bank failure that prioritizes bondholders ahead of equity holders.

Separately on Tuesday, credit rating agency Moody’s slashed its outlook for UBS to negative, mirroring a similar decision by peer S&P yesterday. Both of the groups flagged risks around the Credit Suisse tie-up, with Moody’s warning in particular of potential issues around how UBS will integrate its smaller rival into its operations.

Shares in UBS rose by more than 3% in early European trading, while Credit Suisse stock fell.