London pre-open: Stocks to slide after UBS takeover of Credit Suisse

(Sharecast News) - London stocks were set to slide again on Monday following heavy losses in Asia, after UBS agreed to buy Credit Suisse. The FTSE 100 was called to open down around 100 points.

UBS agreed to buy rival lender Credit Suisse for around $3.25bn in an all-share transaction.

As part of the deal, Switzerland's central bank will make available a CHF100bn Swiss franc liquidity line to UBS.

Under the terms of the agreement, should UBS incur more than CHF5bn in losses from Credit Suisse's assets, the Swiss government would shoulder the next CHF9bn in red ink, with UBS taking any losses above that amount.

Investors are worries about the hit some Credit Suisse bondholders will take as a result of the deal, as $17bn worth of riskier AT1 bonds will be wiped out.

CMC Markets analyst Michael Hewson said: "With Credit Suisse shareholders and some bondholders taking a huge hit, banks in Asia have taken a hit on similar concern about their AT1 bond holding values, while the weekend deal still presents the Swiss National Bank and Swiss Government with untold headaches, with the size of the newly merged bank set to dwarf the size of the Swiss economy.

"The phrase too big to fail really does spring to mind here, and this morning's weakness in Asia markets serves to reinforce concerns about these types of writedowns and any spillover effects on the rest of the banking sector.

"As for Credit Suisse, it is in no position to dictate the price of any rescue package given the problems it was facing, and if its shareholders are unhappy with the price they've got, they should have stumped up the extra cash themselves!"

In UK corporate news, FirstGroup said the government had extended its current contract for its troubled West Coast rail contract to October 15.

The contract comprises the operation of Avanti West Coast and acting as shadow operator to the HS2 programme. Discussions are ongoing with the Department for Transport regarding the longer-term National Rail Contract for (the) West Coast Partnership, the transport operator said on Monday.

Avanti West Coast has come under severe criticism over the unreliability of its service, with about a quarter of its trains cancelled in the first two months of 2023.

Elsewhere, Intertek announced the appointment of Colm Deasy as group chief financial officer and as an executive board director, and backed its guidance for the year.

Deasy replaced Jonathan Timmis, who has stepped down with immediate effect.

The company also said it was establishing a new Group Executive Committee effective immediately.

Deasey joined the company in 2016 as Group Treasurer. Prior to Intertek, he worked in banking and insurance in EMEA, before coming to the UK to take up senior roles in finance and general management.

"The board believes that the new team, led by André Lacroix, will best position the company to take advantage of the exciting growth opportunities ahead, in a world where companies are increasing their focus on risk‐based quality assurance to make their businesses stronger," it said.