- UK banks have a healthy solvency position
- Positivity on rising rates undone by wider turmoil
Sentiment in markets has yo-yoed based on the reading of policymakers’ intentions but, as investors in Credit Suisse (CH:CSGN) found out, the powers that be are prepared to force a few ragged haircuts along the way. As part of the stricken bank’s state-engineered merger with UBS (CH:UBSG), investors in its additional tier one capital (AT1), were unceremoniously told to swallow a write-off.
The law of unintended consequences was already to blame for a series of banking failures that started with Silicon Valley Bank’s (SVB) woes. Aggressive interest rate hikes passed off as positive for lenders (as rates go up banks widen the spread between what they charge borrowers and pay depositors, thus increasing profits), also affected the mark-to-market value of assets creating liability-matching and then liquidity issues.