Downing Street says UK banking system is ‘safe and well-capitalised’ after Credit Suisse takeover agreed – business live | Business

The Bank of England has confirmed that holder of shares in UK banks would be wiped out ahead of holders of riskier AT1 bonds, following the surprise twist in Switzerland last night when this didn’t happen.

In a statement, the BoE says the UK’s bank resolution framework has “a clear statutory order” in which shareholders and creditors would bear losses in a resolution or insolvency scenario.

The BoE says this was used in the rescue deal for Silicon Valley Bank last week:

This was the approach used for the recent resolution of SVB UK, in which all of SVB UK’s Additional Tier 1 (AT1) and T2 instruments were written down in full and the whole of the firm’s equity was transferred for a nominal sum of £1.

Under the UK’s framework, those AT1 bonds (which are designed to be triggered if a bank hits trouble_ rank ahead of Common Equity Tier 1 (CET1), which includes common stock.

AT1 rank behind T2 (subordinated debt) in the UK’s framework.

The Bank says:

Holders of such instruments should expect to be exposed to losses in resolution or insolvency in the order of their positions in this hierarchy.

Away from banking, the UK’s RMT union has announced that its 20,000 members have voted to accept a new and improved offer with Network Rail covering pay, jobs and conditions.

In a turnout of nearly 90 per cent members voted by 76 per cent to 24 per cent to accept the offer, the RMT says.

The vote means the end of the trade dispute with Network Rail, following strike action over many months, the RMT National Executive says.

The RMT says the deal includes:

• An uplift on salaries of between 14.4 per cent for the lowest paid grades to 9.2 per cent for the highest paid

• A total uplift on basic earnings between 15.2 per cent for the lowest paid grades to 10.3 per cent for the highest paid grades. This represents an additional 1.1 per cent over the duration of the deal

• Increased backpay

However, the RMT is still in dispute with train operating companies.

RMT general secretary Mick Lynch says that “strike action and the inspiring solidarity and determination of members” has secured new money and a new offer from Network Rail.

Lynch adds:

“Our dispute with the Train Operating Companies remains firmly on and our members recent highly effective strike action across the fourteen train companies has shown their determination to secure a better deal.

Job losses are feared in the UK after the historic sale of Credit Suisse to its bigger rival UBS yesterday.

Credit Suisse employs around 5,500 people in the UK, based in London’s Canary Wharf, which includes investment bankers, wealth and asset managers, as well as staff across teams such as technology, risk and compliance.

UBS has said it plans to run down the investment bank division of Credit Suisse as part of its merger plans, and it seems inevitable that there will be job losses in the City.

The former chief executive of UBS in the UK, Mark Yallop, told Radio 4’s Today Programme that the merger, and the chopping back of the investment bank, is likely to hit Credit Suisse’s UK workforce.

Yallop said:

“The two firms together employ about 120,000 staff, of which about 11,000 sit in London, and I think it’s inevitable that a merger of this sort will result in some further job losses.

“I would imagine those would be concentrated in the risky investment banking business at Credit Suisse which is partly the cause of the problems the firms is experiencing.

“And in middle-office, technology and operational roles where bringing two firms together will mean you can run one bigger firm, without doubling up the infrastructure needed to manage it.”

UBS has UK offices in London, Birmingham, Manchester, Leeds, Newcastle Upon Tyne and Edinburgh.

It’s emerged this morning that Credit Suisse staff will still receive their bonuses despite being taken over by UBS last night in an emergency rescue to avert a global banking crisis.

Staff got the good news that their “hard work” will be recognsed, in a memo sent by management today.

The Evening Standard has the details:

Q: Will my salary and any bonus still get paid on March 24?

A: Yes. There are no changes to payroll arrangements. We will pay salary and bonus, where outstanding, as per the previously communicated schedule. In many countries, the bonus has already been paid out and we do not expect any changes for remaining jurisdictions.

Q: I am expecting a salary increase as of April 2023, will this still happen?

A: We will continue to honor our obligations and already communicated salary increases will still be effective from April 2023.

Q: Will I receive a bonus for my hard work through 2023?

A: We will continue to allocate for a 2023 performance bonus for those eligible. We are committed to treat all employees fairly, any bonus plan will be based on both business and individual performance.

Downing Street has said the UK banking system remains “safe and well-capitalised” following the takeover of troubled Credit Suisse by UBS last night.

The Prime Minister’s official spokesman said that Rishi Sunak has been regularly updated on the situation by the Treasury and the Bank of England, and has been in touch with the Swiss president.

“Obviously it is good that a resolution has seen secured,” the spokesman said, adding:

“As the Bank of England has said, we believe the UK banking system remains safe and well-capitalised.

“We have a strong regulatory system and we have taken a number of steps over the past 15 years, together with the Bank of England, to strengthen that system.”

As covered this morning, the BoE said last night that the UK banking system “remains safe and sound”.

Shares in UBS have recovered some of their earlier losses, after European regulators tried to reassure markets about how risky bonds will be treated in future bank crises.

Having been down 12% at one stage, UBS’s stock is now down just 4.8% today.

This morning’s statement from Europe’s regulators, which appears to show concern that AT1, or CoCo, bonds were wiped out while shareholders took smaller losses, does seem to have calmed nerves.

Italy’s economy minister has said today he was surprised by the decision to give priority to Credit Suisse shareholders over bondholders in the UBS rescue deal, by controversially writing off $17bn of AT1 bonds.

Reuters has the details:

Speaking on the sidelines of an event in Milan, Italy’s Economy Minister Giancarlo Giorgetti said however that the impact of the Credit Suisse crisis on the Italian banking system was “insignificant”.

Some of the world’s largest central banks came together on Sunday to try to stop a banking crisis from spreading as Swiss authorities persuaded UBS Group to buy rival Credit Suisse in a historic deal.

The Swiss regulator, said the decision to write down to zero the Additional Tier 1 bonds would bolster the bank’s capital.

Germany’s economy will shrink again in the first quarter of the year, the country’s central bank, the Bundesbank, has predicted.

In its latest monthly report, just released, the Bundesbank says:

“German economic activity will probably fall again in the current quarter.”

“However, the decline is likely to be less than in the final quarter of 2022.”

German GDP shrank by 0.4% in the final quarter of 2022. A second consecutive drop in activity in the first three months of this year would put Germany into a technical recession.

The Bundesbank also forecast that inflation in Germany is likely to tumble in March as high energy prices get knocked out of year earlier figures.

But price growth will remain uncomfortably high, the Bundesbank warns:

“That being said, the core rate is proving exceptionally persistent.

It could even increase slightly towards the middle of the year.”

German Chancellor Olaf Scholz welcomes the action taken by Swiss authorities to enable the takeover of Credit Suisse by UBS, a government spokesperson said on Monday.

The spokesperson told a regular news conference.

“Chancellor Scholz welcomes the resolve of the Swiss authorities.”

“The situation is not comparable to 2008/2009,” the spokesperson insisted, adding:

“The German banking system is well positioned.”