(Bloomberg) – Bob Michele, head of fixed income investments at JP Morgan Asset Management, said he hopes that the deal to buy up troubled Swiss rival Credit Suisse by UBS Group AG will be enough to prevent Wider sell-off in European banks this year. week.
Most read from Bloomberg
“I think the regulators in Europe, Switzerland and I think the people in the US, when you go back a week ago, reacted at a speed we haven’t seen before and cut a lot of cumbersome bureaucracy and prevent this in the right direction,” Michele told Bloomberg Television on Sunday.
UBS will pay 3 billion francs ($3.3 billion) to its rival in an all-share agreement that includes extensive government guarantees and liquidity provisions from the Swiss National Bank. Price per share marks a 99% drop from Credit Suisse’s peak in 2007.
Michele said he gave UBS a “pause” because he wanted guarantees and terms, saying the bank only had “a few days to do the due diligence.”
The deal is intended to address customer withdrawals and the massive drop in Credit Suisse stocks and bonds over the past week following the collapse of smaller U.S. lenders, including Bank of America. Silicon Valley products.
Read more: Worried traders outline strategies for Monday’s market turmoil
Although Michele said he was surprised by developments over the past two weeks, “we have to accept the banking system as a fractional reserve system,” in which banks are only required to hold one deposits to them as reserves. .
He said the impact of the Federal Reserve’s quantitative tightening was now starting to take its toll, adding that he was now “more confident that we’re headed for a recession.”
Read more: UBS buys Credit Suisse for $3.3 billion to end the crisis
“This is still the beginning of this holding. It will certainly slow down growth. It will certainly reduce inflationary pressures,” he said. “The Fed doesn’t necessarily raise rates on Wednesday. The market will tighten credit on them.”
Michele said he expects the Fed to cut rates in September, and he also repeated his previous assessment that the entire Treasury yield curve would fall to as low as 3% over the summer.
Michele’s view before the banking trouble emerged was that the Fed would raise rates in February and March before pausing to assess the impact of the fastest monetary tightening since 1981.
Most read from Bloomberg Businessweek
©2023 Bloomberg LP
