(News Bulletin 247) – The CAC 40 is moving up sharply in mid-session, while tensions on banking stocks have eased. Pending the meeting of the Federal Reserve which is facing a major dilemma.

After suffering and losing more than 4% last week, the CAC 40 continues to recover. The flagship index of the Paris Stock Exchange rose 1.5% at mid-session, to 7,116.97 points, after having already regained 1.27% on Monday.

Fears about the banking sector have subsided following the takeover of Credit Suisse by UBS but also a communication from the European authorities.

Explanation: the acquisition of Credit Suisse by UBS includes the total cancellation of 16 billion Swiss francs of a certain type of debt (“AT1” for “additional tier one”) from Credit Suisse, a decision taken by Finma, the Swiss watchdog of the financial markets.

However, the shareholders of Credit Suisse will receive the equivalent of 40% of the value of their shares (at the close of Friday) in the form of UBS securities. Which, to sum up, means that shareholders are better treated than certain creditors, an idea that undermines the basic principle that creditors are paid first, because they are supposed to bear less risk.

The European Banking Authority and the European Central Bank in a joint statement addressed an implicit tackle to the Swiss authorities on Monday, to recall that equity instruments must be the first to absorb losses and “only after” these losses can be attributed to debts. AT1.

Confidence regained

“This approach has been applied consistently in previous cases and will continue to guide the actions” of European supervisors, they wrote.

While the market for AT1 debt securities, to which banks have had recourse since the 2008 crisis, seized up, the declarations of the European authorities reassured, also restoring confidence in the banking sector. “Thus reassured, AT1s recovered somewhat during the session and we saw a more general rise in banking stocks,” notes Deutsche Bank.

Investors will now turn their attention to the Federal Reserve, which begins its two-day meeting on Tuesday. The American central bank finds itself having to play the balancing act between the need to preserve the stability of the financial system and that of curbing the persistent rise in prices in the United States.

As for values, the renewed appetite for risk is fully benefiting the banks: BNP Paribas rose by 4.1%, Societe General took 3.9%. Banks are followed by certain cyclical stocks such as ArcelorMittal (+3.9%) and Alstom (+3.7%).

Excluding the CAC 40, Crossject fell by more than 12% after publishing degraded 2022 results.

On the other markets, the euro recovered 0.4% against the dollar at 1.077 dollar. Oil prices are rising slightly. The May contract on Brent from the North Sea advanced 0.8% to 74.39 dollars a barrel while that of the same expiry on WTI rose 0.9% to 68.24 dollars a barrel.