NEW YORK: Wall Street stocks overcame early weakness to end higher on Monday (March 20) on hopes that turmoil in the banking sector may be easing, after Switzerland’s largest bank UBS agreed to a takeover of troubled rival Credit Suisse.
Switzerland was in shock after UBS agreed under pressure from Swiss authorities to swallow up the country’s second largest bank for around US$3.2 billion (RM14.35 billion), in a step aimed at containing economic turbulence.
Hours after this announcement on Sunday, the US Federal Reserve and other major central banks unveiled a coordinated effort to improve banks’ access to liquidity -– with the special drive being launched on Monday.
The Dow Jones Industrial Average rose 382.6 points, or 1.2%, to 32,244.58, the S&P 500 gained 34.93 points, or 0.89%, to 3,951.57 and the Nasdaq Composite added 45.03 points, or 0.39%, to 11,675.54.
While some bank shares were still lower on Monday, the weakness appeared to be contained, said Quincy Krosby, chief global strategist at LPL Financial in Charlotte, North Carolina.
All of the major S&P 500 sectors ended higher, and the Cboe Volatility index – Wall Street's fear gauge – fell.
US-listed shares of Credit Suisse were down 53% on Monday, while UBS Group shares rose 3.3%.
But shares of First Republic Bank plummeted by 47.3%, even as a coalition of US lenders said last week they would deposit US$30 billion into it.
This came as S&P cut its credit rating for First Republic to B+ from BB+ on Sunday.
Shares of other regional banks, however, moved higher.
PacWest Bancorp was up 10.8% while KeyCorp rose 1.2%.
“I think the market is breathing a sigh of relief, that something much worse could have happened. And so far, it hasn’t,” said Andy Kapyrin, partner at RegentAtlantic.
But he cautioned that “it’s too early to say that the whole thing’s over”.
“People will continue to worry until well past the time when everything’s okay,” he added.
Helping optimism, New York Community Bancorp climbed 31.7% after a unit of the bank agreed to buy deposits and loans from Signature Bank.
“Where it is another bank coming in, that is the kind of headline that helps underpin confidence in the banking system,” Krosby said. “It helps to halt the panic and fear.”
Among other regional banks, PacWest Bancorp closed up 10.8% after the bank said deposit outflows had stabilised.
Shares of Amazon.com fell 1.3% on the day following the company's plans to slash another 9,000 jobs.
Looking ahead, investors will be closely watching the Fed’s interest rate decision after a policy meeting this week.
While Fed policymakers have embarked on an aggressive campaign to contain inflation, officials will have to balance efforts against financial sector stability in their decision set to be unveiled Wednesday. – AFP, Reuters
