UBS – Credit Suisse Merger: A Big Restructuring May Be On The Way

Credit Suisse UBS
  • Brent crude gains lose some steam after initially jumping on news of the production cut from Saudi Arabia.
  • Dollar strengthens after stronger than expected labor market snapshot raises expectations that higher interest rates will hang around for longer.
  • Japan’s Nikkei hits a fresh high after a weaker yen and appetite for tech boosts stocks such as SoftBank.
  • UBS could complete takeover of Credit Suisse in a week, sparking a big restructure.
  • CBI to face new rival – the Business Council – as it fights for survival.

Brent Crude Trades Higher

The FTSE 100 has opened higher, gaining a lift upwards from strong trading in Asia, amid ongoing relief about the US reaching a debt ceiling deal and the move by oil-rich nations to keep crude prices higher. Brent crude is trading higher, just above $77 a barrel, but has lost a little bit of steam, after initially jumping on the news of Saudi Arabia’s production cut, which is designed to keep cash rolling into the kingdom.

The decision by Riyadh to reduce production by a million barrels a day in July, and the pledge from other OPEC+ members to lower targets again next year was aimed at shoring up the oil price to breakeven levels. Oil prices are trapped in conflicting tides between production cuts on one hand, and concerns about demand as China’s recovery slows, while a recession in the US looms.

So, for now, this production cut is unlikely to show up in a dramatic way at the pumps. However, depending on the trajectory of the world’s largest economies, and if Saudi Arabia cuts again, supply shortages could emerge later this year, which could push prices higher but still way off the excruciating levels of last summer.

U.S. Dollar Strengthens

The dollar has also strengthened, which risks dulling appetite for commodities like oil as it makes them more expensive for countries using other currencies to import them.  The greenback has climbed back up as bets are raised that the Federal Reserve is going to have to keep interest rates elevated for longer to tackle still sticky inflation, especially after the stronger than expected jobs report on Friday.

Policymakers are widely expected to pause and take a breath after the series of punishing rate hikes, but it doesn’t mean a downwards descent is being planned just yet. Decision makers will be guided on the data and if it shows that prices are staying stubborn and the labor market is still tight, there still could be another rate hike before any cuts are considered.

Japan’s Nikkei Hits A Fresh High

As the dollar has gained more muscle, the yen has weakened, helping lift Japanese equities yet again. The Nikkei has powered higher to a 33-year high, as the cheaper yen keeps exports more competitive amid a renewed appetite for tech and companies with tentacles stretching into the possibilities of AI.

SoftBank has caught a rocket ride higher on the astronomical rise in Nvidia’s share price. It’s planning to sell off chip designer ARM in an IPO which is seen as a big AI player and it’s also planning further investments in the field. There are hopes that finally SoftBank might have acquired the Midas touch which has largely alluded it so far.

UBS Could Complete Takeover Of Credit Suisse In A Week

Employees of Credit Suisse Group AG (NYSE:CS) and UBS Group AG (NYSE:UBS) may be bracing for unwelcome news of job cuts as the mega bank merger is set to complete earlier than expected. In just a week the takeover of the beleaguered Swiss lender by its bigger rival could be finalized, with the new lender overseeing $5 trillion in assets.

Becoming a mega bank at such rapid speed is likely to prompt a bumpy ride ahead as the two banks with different cultures collide. Integrating operations is set to spark significant job cuts, will necessitate the tricky transfer of IT systems and will see chunks of riskier business sold off.

CBI To Face New Rival

The CBI is facing its existential crisis and with a new competitor waiting in the wings for the ear of government, demonstrating its relevance is going to be an even harder challenge. The business lobby group, mired in scandal over allegations of assault against employees, has planned a root and branch reform which its presenting to members on Tuesday.

Just how it will emerge from the crisis is far from clear, and it looks like its rival the British Chambers of Commerce could steal a march on its efforts by launching its own high-level lobby group – The Business Council. Big corporate names have already been deserting the CBI and others may want to cut their losses and run into the arms of a new body, untainted by controversy.

The new Director General Rain Newton Smith will have to be highly skilled in the art of persuasion to keep the organization alive and has had some success with Siemens, Microsoft and Esso pledging ongoing support. But with the new rival group also winning backing from large companies, we could see a further fracturing of lobby group landscape.’’

Article by Susannah Streeter, head of money and markets, Hargreaves Lansdown