Anxious Traders Map Out Strategies for Monday Market Turmoil - Yahoo Finance

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(Bloomberg) -- With the fate of Credit Suisse Group AG finally decided, investors were getting ready for another gut-wrenching week of trading.

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Brokers, like Anthony Cohen of Market Securities, jumped on calls with nervous clients over the weekend and scoured through reports on Swiss banks, US regional lenders and how the Federal Reserve’s meeting will drive this week.

With Sunday drawing to a close in Dubai, he was settling in for another long night of work. He planned to stay online through the open of US and European stock futures and be in early tomorrow.

Others were doing the same. “From now until late night, I will be attached to the news trying to understand what to do in the early morning,” said Alberto Tocchio, a fund manager at Kairos Partners in Milan. “In the last hour, I had already few calls with fund managers and one big client.”

While the news of UBS Group AG’s takeover of Credit Suisse brought some relief to traders who were worried about going into Monday without a deal, tensions in the market are still running high. For a second weekend in a row, traders have been glued to their screens, watching and waiting as yet another banking crisis unfolds.

UBS to Buy Credit Suisse in $3.25 Billion Deal to End Crisis

The Credit Suisse takeover is bound to send a shockwave through European assets and may have sweeping ramifications for the $275 billion market of Additional Tier 1 bonds, a category of debt that’s meant to serve as a shock absorber when banks start to fail.

The deal involves a write-down of Credit Suisse’s AT1 bonds, wiping out about 16 billion Swiss francs ($17.3 billion), marking the biggest loss yet in the market for that kind of debt.

Credit Suisse’s $17 Billion of Risky Bonds Are Now Worthless

UBS is paying 3 billion francs for the bank, a price that’s less than half the 7.4 billion francs that Credit Suisse was worth at the close of trading on Friday. Credit Suisse has lost 98% of its value since a peak in 2007.

“I can’t think of any takeover or merger of big banks in the past which went smoothly,” said Guillermo Hernandez Sampere, head of trading at asset manager MPPM GmbH.

Currency markets had a steady opening in Asia, giving an early sign of some calm returning to markets. Still, the speed at which the turmoil has ripped through the banking industry continues to linger on the minds of investors.

“The difference today is that it happens quicker, movements are amplified,” said Ben Ritchie, head of European equities at Abrdn Investments Ltd. “There is definitely a sense of discomfort.”

Retail clients and institutions are increasingly worried about where their money is being held, said Mark Grant, chief global strategist at Colliers Securities. He said he’s urging clients to be conservative because of the instability that he sees in the financial system that’s been created by central banks rapidly hiking rates.

“I’ve had a lot of calls over the weekend from clients and institutions,” he said. “We’ll see in the morning how things are, but I don’t expect them to be too good.”

For other traders, the turmoil means opportunity. Andrea Tueni, head of sales trading at Saxo Banque, said he relished the chance to get to work on Monday.

“Personally, I feel it’s quite nice when there’s action,” he said. “Of course, no one is rejoicing that it’s being tough for some. But the market environment before that was flat with a inflation-recession-central banks combo and it was quite repetitive.”

Ricardo Gil, head of asset allocation at Trea AM, says he will “not even go near” banking stocks for now. “Markets are illiquid both in equities and fixed income and we expect it to get worst. The key will be what the Fed does; we expect it to raise rates.”

--With assistance from Sagarika Jaisinghani, Macarena Muñoz and Julien Ponthus.

(Updates with detail on Credit Suisse bonds.)