welcome to the third and final hour of "squawk box" here in europe where the equity markets are opening now. we have monday reaction and welcome first to the viewers stateside joining us this hour the market, dramatic intervention by swiss regulators to salvage credit suisse with rival ubs. the market has been cautious we see that in the asian trade today and big-named stocks in hong kong from hsbc to charter

standard are negative. early reaction for credit suisse down the stoxx 600 is red ink down .40%. a lot of the red chips moving on the boards behind me keep in mind, when we wrapped up trade friday, we were downbeat we were into the finish down 3.8% for the trading week. there are steeper falls in various markets for the week the ftse 100 here and the core in the uk is down 5.3% italian stocks down 6.5% names in germany and france down 4% the trading week very much is a give back trade and contrast to what was a resilient market. gains for the nasdaq the concentration of risk that started with svb and quickly moving to european markets and credit suisse and european banks. we're down .50% as we settle

into trade let's look at the bank stocks on the boards first up is u.s. markets early on indicating a downbeat session. we have been looking at futures worse on dow jones industrial average. down 300 on the early trade. that is narrowed as we move toward that session and now deal with the european open let me take you to what we are seeing first up on the big chips. we are waiting for the signals as you expect. a lot of volume coming into the mix around ubs ubs agreed to buy credit suisse. the historic deal came late sunday after the weekend of negotiations brokered by swiss regulators to safeguard the banking system as part of the all-sthare deal, they provided 100 billion francs in addition to the swiss government guaranteeing that for potential loan losses.

credit suisse says 16 billion swiss francs of tier 1 bonds are wiped out as part of the takeover the finma is writing down. it was transferring risk away from taxpayers we are seeing what the wash-up of the process looks like now. i'll take you away from the chips as we wait for the banks now you see the instant reaction deutsche bank down 6.2%. a lot of ushere learned throug the lens of deutsche bank which was using the instrument that stock down today. commerz bank down 3.9% today

across to the french names is bnp down the most. down 4.1% and contrast to soc gen which is down 2% and santander is down 2% unicredit down 1.2%. hsbc suffering a weaker day in the asian markets down 2.8%. waiting for a trade on barclays. it is slow to open up. ubs/credit suisse is on our radar after the weekend events it was down 60% moving to the big price. you see barclays is still not opening. that is interesting as we talk about the global banks in europe today. let's take a look at the u.s. banks listed in frankfurt.

one story in the last session is the consolidation of the depo deposits we hear from the big banks faring on the back of deposit inflows with the silicon valley bank and first republic and other banks stateside. 4.1% higher for bank of america. the deepest for the u.s. banks in frankfurt in contrast to wells fargo down 1.3%. so, we are still waiting for reaction in ubs and credit suisse we will bring those numbers up on the boards to show you. in the meantime, let's get analysis from geoff who is in zurich looking at the banking contagion here thanks to swiss regulators and the target companies here in the headlines with ubs and credit suisse geoff. >> reporter: karen, thanks very much indeed. i want to make a couple of

appoi points with ubs and the deal and what this deal appears to suggest to the markets about the security of owning bank assets or bank capital. the first point is about ubs it is incumbent on ubs management to move quickly here to stabilize nerves around the execution of this transaction. so, we know credit suisse, a systemically important bank, one of the 30 major organizations that have the title, around the world. 50,000 employees and operations in many, many countries here employees this morning will wonder what lies in their future if ubs wants to make sure it executes smoothly here, it needs to reach out to the key members of staff to keep them on board we need to see some form of retention of talent program

rolled out quickly here. we also need ubs, i think, to communicate to the market very clearly its own belief in the value of the business and the stability that it hopes to see in its own share price we heard a number of analysts this morning pointing out how positive this ultimately could be for ubs given the price that is being paid here and the government guarantees that are being offered. i think ubs needs to get that messaging clear to the market and we'll see, obviously, from the way we see ubs bonds and equity trade as to whether the market buys in the other point i want to make is more troubling for the owners of bank assets around the world. primarily those bondholders who will be wiped out in this transaction. the so-called a-t-1 bond

holders. it has been law in understanding of the capital structure of the banks for as long as i can remember that bondholders sat above equity holders the owners of the a-t-1 bonds may not be as secure as those who own senior debt in the banks, but it was a given largely that if you were a bondholder, you believed you would ahead of the equity owners in getting paid out. this resolution proper is cease ultimately has inverted that understanding. i think we need to look very carefully at the bonds of banks around the world now to see if we see a widening of spreads and whether we do see any spiking of the credit default swaps and insurance of those bonds because those bondholders are, perhaps, beginning to think about what the consequences of any distress

in the organizations they own would mean for their financial security or them being made whole again here so, as much as this is an inn y idiosyncratic story with the subsequent management over the legal scandals we had and management scandals we had and outpouring of depositor assets, idiosyncratic to switzerland, but this is a bigger issue for the banking system globally and those who own stakes in the banks. >> i want to pick up and take a look at the signals and ubs down

8.7% credit suisse down 63% credit suisse right at the t bottom of the stoxx 600 today. ubs in the same with the second worst performer. in the mix of underperformers with barclays which opened up down 6%. soc gen and bnp and natwest. all banks moving to the underperformers on the board this morning there are significant concerns we have some commentary around the bond the 181 bond it is trading action to report unicredit 6.625 with the june call option is up slightly to

34.9% at the open from 34.5% of the small movement there unicredit has done a lot ofwor behind the scenes. investors have been buying on the stock side there is a focus geoff, i want to come back on this point we have a question over the buyer with the european banks. saudis have been dealt a fierce lesson here. saudi national bank. lost 80% in credit suisse. these industruments are high investments. the wipeout over the weekend sends a strong message >> reporter: yes, that is what i was just pointing out, karen these instruments that were created out of the last financial crisis to provide some loss absorbing capital for the

banks were considered, i think, by most of the people that owned them to be okay, less secure than senior bonds. nobody expected to be completely wiped out. ultimately, this precedent has now been set by this deal that has been orchestrated here in switzerland. it doesn't mean it has to be the blueprint for any further resolution of any banking problems, but it will send shivers down the spines of many bondholders seeking higher yields and believe they had a good measure of security because these banks are considered too big to fail or systemically important. i think as we have been pointing out here, this is going to send reverberations around the bond markets and around the banking system globally. i think we are all going to have

to watch prices very closely here to see whether this turns out to be a one-day affair or whether this turns into something much more significant overcoming days and weeks. >> geoff, i have to say, i don't think this is the reaction regulators wanted this morning ubs selling stepping up. 13 minutes into the trade. you can see it has been down more than 12% in that reaction the selling accelerating in deutsche bank. down double digit. down 10% 8.3% coming off commerz bank selling is aggressive despite the attempts to shore up support. i want to take you to yields on the german bund. 1.49%. lowest it has been across 2023 we started at 2.5% we got up to 2.75% earlier this month. that is a significant move over a short period of time

on the france is 2.55. italy, we have been in the 4% range. we slipped below that in the session today. 3.98%. let's get to peter oppenheimer peter, very important session playing out. first reaction with swiss authorities consolidating the banking sector what do you make of the selling that is happening in the banks >> good morning. it is clearly a sign of ongoing concerns about what it means for different holders of banks as you have been reporting. particularly in terms of bondholders. on the positive side, you know, the underlining fundamentals of the banking sector are strong across europe. this is different from a decade or more ago. there is now a big focus on large a-t-1 issuers. there will be, i think, a focus on substituting a-t-1 for core 2

capital. that is strong in the banking sector at 15% compared to 5% a decade or so ago the broader sectors got liquidity and liquidity cover ratios at 150% you know, this all suggests the underlining sector fundamentally is strong for people who are equity or bond holdings in the bank sector. it suggests that some banks still will need to raise more capital. >> peter, what description would you say with the u.s. with the aftershocks, but there are concerns with the smaller banks stateside. here, we look at the contagion fears have not settled down. is this aftershocks and we need to settle down into the trade?

>> i think fundamentally all we are seeing, including what happened in the u.s. and now in europe, is a function of the sharp rise in the cost of capital in the last year until now, there's been very little negative effects coming through from that even in risk assets like equities we have been arguing despite good feundmamentals for banks, levels have not fallen to a level for higher capital and higher interest rates. you know, with tighter funding costs, there are going to be knock-on effects given we had a decade or so with interest rates close to zero. the important thing is fundamentally, the economic activity and private sector leverage and bank balance sheets are much healthier than they were around the financial crisis this is not about underlining

funda fundamentals, but the shift in the cost of capital. those shifts are reverberating through the system, as you say. >> i'm not sure what valuations you are looking at then because as far as i see is mean price to book ratios in the banking sector trading at 2% to 2.7% ubs was the exception before today. price earnings ratio between 5 and 9 times across the board as well what valuations should our viewers look at and what level should they look at if you are saying valuations are not reflecting the economic reality? >> sorry, i was saying more broadly for risk assets. the u.s. equity market trading close to 18 times and you see a rise in interest rates for the banks, i agree, they are cheap. the multiples in terms are down to really where they were in europe during the financial

crisis the fundamentals are a lot stronger we have been overweight in banks in europe in the last year they did well. let's be clear they were outstripping the markets because they were benefitting from rising rates. this is triggering a concern and the requirement for still more capital and types of capital or different types of capital for the banks. in the uncertain environment, investors are seeking out where the weaker points are. >> why on earth are investors worried? the taps are open. they are opened by the fed last week hundreds of millions of dollars made available and facilities taking on banks. we all know despite the show of strength in terms of the 50 basis point rise last week, the taps will be open to keep liquidity and solvency from being widespread problem across europe

surely those backstops would act as some form of -- dare i say, a backstop for the european banks? >> i agree with you on the fundamentals and the bank sector is healthy i don't think this is systemic in the weakness in the underlining system, but what it is doing is raising credit of who, as the reports come through, from the central bank and you get the sorts of bailouts, someone is taking the cost of that what the market is worried about is bondholders, previously seen to be very safe, may not be as safe as they thought the same for equity holders. the underlining banks may be strong and the system may be strong and i agree with that, but investors are thinking of the losses as these further reports come through

>> reporter: the other critical question, it seems at the moment, is to what extent the market is reflecting concerns about unrealized losses in the private markets at this point. we can all look at public markets and understand prices and valuation of assets in public markets peter, we are still trying to understand to what extent there is a tail wagging the dog aspect to the unrealized losses that sit within the private markets at the moment. >> i agree you know, it is easy to see price discovery in the public markets. it is hard to see that in the private markets. there has been a lot of interest in the private markets in the last decade and they have grown sharply. as you know, there is a risk, of course, that the underlining assets are not re-priced

appropriately for the rise in the level of interest rates. again, we have to separate price performance and who is exposed and who takes potential losses from systemic underline risk as you said earlier, the economic conditions we are seeing at the moment and the underlining fundamentals of the banking sector and the much lower level of private sector leverage we have in aggregate in corporate balance sheets and household balance sheets is healthier than previous downturns. it doesn't prevent shocks for impact, but i don't think it is systemic in that sense it would be true in the private markets as well. >> peter, thank you for joining us much appreciated peter oppenheimer at goldman sachs. another signal around first republic in the german listing

at frankfurt cut the rating for first republic bank deeper into junk territory. the $30 billion cash infusion will not solve the liquidity problems snb sl-- s&p slashed to 3 plus it is hard to read if that is a b minus or plus. >> i didn't see it coming up on the show, the bank of france governor says french banks are solid and stable as he applauds the takeover of credit suisse. we'll have more after the break.

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as well. deutsche bank says exposure to credit suisse a-t-1 is near zero karen. let's look at european banks. now down 14% on ubs. reaction is negative down double digits despite the deal is long-term positive for the bank the initial reaction is down credit suisse down 62% we are seeing concerns with the banks stretching to other lenders. deutsche bank is down 9.2% of the commerz bank down 6% other big names down bnp down 7 and santander down 6%. it is not stopping the fears around the banks

the french governor has praised the ubs move to buy credit suisse. he added the french banks are stable and solid and profitable. let's get to charlotte in paris. we heard from all voices trying to weigh in to provide calm, but the reaction is anything but in the banking names this morning >> reporter: absolutely, karen multiple voices trying to calm fears with the french banks as you said as the french governor speaking this morning and talking about svb and credit suisse these were two issues outside of the eurozone with medium-sized banks in the u.s. being less regulated. the problems for years at credit suisse the six main banks in france were stable and profitable risk management had been solid these comments this morning from the french finance minister

saying he welcomes the takeover. they have been stress tested regularly. they arevi vilgilant on the mart rea reaction again, the french minister saying the french banks have stronger regulations and funding and better risk management and more resilient profitability the top pick is bnp. all of the voices for the french policymakers over the weekend trying to reassure the french banking system is solid and trying to stem contagion fears in the market. we still see shares for bnp and soc gen down 7%. karen. >> charlotte, thank you for

that coming up on the show, central bank applauds the takeover of credit suisse. we will have more reaction after the break.

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welcome back you are watching "squawk box" live in zurich and london. so the deal is done, but the markets are unhappy. shares in credit suisse fall 60%. we also see ubs trading in the head this hour this coming as, of course, we see the emergency deal to try to prop up the swiss banking system a deal that has stunned global markets. it is not going well in the rest of the european banks either the impact on a-t-1 bondholders wiped out raising fears about other banks trying to assure the market this morning that they don't own those particular debt instruments in credit suisse at the moment, the banking stocks, as a whole across europe, are weaker

the bruising day for longs in the sector. shorts doing well. bruising day for long continues as u.s. banks listed in frankfurt fall goldman sachs, wells fargo bearing the brunt of the losses. the central banks announcing fresh liquidity measures to stem further fallout. u.s. futures look set to follow asia and europe sharply lower. european stock markets have been trading for just over half an hour. we bounced off the lows of the european indices 1.3% on the ftse 100 .90% on the french boards. similar size declines in the

friday trading session at this stage, despite swiss regulators stepping in to consolidate the swiss banks and cleaning up the issues with credit suisse to stop any banking contagion, it has not stopped the red ink this morning. let's look at credit suisse and ubs. those names down heavily down 14% on ubs today. 62% down for credit suisse concerns still in these major banks and beyond let's look at what we are seeing in the european lenders. the big concern is the re-pricing on the bond side for the names. deutsche bank is down 10% this morning. 6.3% off commerz bank. the german lenders barclays is down 7% at this stage. if you look at what else is on the boards, 5% down for the french lenders

3% on the other major names. hsbc down 4.4% i want to take you to what we see as a result on the bonds i just had a quick look at the flash on ubs credit default swaps re-pricing and the bonds and the fact we have the yield on the ubs at 7% bond with the call option on the 24th of january. this has jumped to 29% from 12% as of friday that is a significant move greater than the signal i saw in the unicredit this morning the re-pricing on some of the bonds is dramatic, steve >> absolutely. thank you, karen ubs said it was a move by the regulator finma. deutsche bank said the risk was near zero.

commerz bank said the same the question is what is the selloff question with the risk geoff is in zurich and has the latest on the back of this good morning, geoff. >> reporter: steve, thank you for that we were standing out here thursday and friday last week trying to get a handle on what would happen next in this banking story. there was one individual who was pretty convinced we have to see a resolution over the weekend. that has turned out to be the case we brought him back to have a look at his crystal ball and tell us what happens from here i'm talking about the partner at porter advisers. good to see you. thank you for joining us the swiss finance minister said this is no bailout do you agree with that >> well, this is a clear

bailout. the english or german language alike. this deal has been really brought to ubs and ubs was really here as the counter party to do the deal over the weekend. there would only be an alternative to the deal to be expected or full nationalization of the bank. >> has ubs got a good deal here? >> yes, i think ubs shareholders got a good deal here they cannot be blamed for that they starting something with negative goodwill which is quite amazing in the banking industry when you look at them in history. of course, it will strengthen and further build growth and private wealth and investment business of course, the challenge is execution and implementation of a very, very complex transaction

here >> reporter: what happens next in switzerland politically before the weekend, fingers were pointed in various directions as to who was to blame for the failures at credit suisse. management or the saudis with the comments last week others who saw credit suisse sores to fester. who has to take responsibility and how does this play out politically? >> the blame game will escalate mass massively. the general public in switzerland was not aware of the severity of the situation at credit suisse. over the weekend, basically, something had to happen. the government took extraordinary measures the too big to fail contingency

plan was put aside a lot of political fallout then we have national elections in october and you can just expect that something of this proportion here and also in terms of employment and visibility of switzerland of the financial system and domestically and externally will be really damaged. >> as you look at the early movement in the market, you see the pricing of the transaction we see ubs shares down heavily we have seen other bank shares around europe fall very sharply here what is the problem? why do you think we have seen the declines does it imply that there are further problems buried in the swiss banking system or in the

european banking system? >> i think swiss policymakers did the right thing to arrange the marriage over the weekend. no doubt about that. the primary purpose was to secure overall financial system stability in switzerland and europe because it is a globally relevant bank. that purpose has been achieved, no doubt if you look at the details, of course, shareholders got some money. the market action this morning reflects that reality. the big surprise to a lot of investors is that additional tier 1 capital is wiped out. that will have larger re repercussions in capital markets and how investors behave if the natural hierarchy is turned upside down.

>> reporter: let's dwell on that for a little while longer. the idea was to provide additional loss absorbing capital for the banks. what do you think the longer-term consequence is now of this blueprint for the bailout of a systemically important bank could be? what are the likely unintended consequences here? >> there are some intended consequences and unintended ones that's clear it just means overall refinancing costs of banks will go up and for different instruments, loans will be different. cyclical reactions and now markets are trying to find an equilibrium this morning down the road, there will be structural consequences of the

refinancing of banks and overall financial system stability >> reporter: let me ask you a final question of appetite to risk as we watch the transaction take place, there will have been a very desperate attempt here to restore some stability to not only the swiss banking system, but the banking system globally after what have seen in the united states. let me ask how you feel about owning stocks right now? >> well, i think, overall financial system stability is secure and policymakers have done whatever it takes the central banks have basically a dilemma at this stage. they he have to stabilize inflation down to target rates that means hiking rates at this stage. that has a damaging or lagging effect from higher rates this is also why the weakest links in the financial systems

are cracking and credit suisse is the example there will be more casualties. i think it will be very important to differentiate between the individual companies and specific situations and overall system i think it is a tremendous opportunity to pick out in this type of scarce environment the quality stocks and management because typically investors overreact and they are dumping the good and bad stuff at the same time. i think active management is key. i would favor the u.s. financial system because overall it has delivered much larger shareholder value. >> reporter: beat wittman, thank you very much for joining us steve, back to you for now >> i would say good job. it is a pleasure we have seen a lot of him. thanks, geoff and beat.

we will take a short break and talk about credit suisse after the break as stocks are under pressure ubs takes over credit suisse wiping out billions of dollars for bondholders and equity traders. more on that after the break ah, these bills are crazy. she has no idea she's sitting on a goldmine. well she doesn't know that if she owns a life insurance policy of $100,000 or more she can sell all or part of it to coventry for cash. even a term policy. even a term policy? even a term policy! find out if you're sitting on a goldmine. call coventry direct today at the number on your screen, or visit coventrydirect.com. when we started selling my health products online our shipping process was painfully slow. then we found shipstation. now we're shipping out orders 5 times faster and we're saving a ton. go to shipstation.com /tv and get 2 months free.

major central banks announced efforts to boost global cash flow and liquidity the fed will offer daily currency swaps by standing lines and weekly coordination with the ecb and eob and boc. bank of canada the swaps will begin today and last through the ebtnd of april allowing $7 day loans. the bank of greece and council member has told ecb this morning he did not expect to see vulnerability in the global banking sector >> the vulnerability is small

today. the banks are well capitalized i think the rate hikes are most now a story of the past. i think we are close to the end of the tightening cycle. to be honest, i do not believe there will be a problem in the greek or european banking system let us move on credit suisse says 16 billion swiss francs of tier 1 bonds will be wiped out as ubs takeover the write down in the evidfforto boost the capital. it was credit ind-- created to transfer risk from owners. we have ben emons with us this morning.

ben, good to see you what are the ramifications of the tier 1 be wiped out? >> good morning. we see it is transferred to the bank stocks and german stocks down anywhere from 5% to 8%. the a-t-1 market is on pressure today and the indication is a lot of the bonds down 5 to 10 points it tells you the write-down, as many people thought it would not happen, but happened and now people have to reassess the risk and set prices lower and bond yields higher. the write-down is a serious issue that can happen to other banks in the stress without a bankruptcy it is clear the regulators want the taxpayers to pay for any future event the taxpayers not to pay, sorry,

but the bondholders, have to pay for it >> interesting equity is the least favored in the event of solvency. bondholders have gone above them or below them in the pecking order. in terms of a-t-1 products sold going forward and corporate bond products, does this mean actually and it would seem logical that the price that banks have got to sell these and the coupon they have to offer is significantly higher now because of the risk attached to them which was previously less concerned about it ie, will it be more expensive to finance for the bonds? >> if you look at the coupons right now, it is 7 to 9% on average. it is expected that will go up because it has to reflect that and the pecking order can be

switched around because it is not so clear if you look through the language of one of the perspectives as i read in the event of the stress which you will be necessary seen to the the stockholder. there is a policy applied to the bonds if they feel the b bondholder has more to pay to get a deal like credit suisse/ubs over the finish line. that discretion will drive up the yield securities and price down nonetheless, they could be issued, but it is a function of a different equilibrium in that market >> the wall street journal is talking about $254 billion market also pointing out that a-t-1 bonds by deutsche bank and ubs were the two largest investment and $4.5 billion mutual fund for

the securities it will squeeze lenders further. we talked about that with ubs with the credit compressed with the issues now with the complexity around the a-t-1 bonds. now we are talking about a hit to lending across the european economy. >> it could be the case. we have to understand the risks were for capital and that it was to bolster capital in the event of a shortfall because of the stress situation and that was after the financial crisis let's re-capitalize the banks and transfer the risk to the taxpayers. the costs will go up and passed on to the end consumer for loans. maybe it is each individual bank

choice or decision it is not as broad, but this adds to tightening of financial conditions in europe that is quite clear. as those conditions tighten, that ultimately filters through to the broader economy with credit availability. the connection is there. i don't think the a-t-1 bonds are very specific about the bank capital in the stress. >> ben, this process is telling us as to how resolution can take place and there was a consolidation that took place a couple of years back and this was bank with the consolidation of santander now we have this situation with the credit suisse a-t-1. there is a playbook here to take away uncertainty or confidence or optimism those holders had about the position of the securities >> that's could be

although, i think you have to look at it case-by-case. if you read from the statement by the swiss regulator, they have discretion of who pays what for the merger they decided the bondholder should be completely written down that was a calculation of the common tier 1 equity capital that fell short with the two banks and the transaction takes place. you go through the exercise and it is specific to this deal. it may be hard to extrapolate to every single the bank in the eurozone cfacing the same thing. this was a wake-up call for investors. i'm not seeing any capital structure. >> quickly, ben, we have seen a huge drop in yields on 10-year here in europe what is the trade in the fixed

income products now? >> the flight to safety. the markets are reacting to the deal and no default for a bank like credit suisse this is a contraction of credit. you get a flight to safety reaction risk is spread wider that way. it is not as wide as i expected given the peripheral banks written these securities i think it is more of the discounting economic scenario that will slowdown in europe >> ben, thank you. i appreciate it. nice to see you. ben emons. something that is as sure as day following night is regulators and bankers and politicians are telling us how great things are and bafin, the regulator in germany the financial system is stable and robust

they are adding this morning they are watching developments and will supervise that is it for "squawk box." up next to carry on the coverage is "worldwide exchange." it's hard to run a business on your own. make it easier on yourself. with shopify, you have everything you need to sell online and in person. you can have your inventory, payments, and customers in sync across all the places you sell. it doesn't have to be lonely at the top. join the millions to finding success on their own terms. start your journey with a free trial today.

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it is 5:00 a.m. here at cnbc global headquarters. here are the top "five@5." do not call it a bail out. ubs buying credit suisse we are live with the latest. also shoring up support. the fed announcing new rules to boost interbank liquidity. another lifeline for a sector under pressure. speaking of selling. wall street waking up to a sea of read as they gauge the bank rescue and