European banking stocks rallied in afternoon trading today following a slump at the beginning of the day when investors dumped stocks in reaction to the rescue of Credit Suisse over the weekend.

Investors had the weekend to digest the news of a state-backed takeover of Credit Suisse by its rival UBS Group. Under the terms of the deal, Credit Suisse was valued at £2.6bn, significantly less than its $8bn price on Friday, just three days before the rescue.

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Commotion in European markets comes after two smaller regional business banks in the US failed in recent weeks.

The Financial Times reported that UBS shares fell by as much as 16% in early trade, their biggest one-day fall since 2008. UBS shares have since bounced back and are 2% higher.

The Swiss regulator FINMA announced on Sunday that tier-one bonds would be valued at zero as part of the deal, a move that has caused consternation among Credit Suisse AT1 bondholders as their investments are now worthless.

Bank of England

The Bank of England said it welcomed the deal set out by the Swiss authorities and added that the UK banking system was “well capitalised and funded, and remains safe and sound”.

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Six central banks

In a bid to address concerns over liquidity in the global banking system, six central banks said they would boost the flow of US dollars through the global financial system.

The Bank of England, the Bank of Japan, the Bank of Canada, the European Central Bank, the US Federal Reserve and the Swiss National Bank said the move served as an “important backstop to ease strains in global funding markets” and take the pressure off banks.

UBS to trim Credit Suisse’s investment bank after $3.2bn takeover

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