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Takeover and bailout of Credit Suisse – what does it mean?

The Swiss National Bank moved quickly over the weekend to offer unlimited lines of credit to both Union Bank of Switzerland (UBS) and Credit Suisse to bring about the acquisition of Credit Suisse by UBS. The emergency rescue was put in place based on falling confidence by investors in Credit Suisse. UBS with unlimited Swiss government support was encouraged to buy out Credit Suisse and has obliged creating a $5 trillion global megabank.

What does this tell us? It shows just how skittish investor confidence is amongst global investors. It also means that all major banks and the regulatory authorities globally will be having a good look at how much reserves their banks have and whether they should be adding to those reserves. UBS Chairman made the poignant comment that Swiss Banking is an uncertain and volatile profession and banking needed to become far more conservative and risk adverse.

Given the above, it would be well within the realms of probability to suggest that lending by all banks may well tighten and very quickly in the short term. This tightening of lending through the raising of lending standards and the reduction of available funds may well bring about, what the rising interest rates hasn’t succeeded in doing – reducing consumer spending and with it – inflation. Additionally, we have the fixed rate loans coming off this year and the next. And we still have three interest rate rises that are yet to hit mortgagee’s pockets. Further, we have seen housing approvals fall 27.6% for the year to January 2023. Put this together and  I feel we are in for more housing price declines over the coming months. It may well be a winter of discontent for many Australians.

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