(Reuters)

Investors took some heart from the rescue of troubled lender Credit Suisse by its Swiss rival UBS, though concerns lingered about the risk of shockwaves further damaging credit markets and smaller U.S. banks.

Attention is now on this week’s meeting of the U.S. Federal Reserve, with traders wondering whether the central bank’s relentless rate hikes – blamed by some for sparking the crisis – might be at an end.

DEVELOPMENTS

• Credit Suisse on Tuesday kicked off its annual Asian Investment Conference in Hong Kong, although CEO Ulrich Koerner, who was expected to attend the conference, dropped out.
• Shares of First Republic Bank closed 47% lower on Monday, adding to recent losses as concerns about its liquidity continued to worry investors despite a $30 billion influx of deposits last week.
• The Swiss Bank Employees Association said it was “deeply shocked” by the takeover and called on UBS to keep job cuts to an “absolute minimum”. Credit Suisse staff also fretted over the future amid “business as usual”.
• Under the deal, 16 billion Swiss francs ($17 billion) of Credit Suisse’s Additional Tier 1 debt will be written down to zero on the orders of the Swiss regulator. What is AT1 debt?
• Lawyers from Switzerland, the United States and UK are talking to a number of Credit Suisse bondholders about possible legal action after the rescue wiped out AT1 bonds.
• Euro zone and UK banking supervisors England tried to stop a rout in convertible bank bonds, saying that owners of this type of debt would only suffer losses after shareholders have been wiped out.
• Switzerland’s two biggest political parties sharply criticised the takeover, saying multi-billion state support for the deal created enormous risks for the country.

MARKET REACTION

• Asian stocks were lifted from lows on Tuesday, though the mood was fragile as traders wondered whether U.S. rate hikes might be finished.
• Europe’s bank shares fought back from an early slump on Monday and a cross-asset scramble for safety looked to have eased.
• S&P, Dow gain as investors weigh bank risks, Fed rate-hike pause. Dollar slides.

ANALYSIS

• Switzerland’s secretive Credit Suisse rescue rocks global finance
• Credit Suisse rescue presents ‘buyer beware’ moment for bank bondholders
• UBS swallows doomed Credit Suisse, casting shadow over Switzerland
• Big money captivated by banking drama as investors brace for more turmoil

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