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Saturday, July 20, 2024

Credit Suisse’s Archegos Debacle Results in UBS Facing a Near $400 Million Fine

Credit Suisse, a wounded Swiss banking competitor that UBS purchased this year, will cost $387 million to clean up.

Credit Suisse paid $5.5 billion in fines in 2020 and 2021 after a “fundamental failure of management and controls” caused the collapse of a single client, the investment firm Archegos Capital Management. The fines were issued simultaneously by regulators in the United States and Britain. The collapse of Credit Suisse’s 166-year-old reputation helped pave the way for its ultimate acquisition by UBS.

The fact that UBS is stuck with the tab is a sobering reminder of the risk it accepted when it decided to rescue Credit Suisse for $3.2 billion at the behest of the Swiss government. As part of the settlement, UBS will have to implement a number of measures mandated by authorities to avoid a recurrence of similar losses, and the takeover price will climb by more than 10%.

UBS was instructed by the Federal Reserve to establish an internal “remediation office” to look into the causes of its supervisory failures and to report regularly on its progress. Credit Suisse’s U.S. businesses had “additional longstanding deficiencies in other risk management programmes,” according to regulatory orders sent to UBS.

In a statement, UBS said it will implement “operational and risk management discipline” across all of its businesses.

Wall Street was taken aback by the demise of Archegos in March 2021 since it had been a low-profile corporation that handled just Bill Hwang’s personal money and his family’s assets.

The company’s concentrated stock and financial instrument portfolio gave Mr. Hwang covert leverage to increase the size of his investments. Credit Suisse provided a large portion of the loaned funds, but the bank was unable to recoup its losses when Archegos went bankrupt.

While the collapse of Archegos affected a number of financial institutions, Credit Suisse was hit the worst.

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