Credit Suisse-Archegos mess: UBS slapped with $400 million fine
UBS has been fined $400 million by US, Swiss and UK banking authorities for its mismanagement of Credit Suisse's finances and its relationship with Archegos Capital Management
After failing to manage the finances of Credit Suisse, banking giant UBS is fined with $400 million by the US, Swiss and UK banking authorities. The bank is also fined for its relationship with collapsed hedge fund Archegos Capital Management.
UBS had bought Credit Suisse in June, at the time when the bank was reeling under money crisis. Archegos failed in 2021, and led to a loss of billions of dollars to the Wall Street investors. The Swiss bank took more than $5 billion in losses from Archego's failure. Over a period of two years, the $5 billion loss of ACM led to the fire sale of Credit Suisse to UBS in June.
Credit Suisse's prime brokerage service to Archegos capital
Earlier, Credit Suisse management used to give Archegos capital treatment through its prime brokerage division. This ultimately brought undue risk for the bank when Archegos purchased a highlyy concentrated position in ViacomCBS. The firm's manager, Bill Hwang, is scheduled to face fraud charges for the collapse of Archegos in October.
In a statement, the Federal Reserve said that Credit Suisse failed to “adequately manage the risk posed by Archegos despite repeated warnings”. The announcement of fine was made by the US Fed alongside the Bank of England and the Swiss Financial Market Supervisory Authority.
UBS filed with largest penalty to date by the Bank of England
The Bank of England's Prudential Regulation Authority fined the Swiss mega bank with £87 million ($112 million), which it said was its largest penalty to date. In a consent order with the Federal Reserve, UBS agreed to pay $268.5 million for “unsafe and unsound counterparty credit-risk manageent practices” at Credit Suisse. The UBS had acquired Credit Suisse in June.
Credit Suisse “failed to learn from past similar experiences and had insufficiently addressed concerns previously raised by the PRA,” the UK regulator said in a statement Monday.
What went wrong with UBS and Credit Suisse
According to the US Fed, Credit Suisse “lacked adequate governance, experienced staff with sufficient stature, and sufficient data quality and model-risk management to ensure that activities conducted with counter-parties were properly risk managed.”
The bank is required to submit to regulators a plan for sustainable governance and a risk-management framework, among other things.
Another drawback with UBS and Credit Suisse was slow operation. Credit Suisse was slow to unwind its positions and ended up with $5.5 billion in losses related to that business in 2021. UBS suffered a much smaller loss, reported Bloomberg.
UBS “has already begun implementing its risk framework, including actions addressing these regulatory findings, across Credit Suisse,” the bank said in a statement Monday.
The Swiss financial regulator, Finma, in its findings concluded that Credit Suisse had violated financial-market law in its relationship with Archegos. Hence, it has ordered corrective measures for UBS.
“The bank was unable to adequately identify, limit and monitor the significant risks associated with Archegos,” Finma said in a statement. The regulator doesn’t have the authority to impose fines.Als
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