UBS will be subject to heavy fines for Credit Suisse’s poor risk management practices related to a collapsed investment firm.
UBS will pay $286 million under a consent agreement with the Federal Reserve Board of Governors, the central bank announced on Monday. The bank also faces a fine of £87million – around $119million – from the UK’s Prudential Regulatory Authority under similar conditions.
UBS acquired its Swiss rival earlier this year as part of a $3.25 billion deal that banking regulators brokered to prevent Credit Suisse from failing. The combination, which included both banks’ US branches, was finalized last month.
Regulators have leveled penalties for Credit Suisse shares linked to Archegos Capital Managementa New York-based family office that closed in 2021 and now faces criminal racketeering and fraud charges.
For years, Credit Suisse provided top-notch brokerage services to Archegos, including derivative agreements called total return swaps, which the firm used to make leveraged investments in single-name U.S. and Chinese stocks. At the time, according to regulators, the bank failed to detect and properly manage the risks posed by the business.
From mid-2020 to early 2021 – just before its collapse – Archegos breached Credit Suisse’s internal concentration risk limits, according to the Fed. Despite this, the bank failed to collect sufficient margin from Archegos. Eventually, the company defaulted, forcing Credit Suisse to sell the underlying securities at a loss of $5.5 billion.
Credit Suisse’s Archegos losses were one of many factors that contributed to the bank’s near demise, including the collapse of British financial services firm Greensill Capital and a 2019 spy scandal.
UBS addressed the fines in a press release on Monday. He also noted that the Swiss Financial Market Supervisory Authority had concluded its “procedure” related to Credit Suisse’s relationship with Archegos, which required the bank to review its approach to “credit, liquidity and non-financial risk management”.
As part of its consent agreement with the Fed, UBS agreed to change the way it addresses the same risk categories and its internal oversight and governance. The bank also agreed to more onerous reporting and monitoring requirements. It has also undertaken not to rehire employees who would have been made redundant because of their monitoring of risks involving Archegos.
“UBS will implement its operational and risk management discipline and culture across the combined organization,” the bank said in a statement. “He has already begun to implement his risk framework, including actions responding to these regulatory findings, across Credit Suisse.”
The bank has also pledged to resolve other regulatory issues and external lawsuits related to Credit Suisse so as to minimize losses.
“UBS intends to resolve Credit Suisse’s outstanding litigation and regulatory issues in the best interests of its stakeholders, including investors, clients and employees,” the statement said.
A spokesperson for UBS declined to say how the bank would pay the fines or whether a fund for future sanctions related to Credit Suisse had been created.