The bank UBS, after the acquisition of Credit Suisse, agreed to pay a fine of 387 million dollars for the poor risk management, by the latter, of the American fund Archegos. “Credit Suisse has failed to properly manage the risk posed by Archegos despite repeated warnings,” the US central bank (Fed) said in a press release on Monday. This action was taken jointly with the Bank of England, which also reported, in a separate statement, “significant failures in risk management and governance”.
UBS will thus pay 268.5 million dollars in the United States, and 87 million pounds sterling in the United Kingdom (119.2 million dollars). It is the largest fine imposed by the Prudential Regulatory Authority (PRA), a branch of the Bank of England “Credit Suisse’s failure to effectively manage risk has been extremely serious and has created a major threat to the safety and soundness of businesses. The seriousness and widespread nature of these breaches led to today’s fine, which is the largest ever imposed by the PRA,” PRA boss Sam Woods said in the statement. The Archegos fund had taken risky bets on the stock market by borrowing money from banks but found itself unable to hedge its positions when the markets turned, and imploded in 2021, costing Credit Suisse more than $5 billion.
The Swiss financial market regulator, Finma, for its part indicated that it had “found that Credit Suisse has seriously and systematically violated the rules of financial market law in the context of its business relationship with the Family Office Archegos”, in its press release. Finma orders corrective measures against the legal entity that succeeded Credit Suisse, namely UBS. She also opened enforcement proceedings against a former Credit Suisse executive.
The number one bank in Switzerland UBS, which bought its competitor Credit Suisse on June 12, said in a press release that it would record an additional provision in the second quarter. The publication date of its quarterly results has been postponed to August 31 due to the complexity of this takeover. Perceived as the weak link in the banking sector in Europe, Credit Suisse faced a serious crisis of confidence in mid-March in the wake of the bankruptcy of the American bank SVB, which prompted the Swiss authorities to organize its emergency rescue through a takeover by UBS.
On March 19, UBS agreed to take it back for 3 billion Swiss francs (an equivalent amount in euros) with strong guarantees from the Confederation. On June 9, UBS formalized this state support by signing a guarantee contract with the Confederation to cover itself against possible losses resulting from this takeover. This guarantee can go up to 9 billion francs (10.4 billion dollars) but only if the losses exceed 5 billion. Credit Suisse has only provisioned 35 million francs ($40.4 million) for possible fines related to Archegos, the Financial Times reported on June 20.