UBS, the Swiss multinational investment bank, is facing a hefty fine of $387 million from regulators in the U.S. and the U.K. due to the alleged misconduct of its subsidiary Credit Suisse. Credit Suisse has mishandled dealings with the now-defunct hedge fund, Archegos Capital Management. Hence the penalty.
The Federal Reserve Board imposed a fine of $268.5 million on UBS for its involvement with Archegos, citing “unsafe and unsound counterparty credit risk management practices.” The collapse of Archegos in 2021 led to losses worth $5.5 billion for Credit Suisse. Following that UBS acquired Credit Suisse in a government orchestrated deal.
The other part of the fine is issued by The Bank of England’s Prudential Regulation Authority, bringing the total fine amount to $387 million.
Investigation by the Federal Reserve Board revealed that Credit Suisse had failed to manage the risks associated with its dealings with Archegos adequately. Archegos defaulted on margin calls which triggered a massive $30 billion fire sale of the companies it had invested in, including ViacomCBS (now Paramount Global) and Discovery Communications (now Warner Bros. Discovery).
Credit Suisse has been ordered to enhance its counterparty credit risk management practices and address other “longstanding deficiencies” in risk management programs within its U.S. operations.
Following the announcement, UBS has expressed its commitment to implementing a risk framework, taking necessary redressive actions. The bank deems it important to resolve Credit Suisse’s ongoing litigation and regulatory matters for the protection of the interests of its stakeholders, including investors, clients, and employees.
Archegos was known for taking substantial financial risks. It often led to SEC troubles and subsequent price declines in its significant holdings. The company held billions of dollars in securities before its collapse. Credit Suisse’s $5.5 billion loss from Archegos’ collapse played a significant role in the decision to sell the bank to UBS.