Topline
UBS has been fined $387 million by regulators from the U.S and U.K. for alleged misconduct by its rival-turned-subsidiary Credit Suisse, which was found to have mishandled its dealings with defunct hedge fund Archegos Capital Management.
UBS acquired Credit Suisse for $3.2 billion last year. (Photo by Fabrice COFFRINI / AFP) (Photo by ... [+]
Key Facts
The Federal Reserve Board fined UBS $268.5 million for “unsafe and unsound counterparty credit risk management practices” with Archegos—a firm that collapsed in 2021, costing Credit Suisse a whopping $5.5 billion before its acquisition at the hands of long-time rival UBS in a government-orchestrated deal.
The fines issued by the Bank of England's Prudential Regulation Authority brought UBS’s cumulative costs up to $387 million.
The Federal Reserve Board concluded Credit Suisse did not properly manage the risk posed by its dealings with Archegos, which collapsed after defaulting on margin calls, sparking a $30 billion fire sale of companies it invested in, such as ViacomCBS (now Paramount Global) and Discovery Communications (now Warner Bros. Discovery).
Credit Suisse was ordered to improve its counterparty credit risk management practices and fix additional “longstanding deficiencies” in other risk management programs within its U.S. operations, according to the board.
Crucial Quote
UBS “has already begun implementing its risk framework, including actions addressing these regulatory findings, across Credit Suisse,” Credit Suisse said in a statement Monday. “UBS intends to resolve Credit Suisse’s outstanding litigation and regulatory matters in the best interest of its stakeholders, including investors, clients and employees.”
Big Number
$35.2 billion. That’s how much UBS recorded in revenue last year while raking in $7.5 billion in profits.
Key Background
Prior to its 2021 collapse, Archegos reportedly held billions of dollars in securities that included companies such as ViacomCBS, Discovery Communications and Chinese tech giants Baidu. Archegos and its founder and co-CEO Sung Kook (Bill) Hwang were characterized by large financial risks and SEC troubles that eventually led to price declines in its most significant positions. Archegos was then unable to meet margin calls it later defaulted on, resulting in multi-billion dollar credit losses among counterparties such as UBS, Morgan Stanley and Credit Suisse, the latter of which lost $5.5 billion following Archegos’ collapse. The hit to Credit Suisse was one of the reasons behind its sale to UBS. Prior to the $3.2 billion rescue acquisition, Credit Suisse said it found “material weaknesses” in its financial reporting processes from 2021 to 2022, prompting Saudi National Bank, its largest backer, to announce it would no longer buy any more Credit Suisse shares. The government-brokered deal included up to $108 billion in liquidity assistance loans offered by the Swiss National Bank to Credit Suisse.
Further Reading
The Firm Behind The $30 Billion Firesale Shaking Financial Markets Disclosed Almost Nothing (Forbes)
UBS Buying Rival Credit Suisse In $3.2 Billion Rescue Deal (Forbes)
Editor's note: This story previously misstated Switzerland’s regulatory role in fining UBS; Switzerland’s Financial Market Supervisory Authority did not impose a fine.
