UBS Group AG will pay a total of about $387 million in fines related to misconduct by Credit Suisse Group AG in its dealings with Archegos Capital Management as the new owner of the collapsed Swiss rival starts picking up its legal tab.
In a consent order with the Federal Reserve, UBS agreed to pay $268.5 million for “unsafe and unsound counterparty credit-risk management practices” at Credit Suisse, which UBS acquired in June. The Bank of England’s Prudential Regulation Authority fined the bank £87 million ($112 million), which it said was its largest penalty to date.
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.
UBS’s acquisition of its stricken rival closed last month, handing Chief Executive Officer Sergio Ermotti a potential windfall gain in the tens of billions of dollars after the government-brokered rescue. At the same time, UBS has previously guided that legal liabilities related to Credit Suisse could run to as much as $4 billion over 12 months, and asset mark-downs could come in at some $13 billion.
The Fed said Credit Suisse “lacked adequate governance, experienced staff with sufficient stature, and sufficient data quality and model-risk management to ensure that activities conducted with counterparties were properly risk managed.”
In addition to paying the fine, the bank must submit to regulators a plan for sustainable governance and a risk-management framework, among other things.
Unlike other banks working with the family office that managed Bill Hwang’s fortune, 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.
The fines wrap up one of many legal and regulatory issues that UBS will aim to resolve after completing the purchase. The firm also faces a potential civil trial over a scandal in Mozambique and scrutiny into dealings with Russian oligarchs. US lawmakers last week also pushed Credit Suisse to cooperate with a probe into allegations the bank concealed information about accounts held by Nazis in the decades after World War II.
UBS said that Credit Suisse would record a provision tied to the matter in its second-quarter results, which UBS would reflect in its purchase accounting for the deal. UBS is set to announce the combined firm’s second-quarter earnings next month.
UBS “has already begun implementing its risk framework, including actions addressing these regulatory findings, across Credit Suisse,” the bank said in a statement Monday.
Credit Suisse two years ago published a 172-page report into its failings that was prepared by the law firm Paul, Weiss, Rifkind, Wharton & Garrison LLP. Regulators cited details from that report, including that in early 2021 the bank’s credit risk management team downgraded Archegos’s credit rating internally, while also more than doubling Archegos’s potential exposure limit to $50 million.
The Swiss financial regulator, Finma, also ordered corrective measures for UBS as the regulator concluded that Credit Suisse had violated financial-market law in its relationship with Archegos.
“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.
UBS also faces legal entanglements from Credit Suisse’s involvement with Greensill Capital, which collapsed around the same time as Archegos. Credit Suisse was sued in Japan earlier this month over bonds linked to one of the funds it ran with Lex Greensill’s now-defunct supply chain finance empire.
The scandal saw Credit Suisse freeze and wind down a $10 billion group of four funds that the Swiss bank ran with Greensill’s firm and had marketed to clients as safe investments.
--With assistance from Myriam Balezou.
(Adds context on Greensill)
