UBS will be on the hook for hefty fines for Credit Suisse's poor risk management practices related to a
UBS will pay $286 million as part of a consent agreement with the Federal Reserve Board of Governors, the central bank announced Monday. The bank also faces an £87 million — roughly $119 million — fine from U.K.'s Prudential Regulatory Authority on similar conditions.
UBS
The regulators leveled the penalties for Credit Suisse's actions related to
For years, Credit Suisse provided prime brokerage services to Archegos, including derivatives agreements known as total return swaps, which the firm used to make leveraged investments into single-name U.S. and Chinese stocks. At the time, regulators say, the bank failed to properly detect and manage the risks posed by the firm.
From mid-2020 to early 2021 — just before it collapsed — Archegos was in breach of Credit Suisse's internal concentration risk limits, according to the Fed. Despite this, the bank failed to collect sufficient margin from Archegos. Eventually, the firm defaulted, forcing Credit Suisse to sell the underlying securities at a $5.5 billion loss.
Credit Suisse's Archegos losses were one of several factors that contributed to the bank's near demise, including the collapse of the U.K.-based financial services firm Greensill Capital and a 2019 spying scandal.
UBS addressed the fines in a press release issued Monday. It also noted that the Swiss Financial Market Supervisory Authority concluded its "proceedings" related to Credit Suisse's relationship with Archegos, which required the bank to address its approach to "credit, liquidity and non-financial risk management."
As part of its consent agreement with the Fed, UBS has agreed to make changes to the way it approaches the same risk categories as well as its internal oversight and governance. The bank also agreed to more onerous reporting requirements and supervision. It also pledged not to rehire any employees who were let go as a result of their oversight of the risks involving Archegos.
"UBS will implement its operational and risk management discipline and its culture across the combined organization," the bank said in a statement. "It has already begun implementing its risk framework, including actions addressing these regulatory findings, across Credit Suisse."
The bank also committed to addressing other regulatory issues and outside lawsuits related to Credit Suisse in a way that minimizes losses.
"UBS intends to resolve Credit Suisse's outstanding litigation and regulatory matters in the best interest of its stakeholders, including investors, clients and employees," the statement notes.
A UBS spokesperson declined to say how the bank would pay for the fines or whether a fund for future Credit Suisse-related penalties has been created.
