U.S. and U.K. regulators have fined UBS $387 million for alleged misconduct by its competitor-turned-subsidiary Credit Suisse, which was found to have mishandled its dealings with the insolvent hedge fund Archegos Capital Management.
The Federal Reserve Board fined UBS $268,500,000 for “unsafe and unsound counterparty credit risk management practices” with Archegos, a firm that collapsed in 2021, costing Credit Suisse $5.5 billion prior to its acquisition by long-time rival UBS in a government-orchestrated deal.
The Federal Reserve Board determined that Credit Suisse did not adequately manage the risk posed by its dealings with Archegos, which collapsed after defaulting on margin calls, resulting in a $30 billion fire sale of companies it had invested in, including ViacomCBS (now Paramount Global) and Discovery Communications (now Warner Bros. Discovery).
The board mandated that Credit Suisse improve its counterparty credit risk management practices and address additional “longstanding deficiencies” in other risk management programs for its U.S. operations.
UBS “has already begun implementing its risk framework, including actions addressing these regulatory findings, across Credit Suisse,” Credit Suisse said in a statement on Monday. “UBS intends to resolve Credit Suisse’s outstanding litigation and regulatory matters in the best interests of its stakeholders, including its investors, clients, and employees.”
$35.2 billion. Last year, UBS generated this amount in revenue and earned $7.5 billion in profits.
Archegos reportedly held billions of dollars in securities from companies such as ViacomCBS, Discovery Communications, and Chinese tech titan Baidu prior to its collapse in 2021. Archegos and its originator and co-CEO, Sung Kook (Bill) Hwang, were characterized by substantial financial risks and SEC issues, which ultimately resulted in price declines in its most important positions.
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Archegos was subsequently unable to satisfy margin calls, 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 in the aftermath of Archegos’ collapse.
Credit Suisse’s loss was one of the factors for its sale to UBS. Prior to the $3.2 billion rescue acquisition, Credit Suisse disclosed “material weaknesses” in its financial reporting processes from 2021 to 2022, prompting its largest investor, Saudi National Bank, to proclaim that it would no longer purchase Credit Suisse shares. Credit Suisse was offered up to $108 billion in liquidity assistance loans by the Swiss National Bank as part of the agreement brokered by the government.