Credit Suisse fined $388mn over Archegos collapse

Credit Suisse was fined $388mn for “significant failings in risk management, governance and oversight” related to Archegos Capital’s collapse. This led to a $5.5bn loss of trading and contributed to the failure of the Swiss lender.

According to coordinated statements released on Monday, the US Federal Reserve fined the bank $269mn for “unsafe or unsound practices in managing counterparty credit risks”. The UK Prudential Regulation Authority imposed an unprecedented PS87mn.

Finma, the Swiss supervisory authority, said that Credit Suisse violated “seriously” and “systematically” financial market laws and ordered corrective measures against its new parent UBS. UBS had rescued its competitor in a government-brokered acquisition in March.

Finma said that they have opened enforcement proceedings against an ex-employee, but do not have the authority to fine institutions.

Sam Woods is the head of UK’s PRA. He said that Credit Suisse’s failures in managing risks effectively created a serious threat to the safety of the firm. The PRA imposed a fine of £500,000 today, the biggest ever.

Credit Suisse suffered its biggest trading loss in 167 years when Archegos failed in March 2021. The Swiss bank accounted for more than half the $10bn total lost by international banking institutions that provided family office prime brokerage services. UBS lost $861mn.

Archegos, under the fund manager Bill Hwang made bets worth tens and tens billions of dollars on US and Chinese stock by borrowing heavily from the banks. These bets had to be quickly unwound as the value of these companies plummeted and the firm was unable to meet margin demands.

The three supervisors identified several shortcomings at Credit Suisse, including: extending half the bank’s equity position to one counterparty; lack of oversight by the board “despite the enormous size of this client’s position and associated risks;” a shortage of “experienced and sufficiently senior staff”; employees who ignored repeated breaches of risk limitations and acted in favor of their client rather than their own firm; as well as repaying $2.4bn Archegos only two weeks before its collapse.

The Fed has instructed UBS to submit within 120 days a plan that will create a “remediation” office to improve oversight over its US operations.

estimated the size of the fines likely to be imposed last month. Credit Suisse had set aside only $35mn in settlements for Archegos.

The fines are included as a separate provision in Credit Suisse’s second quarter results. This will reflect in the merger accounting. UBS’s takeover last month resulted in up to $4bn in provisions for regulatory and litigation costs.

“UBS’s operational and risk-management discipline, as well as its culture, will be implemented across the combined organization. . . In a press release, the banks stated that they would take action to address these regulatory findings.

Credit Suisse hired Paul Weiss, a law firm to review the failings of its investment bank in 2021. The report concluded that the losses were due to a “fundamental fail of management and control” and a lackadaisical approach towards risk.

Finma said that the bank only made $17.5mn on the relationship during its final year despite having extended up to $24bn of credit to the family offices, which is “four times more than the second largest hedge fund customer”.

UBS inherited several scandals from Credit Suisse. There are lawsuits regarding its involvement with the defunct Greensill Capital supply chain finance company, as well as a US tax case, a suit brought by Mozambique, and a private lawsuit over US residential mortgage-backed security.

The company is also appealing cases brought against it by Bidzina ivanishvili the former Georgian Prime Minister, as well as another case involving its dealings with Bulgarian cocaine smugglers.