The Federal Reserve System last Monday, July 24, announced the application of sanctions in the form of fines against UBS due to the practice of committing misconduct by Credit Suisse in risk management of Archegos Capital Management, an investment fund that declared bankruptcy in 2021.
The total amount of fines faced by UBS is $387 million. This amount also includes economic impact measures taken by the Swiss Government and the Bank of England.
Archegos Capital Management, which was part of the client portfolio Credit Suisse used borrowed funds to create large positions in companies operating in the media sector, including ViacomCBS and Discovery. After the fall in the value of shares of firms of the designated profile, the fund was unable to pay off creditors.
The Board of the Federal Reserve System, in its commentary on the fine, stated that Credit Suisse is involved in the practice of applying credit risk management methods that are characterized by a low level of security and are not justified in terms of correlation with the circumstances of the activity. This practice was implemented by a financial institution within the framework of relations with an investment fund.
The Federal Reserve notes that Credit Suisse has repeatedly failed to eliminate the identified risks associated with the Archegos portfolio. At the same time, employees of the financial institution at several levels of management reported a rising in alarm signals.
UBS and Credit Suisse have also been ordered to provide a plan to strengthen oversight of their U.S. operations and senior management over the next 120 days.
The default of the investment fund caused a shock on Wall Street in 2021. Against this background, Credit Suisse faced losses of $5.5 billion. Also, as part of the current situation, two top managers of a financial institution were dismissed.
Credit Suisse has already commented on the penalty measures, saying that UBS has started implementing its risk management system in the combined organization. UBS also intends to resolve outstanding judicial and regulatory issues of Credit Suisse. The desire to act in the interests of employees, investors, and customers is emphasized separately.
In June, UBS completed an emergency takeover of Credit Suisse for $3.25 billion. This transaction was the largest in the banking sector since the financial crisis of 2008. Credit Suisse was the second-largest lender in Switzerland before the takeover. At the beginning of 2023, this financial institution bankrupted customer deposits and faced a massive withdrawal of funds against the background of the bankruptcy of regional American banks Silicon Valley Bank and Signature Bank.
As we have reported earlier, Fed Fines Deutsche Bank.