Credit Suisse fined $388mn over Archegos collapse

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Credit Suisse has been fined $388mn by US and British regulators for “significant failures in risk management and governance” related to the collapse of Archegos Capital, which caused a $5.5bn trading loss and helped bring about the demise of the Swiss lender.

The US Federal Reserve imposed a $269mn penalty on the bank for “unsafe and unsound counterparty credit risk management practices”, while the UK Prudential Regulation Authority levied a record £87mn fine, according to a series of co-ordinated statements on Monday.

Swiss supervisor Finma said that Credit Suisse had “seriously and systematically violated financial market law” and that it was ordering corrective measures on its new parent UBS, which rescued its rival in a government-brokered takeover in March.

Finma added that it has opened enforcement proceedings against a former employee, but does not have authority to fine financial institutions.

“Credit Suisse’s failures to manage risks effectively were extremely serious, and created a major threat to the safety and soundness of the firms,” said Sam Woods, head of the UK’s PRA. “The seriousness and widespread nature of those failures has led to today’s fine, which is the largest ever imposed by the PRA.”

Credit Suisse took the biggest trading hit in its 167-year history when Archegos failed in March 2021, with the Swiss bank accounting for more than half of the total $10bn lost by international banks that offered the family office prime broking services. UBS suffered a $861mn loss.

Under fund manager Bill Hwang, Archegos made tens of billions of dollars of bets on US and Chinese stocks by borrowing heavily from banks, which had to be rapidly unwound when the value of the companies plunged and the firm could not meet margin calls.

The Credit Suisse’s shortcomings identified by the three supervisors included extending half of the bank’s equity to a single counterparty; no oversight at board level “despite the huge size of this client position and the associated risks”; a lack of “experienced staff with sufficient stature”; employees ignoring repeated breaches of risk limits and acting in favour of their client instead of their own firm; and repaying $2.4bn to Archegos just two weeks before it collapsed.

The Fed has ordered UBS’s board to submit a plan within 120 days that will establish a “remediation office” to improve oversight of its US operations.

The Financial Times reported the likely size of the fines last month. Credit Suisse had previously set aside just $35mn for settlements related to Archegos.

The fines will be taken as an additional provision in Credit Suisse’s second-quarter results, which will be reflected in the merger accounting. UBS has up to $4bn of provisions to cover regulatory and litigation costs from its takeover, which was completed last month.

“UBS will implement its operational and risk management discipline and its culture across the combined organisation . . . including actions addressing these regulatory findings,” the banks said in a statement.

Credit Suisse hired law firm Paul Weiss to conduct a review of the failings in 2021, which concluded the losses were the result of a “fundamental failure of management and controls” in its investment bank and a “lackadaisical attitude towards risk”.

The bank made just $17.5mn from the relationship in its final year, despite extending as much as $24bn in credit to the family office, which Finma described as “four times the position of the next largest hedge fund client”.

Archegos is only one of several unresolved scandals that UBS has inherited from Credit Suisse. These include lawsuits over its involvement in defunct supply-chain finance firm Greensill Capital, a US tax evasion case, a lawsuit brought by the Republic of Mozambique and private litigation over US residential mortgage-backed securities.

It is also appealing against cases brought by Bidzina Ivanishvili, the former Georgian prime minister, and another over its dealings with a group of Bulgarian cocaine smugglers.