UBS will pay a $387 million fine to clean up ongoing messes at Credit Suisse, the beleaguered Swiss banking rival it acquired earlier this year.
The fines, issued concurrently by regulators in the United States and Britain, relate to Credit Suisse’s “fundamental failure of management and control” in 2020 and 2021, which led to the collapse of a single client, investment firm Arcgos Capital Management, to the tune of $5.5 billion. That event helped shatter confidence in 166-year-old Credit Suisse and predicted its eventual absorption into UBS.
That UBS now foots the bill is a reminder of the risk it took when it agreed to rescue Credit Suisse for $3.2 billion, under pressure from Swiss authorities. The settlement increases the acquisition price by more than 10 percent, and it irks UBS with a number of measures ordered by regulators to prevent a repeat of such losses in the future.
In addition to setting up an internal “remediation office” to investigate the root cause of its supervisory errors, UBS must file regular progress reports with US authorities. Federal Reserve ordered, The regulators also ordered UBS to “address additional long-standing deficiencies in other risk management programs at Credit Suisse’s US operations.”
UBS said in a statement that it would apply “operational and risk management discipline” to its combined operations.
The March 2021 collapse of ArcGos stunned Wall Street because it was an under-the-radar firm that only managed the personal wealth of its founder, Bill Hwang, and his family’s assets.
The firm had a concentrated portfolio of stocks and financial instruments, which allowed Mr. Hwang to hedge his stakes with leverage out of the public eye. Most of the money borrowed came from Credit Suisse, and the bank was unable to collect it when ArcGIS collapsed.
Other banks also lost money in the ArcGos failure, but Credit Suisse was by far the biggest loser.