UBS faces hit of hundreds of millions of dollars over Credit Suisse’s Archegos failings

UBS faces hundreds of millions of dollars in penalties over Credit Suisse’s mishandling of Archegos Capital after Swiss, US and UK regulators completed their investigations into the affair, according to people with knowledge of the probes.

Credit Suisse, whose takeover by rival UBS was completed last week, suffered the biggest trading loss in its 167-year history when family office Archegos imploded in March 2021.

The bank had asked Switzerland’s Finma, the US Federal Reserve and the UK’s Prudential Regulation Authority to publish their findings and announce any penalties jointly at the end of July, according to four people briefed on the plans. But the timing of the publications could slip as a result of UBS’s takeover.

The Fed’s fine could be as much as $300mn, while the PRA could impose a penalty of up to £100mn, according to one person, though both could be negotiated down as part of settlement talks that have already begun.

Finma does not have authority to fine financial institutions, though it plans to publish its report into the bank’s failings over Archegos.

UBS has up to $4bn of provisions to cover regulatory and litigation costs from its takeover, which was orchestrated by Swiss authorities in March.

The Archegos affair is one of several unresolved legal and regulatory matters that UBS has taken on in buying Credit Suisse. These include lawsuits over its involvement in defunct 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.

Credit Suisse had set aside just $35mn for potential fines over Archegos, another person added.

The bank’s $5.5bn hit on the collapse of Archegos was by far the biggest out of total losses of $10bn for international banks that offered the family office prime broking services. UBS made 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’ prime brokerage divisions, which had to be rapidly unwound when the value of the companies slumped and the firm could not meet margin calls.

Credit Suisse commissioned its own investigation into its failings over Archegos, which was carried out by law firm Paul Weiss. The 172-page report found that the losses were the result of a “fundamental failure of management and controls” in Credit Suisse’s investment bank and a “lackadaisical attitude towards risk”.

The bank made just $17.5mn from the relationship in its final year, despite extending billions of dollars of credit to the family office.

Credit Suisse, UBS, Finma, the Fed and the PRA all declined to comment.

Last week the Financial Times reported that Lex Greensill, Greensill Capital’s founder, and four former Credit Suisse bankers had been named as suspects in a Swiss criminal case due to be formally opened this month.