Credit Suisse is Now Getting Sued Over a Margin Call
Credit Suisse is now getting sued for $100 million over an allegedly incorrect margin call by South African hedge fund M1.
“The lawsuit against the Swiss bank adds to a pile of outstanding litigation and regulatory issues UBS has inherited from Credit Suisse after acquiring the bank in March in an emergency takeover,” says Financial Times.
Credit Suisse agreed to pay $388m on 24 July to settle claims with regulators relating to its relationship with hedge fund Archegos, which collapsed in March 2021, costing Credit Suisse $5.5bn.
The M1 claim also stems from its prime brokerage relationship with Credit Suisse, which refers to the services offered by investment banks to hedge funds.
M1 alleged in its claim, which was filed on 4 July in the Commercial Court in London, that Credit Suisse made an incorrect margin call which triggered the sale of stock that the hedge fund had pledged as collateral.
The hedge fund is claiming approximately $108m to replace shares sold by Credit Suisse following the margin call made in 2020, which it said the bank had wrongly calculated and was not in fact due.
A margin call is typically issued by a broker to an investor when the value of shares they have borrowed has fallen.
The investor is typically asked to deposit additional funds or sell shares to raise the percentage of their own money in the account above a certain minimal threshold, called the maintenance margin.
This is an open case and developing story.
The fall of Credit Suisse has sent shock waves throughout the entire financial industry affecting now just investors, but also its workforce.
Also Read: Credit Suisse Warns Investors of Naked Short Covering
Credit Suisse Workforce Gets Laid Off
UBS (NYSE:UBS) CEO warned of a new wave of banking layoffs which have been taking place since June.
Chief Executive Sergio Ermotti warned of painful decisions about job cuts following the takeover of Credit Suisse, which he said he hoped would be formalized later that month, per Reuters.
“We won’t be able to create, short term, job opportunities for everybody. Synergies is part of the story,” Ermotti said at an event organized by the Asset Management Association Switzerland in Bern.
“We need to take a serious look at the cost base of the standalone and combined organizations and create a sustainable outcome,” he added.
“It will be painful.”
Sources warned 10,000 jobs would have to be cut if the two banks combined; we’re now beginning to see the aftermath today.
“When the dust settles down …the best thing for our clients and shareholders and our people is to have the best people in the jobs,” said the UBS CEO.
Swiss newspaper Blick reported in June that each day around 150 people worldwide were resigning from Credit Suisse while one of the two people said they saw about 200 resignations a week.
Credit Suisse bankers, worried about their future are seeking safer employment at competitors, one person said.
People familiar with the matter declined to be named because they are not authorized to speak publicly, per Reuters.
Also Read: Credit Suisse Chairman Blames Collapse on Retail Investors
Credit Suisse Also Fined $388m Over Archegos Collapse
The Swiss bank continues to get hammered as all hell falls upon its compounded scandals and failings.
Financial Times reports 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 according the latest report.
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 firm,” 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.
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