UBS and Credit Suisse are now to pay a whopping $388 million in fines according to the latest financial reports and data.
Credit Suisse has been issued fines totaling $388 million for “significant failures in risk management and governance between 1 January 2020 and 31 March 2021”.
The fines are the result of a co-ordinated investigation between the UK’s Prudential Regulation Authority (PRA), the Swiss Financial Market Supervisory Authority (FINMA) and the US Federal Reserve.
UBS Group AG says it will pay $269 million to the Federal Reserve and a further $119 million to the PRA.
The latter fine was reduced from $160 million for the bank’s co-operation in resolving the issue.
The issue arose out of Credit Suisse’s dealings with the former US asset management firm Archegos Capital Management, to which it provided prime brokerage services and engaged in equity total return swaps (TRS).
However, when the asset management firm imploded in March 2021 after defaulting on its margin calls, it left Credit Suisse with losses totalling $5.1 billion, with the PRA stating that it resulted in “significant financial and reputational damage” for the bank, reports Fintech Futures.
The PRA says that the ensuing investigation found that the bank’s risk management oversight and corresponding practices “fell well below the regulatory standards required” and that it presented “an unsound risk culture within the business line that failed to balance considerations of risk against commercial reward appropriately”.
Sam Woods, deputy governor for prudential regulation and CEO of the PRA, says: “Credit Suisse’s failures to manage risks effectively were extremely serious, and created a major threat to the safety and soundness of the firm.
“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 Gets Sued Over 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
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