Global banking giant UBS has been penalized with a substantial fine of over a quarter billion dollars due to misconduct at its newly-acquired subsidiary, Credit Suisse. The penalty was announced in a press release by the Board of Governors of the Federal Reserve, highlighting the focus on Credit Suisse’s “unsafe and unsound counterparty credit risk management practices” with Archegos, a family office that faced a devastating collapse in March 2021.
Archegos, owned by Korean American investor Bill Hwang, once boasted assets worth $36 billion before its downfall, attributed to aggressive leveraging and poor trading decisions. Reports from Bloomberg indicated that Hwang incurred a staggering $20 billion loss in less than two days.
The fallout from Archegos’ default heavily impacted Credit Suisse, resulting in losses of approximately $5.5 billion. According to the Federal Reserve, these losses could have been prevented with proper credit risk management, but Credit Suisse failed to adequately address the risks associated with its association with Archegos despite numerous warnings.
The Board of Governors has mandated Credit Suisse to enhance its counterparty credit risk management practices and to address other longstanding deficiencies in its risk management programs at its U.S. operations.
Moreover, UBS’s fine is being issued in collaboration with the Swiss Financial Market Supervisory Authority and the Bank of England’s Prudential Regulation Authority, signifying a united front in holding the banking institution accountable for the lapses in risk management.
As part of the regulatory actions taken against UBS, which manages assets worth $3.1 trillion, the Federal Reserve has instructed the bank to ensure that its subsidiaries and branches of Credit Suisse adhere to safe operational practices, regulatory compliance, and appropriately address any supervisory measures imposed by federal and state regulators. This move aims to mitigate future risks and uphold the integrity of the banking sector.
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