UBS will be busy with CS baggage for years

UBS will be busy with CS baggage for years

Wed, Jul 26th 2023

The “monster bank” UBS will now have to answer for everything CS screwed up in the past. The recent Archegos settlement shows how much the newly acquired subsidiary is in trouble.
An activist of Scientist Rebellion symbolically cleans the Credit Suisse sign (Keystone SDA).

The “monster bank” UBS will now have to answer for everything its acquired Credit Suisse bank screwed up in the past, financial experts say. The recent clean-up of the Archegos scandal shows how much the newly acquired subsidiary may be in trouble.

UBS this week reached an agreement with the authorities in the U.S., Great Britain and Switzerland on the Archegos case for $388 million to the U.S. Federal Reserve and the UK authority as punishment for the misconduct. At the same time, the Swiss Financial Market Authority FINMA closed the proceedings against CS.

The judgment is devastating in the context of the business relationships with the U.S., as Credit Suisse violated financial market law “seriously and systematically.” FINMA found “serious” deficiencies: “In particular, the bank was unable to adequately record, limit and monitor the significant risks associated with Archegos,” it said.

The newly named UBS CEO Sergio Ermotti (Keystone SDA).
Another Complaint

In the spring of 2021, several investment banks had recorded large losses because of the collapsed U.S. hedge fund. However, CS suffered the biggest loss with more than five billion dollars. And it is far from the first time that FINMA has harshly criticized CS. The former big bank was repeatedly criticized for not preventing money laundering.

It is now up to UBS to clean up the mess: After the conclusion of the most recent procedure, FINMA is now demanding various measures from the new owner when it comes to risk management. In the future, an employee’s bonus will be linked to their risk appetite and the risks accepted. FINMA has also opened an investigation into a former CS executive.

UBS reacted writing that the company’s own risk management principles will now be anchored in the entire combined organization. The implementation of risk management at CS has already begun. On June 12, UBS officially took over CS.

Credit Suisse’s headquarters at Paradeplatz in Zurich (Keystone SDA).
Long list of cases

The Archegos case will keep CS and its parent company UBS busy for a very long time. Even though an important part has now been completed, other financial authorities have already made inquiries to CS.

The most recent $388 million fine could be a taste of what is still to come for UBS. With the takeover, the bank inherited many open, legal cases from Credit Suisse such as: lawsuits in connection with the Greensill funds (the second major scandal of 2021), a lawsuit by the Republic of Mozambique on the so-called “tuna bonds” or the appeal against the lawsuits of former Georgian Prime Minister Bidzina Ivanishvili. The latter case involves a possible payment of more than $500 million.

UBS also has its own problems when it comes to legal cases, including a major tax dispute case in France. In December 2021, UBS was found guilty in the second instance of illegal financial transactions and aiding and abetting money laundering. The French Court of Appeals is demanding a total payment of 1.8 billion euros.

Protesters gathered in front of Credit Suisse’s headquarters to protest the merger (Keystone SDA).
A Welcome clean-up

According to media reports, the trial will continue on September 27th. The French Court of Cassation will then examine the Swiss bank’s appeal against its conviction. Only around 1.1 billion euros have been set aside for this case.

Experts say they welcomed the recent Archegos settlements and the conclusion of the FINMA investigation. 

“We rate the proactive cleanup of Credit Suisse’s legacy as positive, as it eliminates potential uncertainties and also enables the new UBS to concentrate on successful integration and normal business operations,” said ZKB analyst Michael Klien

This article was reprinted with permission from Keystone SDA.

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