In taking over Credit Suisse, UBS is shouldering a number of litigation issues that hung over the head of its rival and played a part in bringing Credit Suisse down.

UBS faces hundreds of millions of dollars in regulatory fines over Credit Suisse’s dealings with New York-based Archegos Capital, or Archegos for short, the hedge fund/family office that collapsed amidst wrong-way market bets, a media report said. UBS completed a stage of its takeover of Credit Suisse earlier this month.

The US Federal Reserve’s fine over Archegos may be as high as $300 million, while the UK’s Prudential Regulation Authority could impose a penalty of up to £100 million ($128 million), Bloomberg quoted an unnamed source as saying. Switzerland’s financial regulator doesn’t have the authority to impose fines, the report said.

Zurich-listed UBS declined to comment when contacted by Family Wealth Report. 

The purchase for SFr3 billion ($3.3 billion) of Credit Suisse by UBS was undertaken at the behest of the Swiss federal government, fearful that a collapse of the country’s second-largest lender would hammer the economy. The merger leaves the Alpine state with only one universal bank. 

UBS has already given guidance that legal liabilities related to Credit Suisse could run to as much as $4 billion over 12 months, and asset mark-downs could come in at some $13 billion.

Credit Suisse – a bank with a history dating back to the mid-19th century – was brought down by a string of scandals and missteps that included losses caused by its exposure to Archegos. In March 2021 Archegos defaulted on its loan relationships with Credit Suisse after significant falls in the value of its positions.

A sub-theme to the Archegos story is that because it was structured as a family office, removing the need for certain levels of US regulatory oversight, it prompted calls for tighter oversight of family offices. In early April 2021, Dan M Berkovitz, commissioner, at the Commodity Futures Trading Commission, called for tighter regulatory oversight of family offices. Berkovitz said: “Unfortunately, in the last two years the CFTC has loosened its oversight of family offices. In 2019, and again in 2020, the Commodity Futures Trading Commission (CFTC) approved rules that exempted family offices from some of our most basic requirements.” He claimed that he had objected to the change. Those calls were met with pushback.

Credit Suisse’s trading losses linked to Archegos, which ran the fortune of Bill Hwang, were far larger than those sustained by UBS. Besides Credit Suisse, UBS, Nomura, Goldman Sachs and Morgan Stanley had working links with Archegos. 

As part of the takeover deal between UBS and Credit Suisse, holders of Credit Suisse’s Additional Tier 1 bonds – forms of buffer capital created for European banks after the 2008 crash – have had their bonds written down. This has sparked anger and a number of lawsuits, including from institutions such as PIMCO.