Financial institution UBS plans to allocate approximately $900 million in compensation for investors associated withGreensill Capital.
In early 2021, Credit Suisse paid a hefty sum of $268.5 million to the Federal Reserve due to inadequate credit risk management practices, primarily related to the Archegos Capital incident. This marked the beginning of a tumultuous period for the Swiss bank.
The twin scandals involving Credit Suisse led to some leadership changes at the bank's executive board. One of the key incidents was the default of Archegos Capital Management, which resulted in a $5.5 billion loss in trading positions in March 2021.
Credit Suisse had persuaded over 1,200 wealthy clients to invest in funds marketed as low-risk, as they were backed by insurance contracts underwritten by Greensill. However, the collapse of Greensill Capital in 2021 left clients with trapped funds, from which they have since received more than $7 billion.
The process of recouping Greensill-tied dollars is expected to extend until at least 2031, costing Credit Suisse a significant $321 million, to be borne by the fund investors. UBS inherited this issue when it acquired Credit Suisse over the past year.
UBS plans to set aside roughly $900 million in the second quarter to reimburse investors in Credit Suisse funds linked to the collapsed supply chain financing firm Greensill Capital. This move is part of UBS's strategy to manage the investment in the supply chain finance funds as part of its non-core and legacy portfolio.
In a separate development, the Federal Reserve fined UBS $268.5 million in July 2023 for "unsafe and unsound counterparty credit risk management practices" between Credit Suisse and Archegos. This fine was in addition to the legal liabilities UBS expects to face, which could amount to as much as $4 billion.
Despite these financial setbacks, the payouts will not affect UBS's financial results or capital position. The acquisition of Credit Suisse by UBS closed on May 31, marking a new chapter for both institutions. The default of Archegos Capital Management threw Credit Suisse into a two-year spiral before the Swiss government moved in to bail out the embattled bank.
