Archegos is the Greensill case reloaded. Finma delivers a scathing verdict on Credit Suisse's misdeeds for which UBS has to shoulder the consequences. But it gets off comparatively lightly.

Anyone reading Finma's media release on the conclusion of the enforcement proceedings against Credit Suisse in the Archegos case is likely to have immediately thought of the report on the Greensill funds, which was presented at the end of February.

It speaks of organizational deficiencies and inadequate risk management. That led the Swiss Financial Market Supervisory Authority to conclude there were serious deficiencies regarding the appropriate application of the Banking Act at Credit Suisse during the period under investigation.

Complete Failure of Internal Supervision

The report paints a picture of a complete failure of internal supervision and risk management. The positions taken were too large and too risky, at times amounting to $24 billion, more than half of the bank's equity. Despite this, no members of management were aware of the facts as limits were ignored or had no consequences, and safeguards were inadequate.

To add insult to injury, Credit Suisse paid out $2.4 billion to Archegos shortly before the collapse without even checking whether it was obliged to do so. In the end, the loss from the Archegos debacle amounted to more than five billion dollars for Credit Suisse.

A Single Enforcement Proceeding

It almost comes as a surprise that Finma says it has opened enforcement proceedings against only one former senior executive of Credit Suisse, whereas in the Greensill case, there were several.

According to earlier media reports, one such proceeding in the Greensill case, at the end of which the most severe sanction could be a years-long ban from the profession, is underway against former Credit Suisse CEO Thomas Gottstein. It's unknown who is now in the line of fire of the Finma investigation.

Besides Gottstein, Eric Varvel, most recently chairman of the investment bank, and risk and compliance chief Lara Warner could be possible candidates. Varvel was previously responsible for the global fund business. Investigators don't appear to be targeting Iqbal Khan, the head of Credit Suisse's wealth management at the time, and who now heads UBS's Global Wealth Management (GWM).

UBS Pays the Piper

By paying the Federal Reserve in the US and the Prudential Regulation Authority (PRA) in the UK a combined $388 million, UBS is cleaning up Credit Suisse's expensive legacy. Still, given the extent and severity of the misconduct, the fine is comparatively small.

A possible motive for this is that it doesn't want to take any further action against the person who had done the most damage. After all, Credit Suisse had suffered the biggest loss of all the banks involved with Archegos. Nomura lost about $2 billion and UBS $774 million, while the US banks involved shed their positions the fastest. 

New Provisions

Credit Suisse made appropriate provisions in the second quarter of this year to pay the fines which will be reported together with the UBS balance sheet at the end of August, according to a Credit Suisse spokeswoman.

The financial scandal surrounding Archegos CEO Bill Hwang enters its next round in the US in October when the start of his trial is scheduled stemming from charges in 2022.