Switzerland-based UBS Group (NYSE:UBS) is facing significant penalties in connection with investigations by regulators into Credit Suisse’s mishandling of U.S.-based Archegos Capital, a family office (private investment firm) founded by former hedge fund manager Bill Hwang, the Financial Times reported.
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Credit Suisse took a hit of $5.5 billion when Archegos defaulted in March 2021. Under Hwang, Archegos took highly leveraged bets on certain technology stocks, which backfired and caused a significant drop in the value of its portfolio with Credit Suisse. An internal investigation by Credit Suisse revealed a “fundamental failure of management and controls” in its dealings with Archegos.
UBS Faces Huge Fines
UBS had urged the U.S. Federal Reserve, Britain’s Prudential Regulation Authority (PRA), and the Swiss Financial Market Supervisory Authority (FINMA) to publish the findings of their investigations and announce any potential fines at the end of July.
PRA could impose a fine of up to 100 million pounds, while the U.S. Federal Reserve could slap the bank with a penalty of up to $300 million. FINMA doesn’t have the authority to fine financial institutions. Sources stated that these amounts could be negotiated down as part of settlement discussions that are in progress. Credit Suisse had set aside only $35 million for potential penalties over Archegos.
UBS completed its emergency takeover of beleaguered rival Credit Suisse last week. As per the bank’s presentation, it set aside $4 billion in provisions to cover costs related to unresolved regulatory investigations and lawsuits. Aside from the Archegos matter, other pending matters that UBS is exposed to due to its takeover of Credit Suisse include lawsuits over Credit Suisse’s dealings with collapsed financial services firm Greensill Capital and a U.S. tax evasion case, among others.
Is UBS a Good Stock to Buy?
The combination of UBS with Credit Suisse has created a business with over $5 trillion in total invested assets. Bank in March, the bank said that it expects the combined entity to generate an annual run-rate of cost reductions of more than $8 billion by 2027.
Wall Street has a Hold consensus rating on UBS based on five Buys, three Holds, and three Sells. The average price target of $25.47 implies nearly 25% upside.
It is worth noting that JPMorgan analyst Kian Abouhossein is the most accurate analyst for UBS. Copying the analyst’s trades on this stock and holding each position for one year could result in 85% of an investor’s transactions generating a profit, with an average return of 19.17% per trade.
