Nineteen former top executives and directors of Credit Suisse have agreed to pay $115 million to settle claims from shareholders. The shareholders said these leaders’ poor risk management led to big losses for the bank, particularly linked to the fallout from Archegos Capital Management in 2020 and 2021.
This massive financial hit was one of the reasons UBS, another Swiss banking giant, stepped in to buy Credit Suisse in 2023, in a deal supported by the Swiss government. The settlement was approved by a judge in Manhattan, with insurance providers covering the payment after legal fees are deducted. The money will go to UBS, which now owns Credit Suisse.
Among those settling is the former Credit Suisse Chairman Urs Rohner, though all involved deny any wrongdoing. The group of shareholders was led by the Employees Retirement System for the City of Providence, Rhode Island. They argued that the bank’s leaders broke Swiss law by failing to control risks linked to firms like Archegos, Greensill Capital Management, and Malachite Capital Management when these companies defaulted.
Attorneys representing the shareholders plan to claim up to 30% of the settlement for legal fees, plus another $3.2 million for expenses. The details of Credit Suisse’s directors and officers insurance are not public, but big insurers like Zurich Insurance, AIG, and Swiss Re – known for covering large banks – likely handled the policies. Such insurance usually covers legal defense costs and settlements in cases of alleged executive mismanagement.
The Archegos collapse was a major blow to Credit Suisse. The bank lost about $5.5 billion when Archegos unraveled in March 2021. Archegos, a family office that once managed $36 billion, fell apart after its founder, Bill Hwang, didn’t meet margin calls on massive investments. Other big banks had some exposure, but their risk controls helped limit losses compared to Credit Suisse.
A Credit Suisse-commissioned report showed the bank earned just $17.5 million in fees from Archegos in 2019, even though it faced potential losses of $20 billion. This imbalance raised questions about how the bank handled risk and reward.
This settlement follows several legal battles. In July, a judge said UBS must face lawsuits from former Credit Suisse shareholders and bondholders who claim the bank misled investors about its financial health. However, an earlier suit against 29 former Credit Suisse officials and auditor KPMG was dismissed in February 2024, with the judge noting the bank’s collapse was due to long-term mismanagement.
The case highlights challenges for insurers covering bank executives. Large payouts like this lead to higher premiums and stricter underwriting. Insurers now demand clearer evidence that banks are improving governance and risk controls. While insurance helps protect board members, it can sometimes encourage risky behavior if executives rely too much on coverage to avoid consequences.
Insurers are pushing for stronger rules, such as independent boards and solid risk assessments. This shift means directors and officers insurance does more than just cover costs—it encourages better leadership and stronger risk culture.
This story shows how big financial losses ripple through banks, insurers, and investors. It also reminds leaders that managing risks well is crucial to avoid costly fallout down the line.