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Dillon Read to Shut Down

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The US subprime market claims another victim. Dillon Read, the hedge fund started by UBS just 2 years ago, is being shut down by the Swiss bank after incurring 150 million francs in losses primarily from the subprime market. Dillon Read Capital Management’s first fund raised $1.3bn in 2006, although there is no word yet on how rapidly capital will be able to be returned to investors. UBS does plan to pay an additional $300mm in shut down costs. This is seen as UBS’ largest hedge fund gaffe since LTCM in 1998, when the bank incurred almost $700mm in losses.
John Costas, head of Dillon Read and part of the reason UBS started the fund in the first place (to retain Costas), will stay with the company in an advisory role and help carry out the bodies at Dillon. We were tipped that UBS had a big meeting late yesterday afternoon and broke the news to its staff.
UBS made this announcement in a disappointing earnings release today, stating that the hedge fund's losses contributed to lower fixed income revenue. The bank posted its third straight decline in quarterly profit, a trend reflected in the fact that UBS shares have only increased 2% YTD. Credit Suisse on the other hand, has posted better earnings than its rival for the fifth straight quarter and has seen its share price increase 9% YTD.
UBS Profit Falls as Hedge Fund Losses Hurt Bond Fees – [Bloomberg]