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Dillon Read Capital Management (UBS) - Subprime ABS


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UBS' Dillon Read Capital Management, founded a mere two years ago in June 2005 by , has been shutdown after suffering a 150 million Swiss Franc loss in the first quarter of 2007. Regarding the reasoning behind Dillon Read's closure, Reuters reported:

Dillon Read Capital Management ran up losses of 150 million in the first quarter, becoming the latest casualty of the meltdown earlier in the year in the United States subprime mortgage market.

"This was related to the U.S. mortgage securities market, which was obviously weakened by the U.S. subprime sector," Chief Financial Officer Clive Standish said in a conference call with financial journalists.

UBS estimated restructuring costs related to dissolving Dillon Read will be around $300 million.

Subsequent to the shutdown UBS replaced CEO Peter Wuffli with his deputy Marcel Rohner.

Regarding the closure of Dillon Read, the New York times noted:

[T]his year, bad bets in subprime mortgage investments led to losses of $124 million.

UBS was the first Wall Street firm to announce heavy losses in the subprime sector ...

[W]hat shocked some analysts and investors was the $300 million it cost to close Dillon Read. Of that amount, $200 million went to severance payments and other costs for the hedge fund manager and his team.

According to hedgeweek Dillon Read will continue to operate until it is integrated back into UBS, which they expect will be in Q3 2007. Hedgeweek quoted Chairman and CEO of UBS Global Asset Management on the closure:

"Operating a proprietary trading platform outside the Investment Bank and managing client money alongside became too complex and expensive. That, among other reasons, is why we have chosen to reintegrate DRCM into the Investment Bank and to redeem the outside investor funds," ...

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efficiency at 20:27 2008-10-25 said:
Interesting name for a hedge fund. Dillion Read was a retail brokerage firm that "expired" around 1970.

But not as interesting as 200 million in severance for such decision-making and consequent performance. Permalink

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Important: This fund is on our list of hedge funds that have "imploded" (see also ailing lenders). However, please note that "imploded" is a somewhat subjective. The "imploded" list contains hedge funds (or other unregulated and autonomous speculative investment funds) which have gone through some sort of permanent adverse change. This is a somewhat subjective call, and does not necessarily mean total shutdown or bankruptcy. It can also mean steep and rapid mark-downs in net asset value; or abnormal "bail-out" by corporate parents or peers in order to avoid write-downs and provide liquidity. The funds are of any type and sector.