Clive Standish is one of the higher ranked Australians in world investment banking with his job as chief financial officer of the huge Swiss group, UBS AG. UBS is the pre-eminent Swiss gnome at the moment but in the highly competitive US financial markets its come a cropper several times.
Poor asset management policies, underperforming corporate advisers have plagued UBS and now it has a hedge fund that has gone bad. And UBS Asset Management is holding out against the APA bid for Qantas. Is it trying to recoup these losses?
The investment bank produced its third quarter profits last night and according to Bloomberg UBS “reported a third straight decline in quarterly profit and said it plans to scrap the hedge fund run by John Costas after losses in the U.S. mortgage market.
“First-quarter net income fell to 3.28 billion Swiss francs ($2.70 billion) from 3.5 billion francs a year ago, Zurich-based UBS said today. That compares with the 3.3 billion-franc estimate of eight analysts surveyed by Bloomberg. Profit a year earlier was boosted by 290 million francs from the sale of a power company.
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“While UBS Chief Executive Officer Peter Wuffli attracted a record 52.8 billion francs of new client money in the quarter, losses from Costas’s hedge fund, Dillon Read Capital Management, led to a 7 percent decline in fixed-income revenue. UBS said it will close the hedge fund after 150 million francs of losses and give investors their money back.
“UBS formed Dillon Read less than two years ago, partly to hang onto Costas, the former investment banking chief, Wuffli said at the time. Costas, 50, will help shut down the hedge fund and stay at the bank in an advisory role, Chief Financial Officer Clive Standish said on a conference call with reporters today.
Costs to close the fund will amount to $US300 million, Standish said.
Yes there’s is a lot of liquidity about and yes it is so easy to lose. HSBC (The Hong Kong And Shanghai Bank) has had to provide $US10 billion to cover problem loans in the same area in its US group, Household Finance.
The losses at the hedge fund were “related to the U.S. mortgage-backed securities market, which was obviously weakened by the U.S. subprime market,” Standish said.
Oops. The same subprime mortgage crisis devastated the profits of General Motors.
Its earnings plunged more than half a billion dollars to just $US62 million in the third quarter as its finance arm, GMAC (49 per cent owned with a couple of buyout groups), lost hundreds of millions because of the subprime disaster and had to inject $US1 billion into its subsidiary that financed subprime mortgages.
And GE Money has had to put up $US500 million to ‘ring fence’ its sub-prime losses in its WMC mortgage subsidiary.
That’s around $US12 billion in losses owned up to by financiers in the subprime disaster, so far.
So Clive Standish’s experience on the end of $US300 million in losses in the subprime mortgage market is small beer. Life was easier in Sydney.