Dillon, Read & Co.

Dillon, Read & Co. Logo

Dillon, Read & Co. was a prominent American investment bank from the 1920s into the 1960s.

History

Origins

Dillon Read traces its roots to 1832 with the founding of the Wall Street brokerage firm Carpenter & Vermilye. This firm was succeeded by Read & Company in which chief principal was William A. Read.[1] An area of particular activity was underwriting the bonds of Latin American governments. However, it is best known for its actions during the 1920s. During that time Clarence Dillon managed the rescue of faltering Goodyear Tire & Rubber Company, engineered the buyout (in 1925) and subsequent sale of Dodge Motors (in 1928) to Chrysler, launched the first post-war closed-end investment trust (in 1924), and led the largest-ever stock offering (in 1926). By the end of the decade, Dillon Read was considered to be an investment-banking powerhouse, alongside J.P. Morgan & Co. and Kuhn, Loeb & Co. Nicholas F. Brady served as Chairman from 1970 to 1982, before serving as a United States Senator from New Jersey and as U.S. Secretary of the Treasury under Ronald Reagan and George H.W. Bush. C. Douglas Dillon, the son of Dillon Read co-founder Clarence Dillon, served as Vice President and Director of Dillon Read before serving as U.S. Secretary of the Treasury under John F. Kennedy and as U.S. Undersecretary of State and U.S. Ambassador to France under Dwight Eisenhower.[2]

Acquisition by SBC

Dillon Read was sold to Barings in 1991, a few months before Barings went bankrupt. Bought back by Dillon Read's partners, it was resold to Travellers, the US insurance group. It was then purchased by Swiss Bank Corporation (SBC) in 1997 and merged with London-based investment bank S. G. Warburg & Co. (purchased by SBC in 1995) to become SBC Warburg Dillon Read. The merged entity then became part of UBS AG when the latter firm bought SBC.

Dillon Read Capital Management

The Dillon Read name was dropped by 2000 but recently re-emerged in the name of UBS's internal hedge-fund division, Dillon Read Capital Management (DRCM), led by former UBS Investment Bank head John P. Costas . During its brief 18-month existence, DRCM launched a successful fund of US$1.2 billion (which was over-subscribed by 50%) for outside investors which returned 16.6% after fees, making it one of the top multi-strategy funds for 2007.

On May 3, 2007, UBS announced the closure of Dillon Read Capital Management due to "operational complexities". DRCM had a loss of 3% of assets in UBS proprietary accounts in the first quarter (after years of positive returns) while the external hedge fund was profitable with a return in excess of 16%.[3] According to Bloomberg, "In 2006, the fund, which invested in U.S. Treasuries, currencies, investment-grade corporate debt and mortgage securities, earned US$720 million in pretax profit, after fees, on revenue of US$1.2 billion, according to a person familiar with the figures." During 2007 after UBS took over the proprietary positions and eliminated market hedges in May 2007, losses grew from approximately $100 million (1.5% loss) under Dillon Read management's oversight to "16% of the US$19 billion in losses UBS recorded"[4] The April 2008 report by UBS to the Swiss Federal Banking Commission (SFBC, in German: Eidgenössische Bankenkommission, EBK, in French: Commission fédérale des banques, CFB) stated that UBS claimed while there was liquidity through the summer of 2007 that "by October 2007 that the assets could not be sold given the illiquidity in the market".[5][6] Myret Zaki in the book, UBS: les dessous d'un scandale, asserts that had UBS listened to Dillon Read Management regarding the mortgage crisis that 99% of UBS' losses would have been avoided.

See also

References

Works about Dillon Read

Notes

  1. ↑ The last partnerships: inside the great Wall Street money dynasties. 2001
  2. ↑ Allan, John H. (14 March 1971). "New Chief of Old-Line Firm". New York Times.
  3. ↑ "UBS Posts Lower Earnings and Closes Hedge Fund". The New York Times.
  4. ↑ "UBS $100 Billion Wager Prompted $24 Billion Loss in Nine Months". Bloomberg. 18 May 2008.
  5. ↑ "Shareholder report on UBS's writedowns" (PDF).
  6. ↑ "UBS Scraps Costas's Hedge Fund After Mortgage Losses". Bloomberg. 3 May 2007.
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