Dillon, Read & Co.
Dillon, Read & Co. was a prominent American investment bank from the 1920s into the 1960s.
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. 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.
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 while the external hedge fund was profitable. 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" 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". 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.
Works about Dillon Read
- Sobel, Robert (1991). The Life and Times of Dillon Read. New York: Truman Talley Books/Dutton. ISBN 0-525-24959-1.
- Geisst, Charles R (2001). The Last Partnerships: Inside the Great Wall Street Money Dynasties. New York: McGraw-Hill. ISBN 0-07-136999-6.
- WetFeet.com (2001). The WetFeet.com Insider Guide: Warburg Dillon Read. San Francisco, CA: WetFeet.com. ISBN 1-58207-078-4.
- The last partnerships: inside the great Wall Street money dynasties. 2001
- "UBS Posts Lower Earnings and Closes Hedge Fund". The New York Times.[dead link]
- "UBS $100 Billion Wager Prompted $24 Billion Loss in Nine Months". Bloomberg. 18 May 2008.
- "Shareholder report on UBS's writedowns" (PDF).
- "UBS Scraps Costas's Hedge Fund After Mortgage Losses". Bloomberg. 3 May 2007.
- Home page of Dillon Read Capital Management
- INVESTMENT BANKS (BROKERAGE) — Business History of Firms
- Shareholder Report on UBS's Write-Downs of 18 April 2008 (PDF), summary of UBS's report to the Swiss Federal Banking Commission (SFBC), includes the role of Dillon Read Capital Management in UBS. NZZ article of 21 April 2008 summarizing the report
- BANKING FIRM CHANGES.; William A. Read & Co. Dissolves and Dillon, Read & Co. is Formed.. New York Times, January 14, 1921