Page "Union Bank of Switzerland" Paragraph 49

Union Bank of Switzerland, suffering criticism of its conservative business model, was looking for ways to catch up to its key Swiss rivals and viewed LTCM as the type of client that could help accelerate the bank's growth.

In 1997, UBS entered into a financing arrangement with LTCM and the hedge fund quickly became the bank's largest client, generating US $ 15 million in fees for UBS.

Union Bank of Switzerland sold LTCM a 7-year European call option on 1 million shares in LTCM, then valued at about US $ 800 million.

It hedged this option by purchasing a US $ 800 million interest in LTCM and invested a further US $ 300 million in the hedge fund.

Following the merger, Swiss Bank managers were surprised to discover the massive exposure to LTCM at UBS.

Ultimately, UBS was unable to sell or hedge its interest in LTCM as its value declined in the summer of 1998.