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Last Updated: Thursday, 3 May 2007, 11:07 GMT 12:07 UK
UBS to close its hedge fund arm
Sign outside UBS offices in New York
UBS only launched its hedge fund arm last year
Swiss bank UBS has shocked investors with the news that it is winding up its hedge fund arm, Dillon Read Capital Management (DRCM).

The announcement came as the bank said net profits for the first three months of the year falling 6% to 3.275bn Swiss francs ($2.7bn; 1.4bn).

During the same period DRCM had lost 150m Swiss francs, hit by the problems in the US sub-prime mortgage market.

UBS says reintegrating DRCM into its investment arm will cost up to $300m.

DRCM was launched as a separate arm last year to meet the demand for alternative investments.

Analysts say that reintegrating it into UBS investments is effectively the same as winding it up.

Sub-prime problems

Sub-prime lenders provide mortgages to people with poor credit ratings.

They hit problems in the US earlier in the year because rising interest rates had increased the number of people defaulting on their payments.

Many other banks such as Barclays and HSBC have also been hit by the problems.

Other parts of UBS performed better, with pre-tax profit at the investment banking division rising 3% to a record 1.8bn Swiss francs.

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