When Genius Failed: The Rise and Fall of Long-Term Capital Management

by Roger Lowenstein

UBS, Long-Term’s biggest investor, was feeling even worse than Bear. David Solo, a derivatives whiz from the old Swiss Bank, realized—too late—that the newly merged UBS was in for horrendous losses. As Solo analyzed the warrant package, UBS had taken a huge risk for a potential return of only 8 percent—which now, of course, it would never realize. “All this discussion of option hedging, volatility and premiums is ridiculous,” he tapped in an urgent September 14 e-mail to Marcel Ospel, formerly head of Swiss Bank and now CEO of UBS. In a dig at their merger partners, Solo added conspiratorially, “This trade was approved by the UBS group executive board and by many people sitting around your table.”