UBS fixed-income exit highlights difficulties of unwinding

UBS is shutting down large chunks of its fixed-income business – the first dealer to announce such a dramatic step – but some of its now-unwanted trades could be difficult to exit. We look at the challenges involved in unwinding a capital- and funding-intensive business. By Matt Cameron

"Derivatives businesses are like hell: easy to enter and almost impossible to exit," Warren Buffett said in 2002, as Berkshire Hathaway tried to get rid of the Gen Re Securities derivatives portfolio it acquired as part of a bigger deal in 1998. That portfolio contained 23,128 contracts with more than 600 counterparties. It took nearly five years to exit the bulk of the portfolio, costing Berkshire more than $400 million, but even today there are still some live trades on the books.

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