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Bronte Capital takes new long position in UBS following turmoil

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Bronte Capital’s Amalthea hedge fund has taken long bets in UBS and First Citizen, both of which it believes have picked up good assets for a good price as a result of the Credit Suisse and Silicon Valley Bank turmoil, according to a report by the Financial Review.

The Amalthea fund gained 4.92% in Australian dollar terms in March compared to the benchmark MSCI-All Countries World Index’s 3.9%. However, over the Q1 period it was up 7.55%, lagging the benchmark’s 9.23% for the same three-month period.

John Hempton, Bronte’s chief investment officer, said the fund could have produced much bigger returns for investors in its Amalthea strategy by riding out the banking crisis to the bottom.

In its March quarterly investor letter, Bronte said UBS had been “given Credit Suisse on favourable terms by regulatory fiat” with a discount to book value in light of “tens of billions of francs and liquidity guarantees from the Swiss National Bank”.

“The liquidity guarantees ensure that for the next few years UBS is immune to bank runs. There is now only one large Swiss Bank – and the large share of domestic business should ensure profitability. We have purchased a long position in UBS, a rare new long for our fund,” it said.

It also warned UBS would need to act quickly to cut headcount at the “overstaffed” Credit Suisse.

The Australian hedge fund has also gone long First Citizens stock. “The loans may be bad. But if Silicon Valley Bank was anything like as good as our preconceptions, then First Citizens is a very cheap stock indeed,” Bronte said.

Bronte closed its short position in Credit Suisse before its collapse.

“While we were short due to Greensill exposure, we made money on the short due to another ‘accident’ at Credit Suisse that was exposed roughly simultaneously: large losses on margin loans to Archegos, an insanely aggressive family office,” Bronte explained.

“We covered. We shouldn’t have. We understood just how much dross was in the bank. But we made money accidentally (on the Archegos incident about which we knew nothing) and when we make money fortuitously, we like to take unearned profit – but not undue credit – for our luck. In this case, with multiple issues appearing, we should have remained short.”

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