LTCM traders had GBP 27m in failed fund

TWO BOND traders employed at controversial hedge fund Long-Term Capital Management had personal borrowings of $43 million (GBP 27 million) invested in the business which was rescued in a $3.6 billion bailout last month.

Famed Wall Street trader Lawrence Hilibrand had borrowed $24 million to invest in LTCM while his colleague, currency trader Hans Hufschmid, borrowed $14.6 million. Both traders had worked at Salomon Brothers in the early 1990s where they won notoriety for fabulous pay packages.

It has emerged the loans were taken out from State-owned French bank Credit Lyonnais, one of the 14 banks involved in the rescue. The news will be seen as a damning indictment of the bank's senior management which is only just emerging from the shadow of excesses caused by loans to MGM film studios in the 1980s. At Wall Street broker Bear Stearns, chief executive James Cayne and vice president Warren Spector have lost up to $9 million each in the affair. Cayne and Spec-tor are understood to have had stakes of $10 million each invested in the fund which are worth less than $1 million after the slump of the last two months left LTCM's equity worth just 10% of what it had been. At broker Merrill Lynch, 123 executives were tied in to the fund's fortunes through an investment of $22 million in deferred pay which they invested at the height of LTCM's exposure of up to $200 billion. The stake is worth less than $2 million now. Merrill's chairman David Komansky said the employees' investment had been "cratered" and the "chances are very slim we'll get more than a small fraction of our money back". Some personal investors escaped the worst. PaineWebber chairman and chief executive Donald Marron invested $10 million in 1995, cashed in some of his holdings last December and has ended up more or less square, while his firm more than doubled an initial investment of $100 million before being given its money back in December. That was when LTCM said it saw less opportunity in the markets for profitable investments and handed back $2.7 billion to investors who were furious at the time they could not stay invested in the fund. Other members of the American elite have also been caught up in the debacle: former Walt Disney president Michael Ovitz was invested in the fund before cashing in late last year.

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