While other investment banks are beefing up their hedge fund offerings, UBS is pulling the plug. The Swiss bank is shutting down its two-year-old hedge fund, Dillon Read Capital Management, after its 150 million Swiss francs (US$123 million) loss pushed profits down for the third straight quarter.

UBS Chief Financial Officer Clive Standish blamed the downturn in the U.S. subprime mortgage market, which “obviously weakened” its investments in U.S. mortgage-backed securities. CEO Peter Wuffli said in a statement that Dillon Read, named for Dillon Read & Co., a prominent New York investment bank acquired by a UBS predecessor in 1997, “did not meet our expectations.”

John Costas, the former investment banking chief who headed the unit, will stay on to shut Dillon Read down—which will cost the bank US$300 million—and will remain with the bank in an advisory role, Bloomberg News reports. The bank had set up the hedge fund in 2005 in an effort to keep Costas on staff. Dillon Read President Michael Hutchins will leave UBS, while most of the hedge fund’s other 250 employees will be transferred to the investment banking group.

UBS said that first quarter income fell to 3.28 billion Swiss francs (US$2.7 billion), down from 3.5 billion Swiss francs (US$2.9 billion) a year earlier.