Hedge Funds Gain by Betting Against Deutsche Bank -- 2nd Update
September 30 2016 - 1:13PM
Dow Jones News
By Laurence Fletcher and Giles Turner
Hedge funds that have placed bets against Deutsche Bank AG are
reaping the rewards.
Deutsche Bank shares are down nearly 50% since the start of the
year on concerns about its capital position, leading to large
profits for a number of hedge funds who have been running short
positions on the German lender, betting its stock will fall
further.
However, it has been a bumpy ride. Deutsche's shares fell as
much as 8% in morning trading Friday, reaching a record, following
reports that clients, including several large hedge funds, have
pulled billions of dollars from the bank. But they later recovered
to close up 6.4% in afternoon trade in Frankfurt.
Greenwich, Conn.-based AQR Capital Management, which runs $159
billion in assets, revealed that it had a short position in
Deutsche Bank on Wednesday, according to a filing made public by
the German regulator on Thursday.
AQR was also among a number of funds that have recently taken
steps to withdraw securities or cash from the bank, or dial back
their trading activities, The Wall Street Journal reported
Thursday.
Deutsche Chief Executive John Cryan said in a message to
employees Friday that media speculation that a few hedge funds had
reduced some activities with the bank was causing "unjustified
concerns."
He said the bank had "strong fundamentals" and pointed to the
sale this week of British insurer Abbey Life for $1.2 billion and
the bank's plans to sell its stake in China's Hua Xia Bank. "We
fulfill all current capital requirements and our restructuring is
well on track," he said.
Other hedge funds to have bets against the bank include Marshall
Wace LLP, Discovery Capital Management LLC and Highfields Capital
Management LP, according to filings. Marshall Wace first declared a
0.5% short position in Deutsche Bank in February. By Tuesday, it
had doubled its bet to 1.03%, although this was cut back Thursday
to 0.9%.
Discovery first disclosed a position at the start of August and
increased it late that month, while Highfields first disclosed a
position in July, which it quickly increased.
Hedge funds' bets against the troubled German lender have been
cranked up in recent days, although they are still below levels hit
earlier this summer.
A measure known as utilization -- the amount of shares that have
been borrowed as a proportion of shares available to borrow -- rose
to 13.5% on Thursday, up from nearly 10% on Wednesday and 6.8% the
day before, according to data group Markit. At the start of last
week it was just 3.8%. Stock out on loan is seen as a good proxy
for short interest from hedge funds.
A spokeswoman for AQR declined to comment. A spokesman for
Discovery declined to comment. A spokesman for Marshall Wace
declined to comment. A spokesman for Highfields declined to
comment.
The move from some hedge funds is only a fraction of client
balances held with Deutsche Bank, and doesn't mean that the funds
have stopped doing business with Deutsche Bank.
"Our trading clients are amongst the world's most sophisticated
investors," Deutsche Bank said Thursday. "We are confident that the
vast majority of them have a full understanding of our stable
financial position, the current macroeconomic environment, the
litigation process in the U.S. and the progress we are making with
our strategy."
Write to Laurence Fletcher at laurence.fletcher@wsj.com and
Giles Turner at giles.turner@wsj.com
(END) Dow Jones Newswires
September 30, 2016 12:58 ET (16:58 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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