Hedge Funds Gain by Betting Against Deutsche Bank--Update
September 30 2016 - 11:59AM
Dow Jones News
By Giles Turner and Laurence Fletcher
Hedge funds that have placed bets against Deutsche Bank AG are
reaping the rewards.
Deutsche Bank shares fell up to 8% in morning trading Friday,
reaching a record low, before recovering to trade up 0.8% in
afternoon trade in Frankfurt. This followed reports that clients,
including several large hedge funds, have pulled billions of
dollars from the bank amid concerns about its stability and their
exposure. The bank's shares are still down 20% over the past three
weeks.
Greenwich, Connecticut-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 in a statement 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 Giles Turner at giles.turner@wsj.com and Laurence
Fletcher at laurence.fletcher@wsj.com
(END) Dow Jones Newswires
September 30, 2016 11:44 ET (15:44 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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