Hedge Funds Gain by Betting Against Deutsche Bank
30 September 2016 - 11:01PM
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 but still down 5% in early
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.
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 Thursday.
Hedge funds Marshall Wace LLP, Discovery Capital Management LLC
and Highfields Capital Management LP have all recently increased
the size of their positions against the bank, according to
filings.
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 nearly 10% on Wednesday, up from 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. Discovery didn't
immediately respond to a request for comment. Marshall Wace
declined to comment. A spokeswoman for Highfields didn't
immediately respond to a request for comment.
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.
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."
In a letter to employees on Friday, Deutsche Bank Chief
Executive John Cryan said: "You will have seen speculation in the
media that a few of our hedge fund clients have reduced some
activities with us. That is causing unjustified concerns. We should
consider this in the context of the bigger picture: Deutsche Bank
overall has more than 20 million clients."
European regulation requires hedge funds to declare short
positions that equal 0.5% or over of a company's stock. Marshall
Wace, a large U.K.-based hedge fund, first declared a 0.5% short
position in Deutsche Bank in February. By Tuesday, it had doubled
its bet to 1.03%.
Write to Giles Turner at giles.turner@wsj.com and Laurence
Fletcher at laurence.fletcher@wsj.com
(END) Dow Jones Newswires
September 30, 2016 08:46 ET (12:46 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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