(BN) Deutsche Bank Trading Woes Persist as Weinstein-Led Unit Loses $1 Billion
More losses on proprietary trading in investment banks. With so much volatility in thé markets, one wonders how the proprietary desks can make regular and sustainable profits. Definitely not an easy time to be a prop trader!
Bloomberg News, sent from my iPhone.
Deutsche Bank Woes Said to Persist on Credit Bets
Dec. 12 (Bloomberg) -- Deutsche Bank AG, shaken last quarter by a $1.68 billion loss trading for the firm's account, is reeling again, this time from about $1 billion of bad bets in a unit led by credit-trader Boaz Weinstein in New York, people familiar with the matter said.
The magnitude of the group's loss, and its impact on the firm's fourth-quarter results, may change as the value of some stakes fluctuate with the markets and the Frankfurt-based bank seeks to unwind positions, according to the people, who declined to be identified because the circumstances haven't been disclosed.
As of mid-December, some executives gauged the loss to be in the $1 billion range, the people said, noting that the figure may be smaller by the end of the quarter, and cushioned by gains in other units. Deutsche Bank, Europe's biggest investment bank, posted a profit of 435 million euros ($579 million) last quarter after suffering losses of 1.26 billion euros on proprietary credit and equity trades.
The worst financial crisis since the Great Depression exacerbated losses on trades involving convertible bonds and securities hedged with credit-default swaps, particularly after Lehman Brothers Holdings Inc.'s bankruptcy in September. Deutsche Bank, led by Chief Executive Officer Josef Ackermann, said last month that the operating environment had "significantly deteriorated."
Jain, Cohrs
"Trading in the fourth quarter is going to be bad because after the Lehman collapse all hell broke loose," said Dirk Becker, a Frankfurt-based analyst at Kepler Capital Markets. "It isn't a surprise that Deutsche Bank faces losses in this financial tsunami."
Deutsche Bank declined 4.9 percent to 26.52 euros in Frankfurt trading, after sinking as much as 10 percent earlier in the day.
Michele Allison, a New York-based spokeswoman for the firm, declined to comment, as did Weinstein when reached on his phone.
Deutsche Bank's investment bank, led by Anshu Jain, 45, and Michael Cohrs, 52, reported a third straight quarterly pretax loss on Oct. 30, tied to trades made for the bank's account and writedowns. In the third quarter, it lost 873 million euros in proprietary credit trading and 386 million euros at the equities desk.
Deutsche Bank generated more than half of investment banking net revenue from debt sales and trading in 2007 and 2006, while equities accounted for about a quarter of revenue at the corporate banking and securities division.
Trading Desks
The German bank, whose shares tumbled 70 percent this year, has scaled back staff on proprietary trading desks in Hong Kong and London, said the people, who declined to be identified because the bank hasn't disclosed the loss.
Deutsche Bank is already cutting about 900 jobs at Jain's global markets division, mostly in London and New York, in proprietary trading, so-called exotic structured products and credit origination, two people briefed on the plan said on Nov. 19. The bank said on Nov. 24 it planned to scale back proprietary trading, while investing more in "flow" trading and commodities.
Weinstein, 35, runs Deutsche Bank's global credit trading business with Colin Fan. The two in June replaced Rajeev Misra, who left the bank. Weinstein was previously in charge of global credit trading in North America and Europe.
Traders who now work for Weinstein, including Greg Lippmann, helped Deutsche Bank skirt the worst of the U.S. subprime mortgage writedowns by shorting the bonds that contributed to more than $985 billion of losses and writedowns at the world's largest financial companies.
JPMorgan, Credit Suisse
Germany's biggest bank has booked markdowns of about 8.5 billion euros on loans for leveraged buyouts, residential- mortgage-backed securities, assets secured by bond insurers and commercial real estate since last year. Swiss rival UBS AG has had $49 billion of writedowns and Citigroup $67 billion.
Deutsche Bank last quarter took advantage of new accounting rules to reduce by 845 million euros writedowns on assets such as leveraged loans and debt-related investments.
Other banks have weighed or started cuts in proprietary trading, including JPMorgan Chase & Co., the largest U.S. bank by market value, which is shutting a stand-alone global proprietary trading desk, a person familiar with the matter said last month.
Credit Suisse Group AG, Switzerland's second-largest bank, said earlier this month it will cut 5,300 jobs and exit some proprietary trading.
Citadel Funds
Citadel Investment Group LLC, the Chicago-based hedge-fund firm run by Kenneth Griffin, lost 13 percent last month in its two biggest funds from bets on high-yield bonds, bank loans and investment-grade bonds, which were hedged with credit-default swaps that protect the buyer in the event of a default. The funds, which manage $10 billion in total, have tumbled 47 percent this year.
Deutsche Bank last month announced a shift in strategy after its stock fell to its lowest level in at least 16 years in Frankfurt trading. Steps include scaling back unprofitable businesses, bolstering capital and cutting debt following a plunge in the company's stock.
"In the last few days, confidence has eroded significantly across financial markets, and consequently our operating environment has significantly deteriorated," CEO Ackermann, 60, said in a Nov. 21 letter to employees obtained by Bloomberg News.
"We have agreed a number of immediate initiatives which address the near-term challenges of our current market," the Swiss native said in the letter.
The bank last week cut more jobs in Hong Kong, including six employees in credit proprietary trading, two people at the firm said this week. The cuts included Bing Wang, head of the Asian team, the people said. The cuts also included Charles McLaughlin, chief operating officer of Asian equities at Deutsche Bank.
To contact the reporters on this story: Jacqueline Simmons in Paris at to jackiem@bloomberg.net Aaron Kirchfeld in Frankfurt at akirchfeld@bloomberg.net
Find out more about Bloomberg for iPhone: http://bbiphone.bloomberg.com/iphone
Deutsche Bank Woes Said to Persist on Credit Bets
Dec. 12 (Bloomberg) -- Deutsche Bank AG, shaken last quarter by a $1.68 billion loss trading for the firm's account, is reeling again, this time from about $1 billion of bad bets in a unit led by credit-trader Boaz Weinstein in New York, people familiar with the matter said.
The magnitude of the group's loss, and its impact on the firm's fourth-quarter results, may change as the value of some stakes fluctuate with the markets and the Frankfurt-based bank seeks to unwind positions, according to the people, who declined to be identified because the circumstances haven't been disclosed.
As of mid-December, some executives gauged the loss to be in the $1 billion range, the people said, noting that the figure may be smaller by the end of the quarter, and cushioned by gains in other units. Deutsche Bank, Europe's biggest investment bank, posted a profit of 435 million euros ($579 million) last quarter after suffering losses of 1.26 billion euros on proprietary credit and equity trades.
The worst financial crisis since the Great Depression exacerbated losses on trades involving convertible bonds and securities hedged with credit-default swaps, particularly after Lehman Brothers Holdings Inc.'s bankruptcy in September. Deutsche Bank, led by Chief Executive Officer Josef Ackermann, said last month that the operating environment had "significantly deteriorated."
Jain, Cohrs
"Trading in the fourth quarter is going to be bad because after the Lehman collapse all hell broke loose," said Dirk Becker, a Frankfurt-based analyst at Kepler Capital Markets. "It isn't a surprise that Deutsche Bank faces losses in this financial tsunami."
Deutsche Bank declined 4.9 percent to 26.52 euros in Frankfurt trading, after sinking as much as 10 percent earlier in the day.
Michele Allison, a New York-based spokeswoman for the firm, declined to comment, as did Weinstein when reached on his phone.
Deutsche Bank's investment bank, led by Anshu Jain, 45, and Michael Cohrs, 52, reported a third straight quarterly pretax loss on Oct. 30, tied to trades made for the bank's account and writedowns. In the third quarter, it lost 873 million euros in proprietary credit trading and 386 million euros at the equities desk.
Deutsche Bank generated more than half of investment banking net revenue from debt sales and trading in 2007 and 2006, while equities accounted for about a quarter of revenue at the corporate banking and securities division.
Trading Desks
The German bank, whose shares tumbled 70 percent this year, has scaled back staff on proprietary trading desks in Hong Kong and London, said the people, who declined to be identified because the bank hasn't disclosed the loss.
Deutsche Bank is already cutting about 900 jobs at Jain's global markets division, mostly in London and New York, in proprietary trading, so-called exotic structured products and credit origination, two people briefed on the plan said on Nov. 19. The bank said on Nov. 24 it planned to scale back proprietary trading, while investing more in "flow" trading and commodities.
Weinstein, 35, runs Deutsche Bank's global credit trading business with Colin Fan. The two in June replaced Rajeev Misra, who left the bank. Weinstein was previously in charge of global credit trading in North America and Europe.
Traders who now work for Weinstein, including Greg Lippmann, helped Deutsche Bank skirt the worst of the U.S. subprime mortgage writedowns by shorting the bonds that contributed to more than $985 billion of losses and writedowns at the world's largest financial companies.
JPMorgan, Credit Suisse
Germany's biggest bank has booked markdowns of about 8.5 billion euros on loans for leveraged buyouts, residential- mortgage-backed securities, assets secured by bond insurers and commercial real estate since last year. Swiss rival UBS AG has had $49 billion of writedowns and Citigroup $67 billion.
Deutsche Bank last quarter took advantage of new accounting rules to reduce by 845 million euros writedowns on assets such as leveraged loans and debt-related investments.
Other banks have weighed or started cuts in proprietary trading, including JPMorgan Chase & Co., the largest U.S. bank by market value, which is shutting a stand-alone global proprietary trading desk, a person familiar with the matter said last month.
Credit Suisse Group AG, Switzerland's second-largest bank, said earlier this month it will cut 5,300 jobs and exit some proprietary trading.
Citadel Funds
Citadel Investment Group LLC, the Chicago-based hedge-fund firm run by Kenneth Griffin, lost 13 percent last month in its two biggest funds from bets on high-yield bonds, bank loans and investment-grade bonds, which were hedged with credit-default swaps that protect the buyer in the event of a default. The funds, which manage $10 billion in total, have tumbled 47 percent this year.
Deutsche Bank last month announced a shift in strategy after its stock fell to its lowest level in at least 16 years in Frankfurt trading. Steps include scaling back unprofitable businesses, bolstering capital and cutting debt following a plunge in the company's stock.
"In the last few days, confidence has eroded significantly across financial markets, and consequently our operating environment has significantly deteriorated," CEO Ackermann, 60, said in a Nov. 21 letter to employees obtained by Bloomberg News.
"We have agreed a number of immediate initiatives which address the near-term challenges of our current market," the Swiss native said in the letter.
The bank last week cut more jobs in Hong Kong, including six employees in credit proprietary trading, two people at the firm said this week. The cuts included Bing Wang, head of the Asian team, the people said. The cuts also included Charles McLaughlin, chief operating officer of Asian equities at Deutsche Bank.
To contact the reporters on this story: Jacqueline Simmons in Paris at to jackiem@bloomberg.net Aaron Kirchfeld in Frankfurt at akirchfeld@bloomberg.net
Find out more about Bloomberg for iPhone: http://bbiphone.bloomberg.com/iphone
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