Soros in huge bet against Deutsche Bank | Business| Economy and finance news from a German perspective | DW | 28.06.2016
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Soros in huge bet against Deutsche Bank

Bank shares have been hit hard since the UK's Brexit referendum. Two hedge funds homed in on Germany's Deutsche Bank - betting huge sums of money on the large lender's stock price dropping further.

Soros Fund Management, an American firm, and Marshall Wace, a British hedge fund, both took big bets against Deutsche Bank last Friday, the day after the UK's referendum vote on leaving the European Union.

The funds each took short positions equivalent to 0.5 percent of Deutsche Bank's share capital, according to a German filing published on Monday, June 27. German newspaper "Die Welt" was the first to report the sale.

In short sales, investors agree to sell shares they don't own yet, in the belief they will be able to buy them later at a lower price. The difference in price is their profit - or loss, if the bet goes wrong.

According to news agency Bloomberg, the short positions were worth about 100 million euros each, based on Deutsche Bank's highest share price on Friday.

When markets closed on Monday, Deutsche Bank shares had lost about 20 percent of their value. Since then, the stocks have recovered somewhat, climbing almost four percent on Tuesday.

A troubled bank

Bank shares have been among the biggest losers since the Brexit vote, but Deutsche Bank is especially troubled. The bank is still struggling to recover from the fallout from the financial crisis, posting a record loss of 6.8 billion euros ($7.5 billion) in 2015.

About a year ago, John Cryan took over as the bank's new CEO, with a clear mandate to slash costs and jobs. Since then, the bank's share price has dropped by almost 60 percent, making it one of the lowest-valued international banks.

Uncertainty over when and how the United Kingdom will leave the European Union might force banks to take losses on trading assets and lead clients to hold back from raising funds and pursuing acquisitions.

According to analysts at Goldman Sachs Group, the Brexit vote may cut the total net income of European banks in the three years through 2018 by 32 billion euros, Bloomberg reports.

No cause for alarm?

Hungarian-American investor George Soros, founder of Soros Fund Management, made a fortune by betting against the British pound in 1992. When the UK withdrew its currency from the European Exchange Rate Mechanism, a precursor to the euro, the pound depreciated sharply. Soros' profit was estimated at over $1 billion.

Germany's financial regulatory authority BaFin said it was closely monitoring banks' liquidity and refinancing capacities after the Brexit vote, but insisted it found no cause for alarm on account of the recent decline in stock prices.

"The risk management systems of banks and stock markets function," BaFin president Felix Hufeld said on Tuesday. When prompted about Deutsche Bank, he added: "Deutsche Bank is safe."

bea/sri (reuters, bloomberg, Bundesanzeiger)