Deutsche Bank shares were indicated down 6.2 percent ahead of the opening of the Frankfurt market on Friday, after Germany’s largest lender admitted it had an image problem with investors as fresh concerns over its stability emerged.
The lurch followed a Bloomberg report on Thursday that a number of hedge funds that clear derivatives trades with Deutsche had withdrawn some excess cash and adjusted positions, a sign that counterparties are wary of doing business with it. One large hedge fund in Asia had pulled out its collateral from Deutsche amounting to $50 million in the last two days, while another fund which had a “smallish amount” with the bank was monitoring the situation closely and had not pulled out yet.
Another person with knowledge of the development said it was common to see fluctuations in balances among hedge fund clients, and these actions represented a small portion of the bank’s more than 800 clients in the hedge fund business.
In a statement on Friday, Deutsche reiterated its trading clients remained largely supportive:
“We are confident 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.”
A separate Asian hedge fund source said “sophisticated investors” would have already pulled out excess cash or unwound positions held at Deutsche, and, therefore, there would not be a huge wave of these withdrawals.Barry Bausano, chairman of Deutsche’s hedge fund business, told CNBC that its prime brokerage division, which services hedge funds, was “still very profitable” but said there was “no question we have a perception issue.”Fabrizio Camelli, head of the Deutsche wealth management business, said the bank was seeking to reassure customers and had not seen “any noticeable outflow of client funds.”
The immediate cause of Deutsche’s crisis is a fine, disputed by Deutsche, of up to $14 billion by the U.S. Department of Justice over its sale of mortgage-backed securities. Profits at Germany’s lenders have been squeezed by the European Central Bank’s money-printing policy. They have been seeking to boost revenue by passing on costs to corporate customers and increasing fees for retail depositors.