Two Large Hedge Funds Reduce Deutsche Bank Short Positions

Two leading hedge funds which made big bets on Deutsche Bank (DBKGn.DE) shares falling are now reducing their “short” positions, in a sign of confidence in the stability of the lender.

Germany’s biggest bank has been in turmoil since mid-September when it said U.S. authorities were demanding up to $14 billion to settle claims that it missold U.S. mortgage-backed securities before the financial crisis.

Hedge funds can take bets against companies – known as short positions – by borrowing the stock in the hope it will lose value and they can repay the loan for less, pocketing the difference.

Marshall Wace, a $25 billion hedge fund co-founded by British financier Paul Marshall and U.S. billionaire Robert Citrone’s Discovery Capital Management had been among the funds with the biggest short Deutsche positions, dating from before the crisis erupted three weeks ago.

However official filings by the funds to German authorities show both have been unwinding their short positions over the past week, indicating that they believe the bank’s share price has bottomed-out. The stock dropped to a record low on Sept. 30 but has since rebounded slightly.

London-based Marshall Wace and Connecticut-based Discovery Capital both declined to comment on the reasons for their transactions.

Data indicates the reductions could reflect a wider trend in the “short interest” market, which is dominated by hedge funds.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza