Macaskill on markets: Deutsche Bank’s Big Long could set a bad example
A reported $1 billion score from distressed debt trading could encourage banks to look for risky ways to boost earnings.
Deutsche Bank’s traders have performed strongly recently, helping the firm’s share price to recover and even prompting speculation that it could take over Credit Suisse if the long-awaited European bank merger dance ever gets under way.
News that a position taken by Deutsche Bank distressed debt trader Mark Spehn five years ago could now result in a $1 billion payoff has contributed to the feeling that the bank has got its mojo back.
Deutsche Bank declined to comment on a Bloomberg report that a position of less than $100 million that Spehn took in Israeli shipping firm ZIM’s debt and equity is worth around $1 billion now that ZIM has listed against a backdrop of sharply higher freight rates.
ZIM also declined to comment, but a rise of more than 300% in its stock since it floated on the New York Stock Exchange (NYSE) in January, plus an earlier recovery in its debt prices and pre-flotation equity value, make a $1 billion score for Deutsche Bank plausible.
Christian Sewing... is finally turning the firm around after a lost decade that took its capitalization to less than a quarter of its nominal book value
The trade inevitably drew comparisons with Deutsche’s role as one of the players in the Big Short of book and film fame, when Greg Lippmann placed default swap bets against US mortgages that partly offset bigger credit losses at the bank during the 2008 financial crisis.