‘Big Short’ trader says short Deutsche Bank
Bank has profitability issues, may need more capital
From Peter Vercoe and Yvonne Man at Bloomberg:
Steve Eisman, the Neuberger Berman Group money manager who famously predicted the collapse of subprime mortgages before the 2008 financial crisis, recommended shorting Deutsche Bank AG shares.
“Deutsche Bank is a problem bank,” Eisman said in a Bloomberg Television interview in Hong Kong. The German lender has “profitability issues,” and will probably have to raise capital next year, he said, without disclosing his position on the shares. A Deutsche Bank representative declined to comment on the remarks.
New Chief Executive Officer Christian Sewing is embarking on a sweeping overhaul of the struggling investment bank to focus more on European clients, walking away from ambitions to be a top global securities firm. Germany’s largest lender will scale back U.S. rates sales and trading, reduce the corporate finance business in the U.S. and Asia and review its global equities business. The measures will lead to a “significant reduction” in the workforce this year.
The firm has to “shrink dramatically,” Eisman said.
Deutsche Bank shares have slumped almost 34 percent in the past 12 months, the second-worst performance on the MSCI Euro index. The decline also dwarfed the 4.9 percent drop in the Bloomberg Europe 500 Banks index in the same period. Deutsche shares gained 0.4 percent in morning trading on Monday.
While Deutsche Bank’s return on equity trails that of its main competitors, the bank’s capital cushion is comparatively strong. It boasts a Tier 1 equity capital ratio of 13.4 percent, above the average among its largest peers, data compiled by Bloomberg show.
Eisman also recommended bearish bets against Canadian financial companies and reiterated that he is still short Wells Fargo & Co.
The investor’s early bets against the housing market before the 2008 crisis were chronicled in Michael Lewis’s 2010 book “The Big Short,” which highlighted money managers who profited from the market turmoil. A character based on him was played by Steve Carell in the movie of the same name.
Eisman worked at hedge fund FrontPoint Partners LLC when he made money betting against the U.S. housing market. Eisman joined New York-based Neuberger Berman after closing his hedge fund Emrys Partners in 2014.
— With assistance by Cathy Chan