Deutsche Bank AG, Germany's biggest bank, lost more than $400 million on equity derivatives trades as stock markets headed for their biggest rout since the 1930s, two people with direct knowledge of the matter said.Raise your hand if you think banks ought to lend money, hold loans to term, and not get involved in derivative trading, equity trading, commodities trading, currency speculation, holding assets in SIVs off their balance sheets, sponsoring hedge funds, and scores of other things the average Joe on the street would not think that banks do.
The loss, equal to almost half of the Frankfurt-based company's second-quarter revenue from equity sales and trading, is a black eye for Richard Carson, global head of equity derivatives, and may signal more job losses at the bank.
"Everybody assumed most of the job cuts would be in fixed income, but when you incur a loss of more than $400 million in equity derivatives that might warrant cuts across asset classes as well as fixed income," said Bahadour Moussa, who specializes in derivatives recruitment at London-based Pelham International.
The stumble in derivatives is one of the biggest in sales and trading since Jain and Michael Cohrs, 50, took over the investment bank in 2004. Two years later, the bank's sales and trading were dragged down by losses from trading stocks for its own account.
New York-based Citigroup Inc. said on Oct. 16 revenue from equity trading fell 54 percent in the third quarter on losses in convertibles, holdings of government sponsored enterprises and proprietary trading.
Credit Suisse Group AG said last week 1.7 billion Swiss francs ($1.5 billion) of trading losses contributed to its second unprofitable quarter this year.
Deutsche Bank said in July second-quarter revenue from equity sales and trading dropped to 830 million euros from 1.4 billion euros in the same period a year earlier as demand for equity derivatives waned.
"The dislocations on capital markets in September must have had a catastrophic impact on the business" at Deutsche Bank, Dirk Becker, a Frankfurt-based analyst at Kepler Capital Markets, said in a note to investors.
The real killer in the above is excessive leverage. Leveraged bets and a run on the bank is what sank Bear Stearns and Lehman. The leverage enabler is an unsound currency coupled with fractional reserve lending and micro-mismanagement of interest rates by the Fed.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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