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Soros Shorts Deutsche Bank

George Soros scaled large billionaire source Bloomberg 42682660
George Soros still has a knack for making a profit.
  • Why it matters

    Why it matters

    European bank share prices have taken a kicking following the Brexit vote, and stock in struggling Deutsche Bank is looking particularly vulnerable.

  • Facts

    Facts

    • Deutsche Bank saw its share price drop from €15.08 on the day of the referendum vote to a low of €12.07 on Monday.
    • Mr. Soros sold 7 million borrowed Deutsche Bank shares; if their price falls, he can buy them back for a profit (short selling).
    • He had a net short position of 0.51 percent of Deutsche Bank’s share capital on Friday.
  • Audio

    Audio

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George Soros became famous because of his speculation against the British pound in the 1990s. Now the legendary investor is back in the game after the Brexit vote.

Although he is not betting against the British pound this time, the 85-year-old hedge-fund manager is a Brexit winner nonetheless, betting on a decline in the price of Deutsche Bank shares following the referendum. He has been successful so far. The bank’s share has lost about 15 percent of its value since Thursday.

An entry in the German Federal Gazette, the official public record of trades, reveals how the investor proceeded: It shows that Mr. Soros had built up a net short position of 0.51 percent of the share capital of Deutsche Bank by Friday. In simplified terms, Mr. Soros sold about 7 million Deutsche Bank shares, which he had borrowed temporarily.

Short sellers are betting that the price of the shares they have sold will decline before they have to return the borrowed securities. They can then buy back the shares at a lower price, with the difference representing their profit.

In recent years, there has never been such a poor assessment of Deutsche Bank shares.

The speculator’s bet shows how bleakly investors currently assess the post-referendum prospects of Germany’s largest bank. This is also illustrated by a look at analysts’ estimates for Deutsche Bank. The Bloomberg financial information service currently lists only four “Buy” recommendations for Deutsche Bank. The number of analysts who recommend selling the security is three times as high.

In recent years, there has never been such a poor assessment of Deutsche Bank shares. On Monday, JP Morgan analyst Kian Abouhossein lowered his assessment from “overweight” to “hold,” reducing his price objective from €23 ($25.40) to €15. Mr. Abouhossein fears that the Brexit will lead to lower investment-banking revenues, since the current uncertainty in financial markets is likely to lead to fewer mergers or IPOs.

In this difficult position, Deutsche Bank received support from Germany’s top financial regulator, Felix Hufeld. “Deutsche Bank is safe,” the president of the Federal Financial Supervisory Authority (Bafin) said, adding that the assessment had not changed as a result of the Brexit. He also noted that other banks had seen even sharper declines in their share prices.

 

Deutsche Bank Volatile Earnings-01

 

Whether Mr. Soros’s bet will ultimately pay off depends on the price at which he borrowed the shares – and the price at which he sold them. The closing price on Thursday was €15.08, and the opening price on Friday was €13. Depending on when exactly Mr. Soros got in, that means he invested between €90 million and €105 million.

However, the share has already regained some of its value. After it had slid to a record low of €12.07, it was trading at €13 again on Tuesday afternoon. However, Mr. Soros had already secured a portion of the profits. On Tuesday, his short position shrank to 0.46 percent of share capital, or about 6.3 million shares.

Mr. Soros isn’t the only hedge fund manager who is currently betting against Deutsche Bank. The Marshall Wace hedge fund is using exactly the same approach as Mr. Soros to bet against the bank’s shares, with an investment comprising 0.5 percent of Deutsche Bank’s share capital.

 

Yasmin Osman is a financial editor with Handelsblatt’s banking team in Frankfurt. Elisabeth Atzler is Handelsblatt’s banking correspondent. To contact the authors: osman@handelsblatt.com, atzler@handelsblatt.com

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