China capital curbs reflect buyer’s remorse over market reforms

Last year the reformist head of China’s central bank convinced his Communist party bosses to give market forces a bigger say in setting the renminbi’s daily “reference rate” against the US dollar. In return, Zhou Xiaochuan assured his more conservative party colleagues that the redback would finally secure coveted recognition as an official reserve currency […]

Continue Reading


Carney: UK is ‘investment banker for Europe’

The governor of the Bank of England has repeated his calls for a “smooth and orderly” UK exit from the EU, saying that a transition out of the bloc will happen, it was just a case of “when and how”. Responding to the BoE’s latest bank stress tests, where lenders overall emerged with more resilient […]

Continue Reading


China stock market unfazed by falling renminbi

China’s renminbi slump has companies and individuals alike scrambling to move capital overseas, but it has not damped the enthusiasm of China’s equity investors. The Shanghai Composite, which tracks stocks on the mainland’s biggest exchange, has been gradually rising since May. That is the opposite of what happened in August 2015 after China’s surprise renminbi […]

Continue Reading

Capital Markets

Mnuchin expected to be Trump’s Treasury secretary

Donald Trump has chosen Steven Mnuchin as his Treasury secretary, US media outlets reported on Tuesday, positioning the former Goldman Sachs banker to be the latest Wall Street veteran to receive a top administration post. Mr Mnuchin chairs both Dune Capital Management and Dune Entertainment Partners and has been a longtime business associate of Mr […]

Continue Reading


Financial system more vulnerable after Trump victory, says BoE

The US election outcome has “reinforced existing vulnerabilities” in the financial system, the Bank of England has warned, adding that the outlook for financial stability in the UK remains challenging. The BoE said on Wednesday that vulnerabilities that were already considered “elevated” have worsened since its last report on financial stability in July, in the […]

Continue Reading

Categorized | Capital Markets

Short-sellers increase pressure on Deutsche

Posted on September 29, 2016

A statue is seen next to the logo of Germany's Deutsche Bank in Frankfurt...A statue is seen next to the logo of Germany's Deutsche Bank in Frankfurt, Germany, January 26, 2016. REUTERS/Kai Pfaffenbach/File Photo©Reuters

Traders are increasing their bearish bets against Deutsche Bank, as the share price loiters at multi-decade lows.

The percentage of shares out on loan rose to 3.1 per cent, up from 2.4 on Tuesday, according to the latest data from Markit. Traders betting on a lower equity price of a company borrow the shares in order to execute a short sale.

    Investors have been shorting Deutsche Bank on the expectation that it will need to sell new shares in the market to boost capital, diluting the value of existing holdings, as it faces a potential $14bn settlement
    with the US Department of Justice. That has sent shares in the lender to a three-decade low, with the stock down 17 per cent this month.

    Short interest remains below levels seen in early July, in the aftermath of the UK’s Brexit vote, when 4.4 per cent of shares were out on loan. This time last year, however, less than 1 per cent of shares were out on loan.

    “You can see that trend that whenever there’s negative news surrounding Deutsche Bank, people do rush to short,” said Simon Colvin, vice-president at Markit, though he added that it’s not a “super-high committed short”.

    “If there was a long-term directional play, the companies where people are betting on a longer-term decline don’t see that volatility — generally the short-sellers tend to stay in the name.”

    There are eight other European banks with short interest above 3 per cent, according to Markit. Over 4 per cent of shares in Credit Suisse are out on loan, making it the only large bank with relatively high short interest.

    Mr Colvin added that a lot of the short interest in Deutsche was probably “more to hedge their coco exposure than anything”.

    Coco bonds, or contingent convertibles, also referred to as additional tier one capital, are designed to take losses when a bank runs into trouble, and as such represent a higher level of risk than normal bonds. Some investors have gone short Deutsche shares but long their riskiest debt, which is trading at 75 cents on the euro and has this week edged close to its lowest ever levels.

    Credit-default swaps, which provide investors with insurance against the risk of default on bonds, provide another way to hedge exposure to Deutsche Bank and have reacted sharply to news out of Germany this week.

    The rates on Deutsche Bank’s senior and subordinated CDS spiked on Tuesday, implying a higher cost to insure, and a higher probability of default. They have since eased slightly — senior five-year Deutsche CDS is trading at 228 basis points, while the five-year subordinated CDS is at 459bp.

    Last week, there were 135 new contracts on Deutsche CDS, at a gross notional size of $843m, DTTC data shows, making it the most traded bank of the week behind Standard Chartered and Bank of China. Traders said this week volumes were likely to have risen.