 "Deutsche Bank is the darling of the short-sellers")
In a market full of crowded trades, few have become as fashionable as the bet that Deutsche Bank's stock price will keep on falling.
Hedge funds, large and small, are shorting the stock. Long-term institutional investors are dumping their positions. And Wall Street's secretive but influential community of independent research providers has been proclaiming for months that Germany's largest bank does not have enough cash to survive.
Even Tidjane Thiam, the chief executive of Credit Suisse, which itself has been the target of hedge funds, said at a conference on Wednesday that Europe's banks were "not really investable."
This echo chamber of doom - fed in recent days by a cycle of reports in Germany that the government might step in, only to be followed by denials by Berlin - brings to mind some of the fears over Bear Stearns and Lehman Brothers before those institutions suddenly lost the trust of investors and clients alike in the dark days leading up to the 2008 financial crisis.
With ^1.8 trillion in assets and ^220 billion of cash on hand, Deutsche Bank, strictly by the numbers, would seem to be in no danger of failing - a point that the bank's chief executive, John Cryan, has been making repeatedly.
And Deutsche Bank's shares rallied on Wednesday, when the bank said that it had sold Abbey Life, its British insurance unit, for a little over $1 billion, feeding hopes that a spate of asset sales would bolster its finances.
Still, for a large financial institution like Deutsche Bank, which relies on volatile short-term loans to fund a risky portfolio of derivatives, securitised mortgages and other hard-to-sell assets, market confidence can be fickle - there one moment, gone the next.
That Deutsche Bank, which has one of the thinner cash cushions among its peers, may face a fine of billions of dollars from regulators in the United States has given investors extra incentive to add to their negative bets.
"This trade is getting a lot more popular - no doubt about it," said Brad H Lamensdorf, who runs the Ranger Equity Bear ETF, an exchange-traded fund that tracks a portfolio of stocks that Lamensdorf believes are going to sink fast.
"Deutsche Bank is a massive hedge fund with lackadaisical compliance and a lot of leverage. I think it's going to five bucks." In the United States, Deutsche Bank's shares closed at $12.30, down from $26.21 a year ago, and it is the top holding in Lamensdorf's $220 million fund.
According to Thomson Reuters data, investors have borrowed 39 million shares of Deutsche Bank shares to bet against it - or about 2.8 per cent of the total shares outstanding. This so-called short interest in the bank is close to a one-year high and represents around $480 million.
Traders say they believe that George Soros, known for his successful bet against the British pound in 1992, has the most money at stake in wagering that Deutsche Bank's shares will continue to drop.
A representative for Soros declined to comment.
But there are a long line of others who expect the worst for Deutsche Bank and they have not been shy in publicising their views.
"The most respected financial country in the world has a number 1 bank that people are saying is insolvent," said Lee Robinson, a well-known hedge fund executive who recently set up his own firm, Altana Wealth, which has offices in Monaco and London.
Robinson was speaking to Raoul Pal, a former Goldman Sachs executive who publishes The Global Macro Investor, a widely read research report that caters to hedge funds and that for two years now has been promoting the view that Deutsche Bank posed a risk to the financial system.
Pal was interviewing Robinson on his Real Vision venture, a forum in which sophisticated investors and financial experts offer their insights to fellow practitioners in a Charlie Rose-style format.
Pal spoke with two other hedge fund executives: Edward Misrahi of Ronit Capital, who said he thought Deutsche Bank was going to be nationalised, and Bernd Ondruch of Astellon Capital, who was of the view that Deutsche's balance sheet was too big and not to be trusted.
Pal is one of a growing number of refugees from large investment banks who have gone out on their own, charging premium sums to provide trading ideas to investors looking for an edge in a marketplace where information and insight has become commoditised.
Because they are independent, they can make the types of bold predictions - like shorting Deutsche Bank - that they could not at their previous employers. And because this niche has become more competitive in recent years, as the exodus of bankers and traders from large banks continues, the pressure on these analysts to make brassy market calls has grown.
All of which feeds into a cycle of gloom through which each nugget of bad news is amplified and broadcast via social media, trader chatter and other means.
Deutsche Bank grew to its current size after a troupe of traders and bankers from Merrill Lynch - including Anshu Jain, the bank's former leader - came on board in the 1990s. In a short time, the bank was transformed from a sleepy German lender into a sophisticated financial operator with the ability to package, promote and trade the most complex securities in the marketplace.
This appetite for risk is why the bank faces the prospect of a huge fine - the United States Justice Department is seeking a $14 billion penalty as its opening position in negotiations - over its role in the mortgage mess.
It is worth noting, too, that while the bank remains under attack by hedge funds, it continues to provide a sales and trading function that remains popular with this very type of investor.
Among the services provided is a short market-intelligence note that comes out early in the morning London time and has become a first read for a large number of hedge funds.
Most investors appear to be still willing to do business with Deutsche Bank, even though some may be shorting the stock. That is because the view is quite firmly held that even in the worst case, Deutsche Bank will not fail to make good on its responsibility as a trading counterparty.
There are exceptions, though. One major investor, who conducts billions of dollars worth of financial transactions with a select group of investment banks that includes Deutsche Bank (because of the size of its balance sheet and the skill of its traders), has decided to step back for the moment.
This investor, who asked not to be identified so as not to jeopardise his relationship with the bank, said that if given a choice between Deutsche Bank and a competing institution, he would not pick Deutsche Bank right now.
The bank is counting on its clients to weather the turmoil. "Our trading clients are amongst the world's most sophisticated investors," said Renee Calabro, a bank spokeswoman. "We are confident that the vast majority of them have a full understanding of our strong financial position, the current macro-economic environment, the litigation process in the US and the progress we are making with our strategy."
Clemens Fuest, president of the Ifo Institute, an economic research group based in Munich, commented, "It's kind of scary. In principle, this is a fairly solid bank, but due to rumours the bank is getting in trouble. This can get dangerous - and create a liquidity situation."
©2016 The New York Times News Service
