Jan. 9 (Bloomberg) -- Deutsche Bank AG’s co-head of global credit trading, Boaz Weinstein, is leaving Europe’s largest investment bank to set up his own hedge fund following trading losses in his group at the end of last year.

The departure comes as the Frankfurt-based bank winds down its proprietary credit trading operations. Weinstein, 35, plans to take about 15 colleagues to his new fund early in the second quarter, according to Michael Golden, a company spokesman in London. Colin Fan, who co-led global credit trading with Weinstein, will assume sole responsibility for the unit.

Weinstein, who has been with Deutsche Bank for 11 years, posted about $1 billion of losses on trades involving bonds hedged with credit-default swaps after Lehman Brothers Holdings Inc.’s bankruptcy in September, two people with knowledge of the matter said Dec. 12.

“Deutsche Bank wants to reduce risks in its business model and prop trading is a big part of this so it makes sense,” said Konrad Becker, a Munich-based analyst at Merck Finck & Co., who has a “hold” rating on the stock. “Right now, we’re reading more about hedge funds closing rather than opening.”

Separately, Deutsche Bank’s equity proprietary trading operation lost about $500 million in the fourth quarter, according to two people with knowledge of the situation. The unit, which is not part of Weinstein’s group, lost 386 million euros ($521 million) in the third quarter.

‘Top’ People

Deutsche Bank fell 1.49 euros, or 5.8 percent, to 24.31 euros in Frankfurt trading. The stock is down 71 percent in the last 12 months, valuing the company at about 13.9 billion euros.

Weinstein’s group earned between $600 million and $700 million in 2007, said two people with knowledge of the matter who declined to be identified because the figures aren’t public. Deutsche Bank’s proprietary credit desks were largely housed in an operation known as Saba, based in New York.

“This is the guy I call when I want to know what’s going on, or when I see a phenomenon I don’t understand,” said Bill Ackman, the founder and managing partner of Pershing Square Capital Management LP. “He is in the top one or two people in the credit business.”

Weinstein didn’t immediately comment when reached by phone. Golden said Deutsche Bank looks forward to “working with” him in his new venture.

His decision to start a hedge fund follows the worst year for the industry on record, as managers misjudged the severity of the biggest financial crisis since the Great Depression.

Investors ‘Choosy’

Investment losses and client withdrawals reduced industry assets to $1.1 trillion last month from its peak of $1.9 trillion in June, according to Morgan Stanley. Firms such as Dwight Anderson’s Ospraie Management LLC and Jeffrey Gendell’s Tontine Associates LLC closed funds, while Paul Tudor Jones’s Tudor Investment Corp. and Kenneth Griffin’s Citadel Investment Group LLC were among those to limit redemptions.

“People with money to allocate to alternative investments are being more choosy,” said Chris Rexworthy, who advises about 140 hedge fund clients at IMS Consulting in London. “This doesn’t preclude new start ups or funds with good track records.”

Deutsche Bank’s investment-banking division, led by Anshu Jain, 46, and Michael Cohrs, 52, posted a third straight pretax loss in the third quarter, after more than 1 billion euros in losses from trades made for the bank’s account.

Chief Executive Officer Josef Ackermann, 60, said in a letter to employees on Nov. 21 that the company would scale back certain proprietary trading activities after confidence in financial markets eroded.

Deutsche Bank is cutting about 900 jobs in its global markets division, mostly in London and New York, in the so-called exotic structured products, credit origination and proprietary trading teams, two people briefed on the plan said Nov. 19.

To contact the reporters on this story: Jacqueline Simmons in Paris at to jackiem@bloomberg.net; Aaron Kirchfeld in Frankfurt at akirchfeld@bloomberg.net

Last Updated: January 9, 2009 11:40 EST