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Sebastian Losses Were ‘Worst Nightmare,’ Vik Told Deutsch

Sebastian Losses Were ‘Worst Nightmare,’ Vik Told Deutsche Bank
Deutsche Bank says it acted properly and Sebastian owes it $250 million. Photographer: Ralph Orlowski/Bloomberg

April 23 (Bloomberg) -- Deutsche Bank AG said it wasn’t to blame for 2008 losses on currency trades by Alexander Vik’s Sebastian Holdings Inc. that the Norwegian entrepreneur described in a phone call as his “worst nightmare.”

E-mails and phone calls cited by the bank in trial documents show how market turmoil in October 2008 led to escalating losses at Sebastian, soured its relationship with Deutsche Bank and tested the lender’s prime brokerage systems to the breaking point.

Vik’s investment fund is suing the bank for as much as $8 billion over margin calls made at the height of the financial crisis, the bank said yesterday in documents released at the start of a London trial. Deutsche Bank says it acted properly and Sebastian owes it $250 million.

Vik, 58, told Sebastian trader and former Credit Suisse Group AG banker Klaus Said he was “at the puke stage” as markets moved against the fund that month, according to an e-mail cited by Frankfurt-based Deutsche Bank in court documents. The lender’s $500 million in margin calls on Said’s currency derivative trades were “like the worst nightmare I’ve ever heard of,” Vik said in a call to account managers at the lender.

Said’s trading is central to both sides’ arguments in the 12-week trial. Sebastian argues it relied on the bank’s prime brokerage department to manage its risk, report losses, and keep Said within a pre-agreed trading limit.

Deutsche Bank says Vik was aware of the risks being taken, citing an e-mail he sent to Said saying: “We have to win big because we lose big sometimes as well.”

‘Many Failings’

Sebastian’s claim for about $8 billion in losses and missed profits is one of the largest ever brought in a U.K. commercial court, the bank said in documents laying out its case. Sebastian said the size of its suit matched the “huge errors and many failings” of Deutsche Bank.

Vik is only suing Deutsche Bank because Said doesn’t have enough money to cover its claim, the lender said.

Sebastian’s lawyer Jonathan Leslie and Sebastian Howell, a London-based spokesman for Deutsche Bank, declined to comment beyond the trial documents.

Said, now head of foreign exchange at CRT Capital Group LLC in New York, said he wouldn’t testify at the trial and declined to comment when reached by phone last week.

Said took responsibility for the losses, calling the financial crisis a “perfect storm,” Deutsche Bank said, citing e-mails and messages detailed in court documents released yesterday.

Said Letter

“The mistakes were mine -- errors of judgment and lack of foresight, but not maliciousness or carelessness,” Said wrote in an e-mailed letter to Vik’s wife, apologizing for the trades, Deutsche Bank said in court documents.

Vik, the sole shareholder of Sebastian Holdings, described himself as a “successful businessman” with interests in a range of companies, luxury hotels, a premium Norwegian vodka brand and a Chilean vineyard, according to Sebastian’s court documents. With financial products, Vik said he was “no more than a good amateur.”

Deutsche Bank said its systems “were not up to the job” of valuing Said’s positions and it had made mistakes. Those errors had hurt Deutsche Bank not Sebastian, it said in court documents. It described Sebastian’s calculations of how much money it lost because of the margin calls as “a novelty.”

The case is: Deutsche Bank AG v. Sebastian Holdings Inc., High Court of Justice, Queen’s Bench Division, Commercial Court, 09-83.

To contact the reporter on this story: Kit Chellel in London at cchellel@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net

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