Hedge Fund Marshall Wace Ups Wagers Against Deutsche Bank

  • Bearish bets on German bank have declined from July peak
  • Stock faces pressure as legal woes pressure capital reserves

Marshall Wace LLP expanded its bets against Deutsche Bank AG even as other investors cut their short positions to the lowest in almost three months.

Marshall Wace had a short position valued at $151.1 million on Sept. 16 after the London-based hedge fund firm added more than 400,000 shares to its previously disclosed shorts, taking its total bet to 11.3 million shares, the company said in a filing on Monday. A spokesman for Marshall Wace, 25 percent owned by KKR & Co. LP, declined to comment.

Bearish bets had reached the highest in more a year on July 7, with Soros Fund Management also taking a short position in the bank of about 7 million shares in June. Short interest stood at 1.8 percent of shares outstanding on Sept. 16, the lowest level since June 27, according to data compiled by Markit Ltd. 

Negative bets on the bank are falling even as Germany’s biggest bank faced more downward pressure. The U.S. Justice Department opened negotiations with a demand for $14 billion to settle a dispute over mortgage-backed securities and analysts expressed concerns that the bank will need to raise capital even if it manages to negotiate a settlement that can be covered by its current 5.5 billion euros ($6.1 billion) in provisions.

Short sellers profit by selling borrowed shares and buying them back at lower prices. Deutsche Bank shares have declined 48 percent this year compared with a 23 percent drop in the Bloomberg Europe 500 Banks Index.

Pressure to reduce the bank’s variable compensation pool in 2016 may grow, especially if a U.S. Justice Department settlement is higher than expected after the agency’s initial $14 billion proposal, Bloomberg Intelligence analysts Alison Williams and Dan Erichson wrote in a note on Monday. The pool fell by 17 percent in 2015, they wrote.

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