Just as we were wondering who was gleefully gathering in their winnings from the subprime meltdown, along comes Deutsche Bank.
Posting record profit for the second quarter of €1.8bn, the bank revealed that it had profited from betting that the US subprime mortgage lending would weaken.
Revenues in Deutsche’s sales and trading division rose 34 per cent to €4.3bn in a strong quarter, helped by an 18 per cent rise in its debt operations on the back of “strong performances in credit and emerging markets debt.”
But those figures might not be enough for the German bank to break out of the negative sentiment affecting its sector. Deutsche Bank shares, which have lost almost 10 per cent in the past week, were down again in the premarket.
Elsewhere the FT’s capital markets team were also on the trail of those looking to profit from the subprime fiasco.
Already Prudential Investment Management’s Alpha Fund, for example, enjoyed a strong performance in its fixed-income funds in the first half of this year by shorting the subprime sector.
Other hedge funds have also seen stellar results, says the story.
MKP Capital Management’s flagship $400m credit fund of MKP, run by three former Salomon Brothers fixed-income executives, is up 22.6 per cent over the year to July 27.
Brigadier Capital’s structured credit fund was up over 8 per for the month to mid-July according to people in the market and the Pursuit Opportunity fund, which specialises in asset-backed securities, was up 5 per cent in June and is said to have extended gains further.
Then there’s the vultures.
As credit prices started to recover on Tuesday, investment groups were preparing to swoop on cheap assets. The mere fact that Citadel on Monday was prepared to make any bid for the credit portfolios of Sowood capital, significantly boosted confidence in the markets the following day.
Now it’s the turn of the “value grab” traders. Bankers at Goldman Sachs are already creating a special new fund to invest in distressed credit products. Other Wall Street groups, such as JPMorgan, are believed to be mulling similar steps, says the FT.
But are the grave dancers now too numerous for their own good. Only so many graves to go round and all. David Merkel at the Aleph Blog (via Abnormal Returns) commented earlier this week:
I’ve said it before, and I’ll say it again, there are too many vulture investors in the present environment. It is difficult for distressed assets to fall too far in such an environment, barring overleveraged assets like the Bear Funds.