Deutsche Bank avoids Archegos loss after slow hedge fund exit

[FRANKFURT] Deutsche Bank has "significantly de-risked" its exposure to Archegos Capital Management without incurring any losses, avoiding taking a major hit on a business it agreed to exit in 2019.

"We are managing down the immaterial remaining client positions, on which we do not expect to incur any loss," the spokesman said by email without identifying the company by name.

Deutsche Bank's exposure to the family office, whose forced liquidation of more than US$20 billion in holdings is roiling some stocks, sits within the so-called prime brokerage unit that chief executive officer Christian Sewing agreed to shift to BNP Paribas in 2019. That wasn't long enough to prevent the German lender from getting caught up in the wrong-way bets of Archegos.

The elaborate process of shifting assets between the firms is still ongoing and Deutsche Bank continues to be on the hook for any potential losses on holdings that haven't moved to the French bank, including Archegos, people familiar with the matter have said.

A representative for BNP Paribas declined to comment.

Even before the derisking, the German lender's exposure to Archegos was materially lower than Nomura Holdings Inc, according to the people. The Japanese lender said in a statement that the estimated amount of its claim against an unnamed US client was about US$2 billion.

Mr Sewing in July 2019 presented an ambitious cost-cutting plan centred around shuttering Deutsche Bank's equities trading unit including prime brokerage. It clinched a deal with BNP Paribas later that year to offload that part of its business. The transfer of the assets and staff was set to continue throughout 2021, Bloomberg News reported at the time.

Deutsche Bank's prime brokerage business had about US$177 billion of client balances earlier in 2019, although clients pulled large amounts before the deal, people familiar with the matter have said.

BLOOMBERG