Month: November 2018

The Clinton Foundation saw contributions dry up approximately 90% over a three-year period between 2014 and 2017, according to financial statements. 

2014: 

2017: 

The global charity is currently under investigation by the DOJ, FBI and IRS for a variety of allegations – including whether favors were handed out while Hillary Clinton was Secretary of State, also known as “pay for play.” 

The Clinton-led State Department authorized $151 billion in Pentagon-brokered deals to 16 countries that donated to the Clinton Foundation – a 145% increase in completed sales to those nations ove teh same time frame during the Bush administration, according to IBTimes. 

American defense contractors also donated to the Clinton Foundation while Hillary Clinton was secretary of state and in some cases made personal payments to Bill Clinton for speaking engagements. Such firms and their subsidiaries were listed as contractors in $163 billion worth of Pentagon-negotiated deals that were authorized by the Clinton State Department between 2009 and 2012. –IBTimes

Then there was that $1 million check Qatar reportedly gave Bill Clinton for his birthday in 2012, which the charity confirmed it accepted. 

Coincidentally, we’re sure, Qatar was one of the countries which gained State Department clearance to buy US weapons while Clinton was Secretary of State, “even as the department signaled them out ofr a range of alleged ills,” according to IBTimes.

Meanwhile, according to a November 2016 report by the Dallas Observer,  the Clinton Foundation has been under investigation by the IRS since July, 2016, while the Arkansas FBI field office has been investigating allegations of pay-for-play and tax code violations, according to The Hill. 

The officials, who spoke only on condition of anonymity, said the probe is examining whether the Clintons promised or performed any policy favors in return for largesse to their charitable efforts or whether donors made commitments of donations in hopes of securing government outcomes.

The probe may also examine whether any tax-exempt assets were converted for personal or political use and whether the Foundation complied with applicable tax laws, the officials said. –The Hill

As we reported earlier Wednesday, House Republicans will hear testimony on December 5 from the prosecutor appointed by Attorney General Jeff Sessions to investigate allegations of wrongdoing by the Clinton Foundation, according to Rep. Mark Meadows (R-NC).

“Mr. [John] Huber with the Department of Justice and the FBI has been having an investigation – at least part of his task was to look at the Clinton Foundation and what may or may not have happened as it relates to improper activity with that charitable foundation, so we’ve set a hearing date for December the 5th.,” Meadows told Hill.TV on Wednesday. 

Meadows also told The Hill that the committee is “just now starting to work with a couple of whistleblowers that would indicate that there is a great probability, of significant improper activity that’s happening in and around the Clinton Foundation.” 

One has to wonder why, if there was no pay-for-play, donations to this “highly rated” charity dried up 90% over a period in which the wealth gap continued to increase? 

This is jaw-dropping. The Clinton Foundation’s 2017 annual report is finally online–WOW. Lots to unpack but digest this nugget:

2015 Total Contributions: $182.5M

2016 Total Contributions: $135.4M

2017 Total Contributions: $22.8M 😭

WHEN THEY CAN’T PLAY–NOBODY WANTS TO PAY!

— thebradfordfile™ (@thebradfordfile) November 21, 2018

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It will probably not come as a surprise that this weekend’s reported blowup of the commodities-based hedge fund over at OptionSellers.com was likely the result of none other than – wait for it – selling naked options on natural gas. Media reports and a YouTube video of the fund’s founder sobbing and apologizing for his blow up made the rounds after an unprecedented spike in natural gas futures.

The hedge fund’s founder, James Cordier, had been a long time advocate for selling naked options to trade. He wrote a book about it and even touted selling naked options as an investment strategy on Seeking Alpha. Of course, like anybody shorting volatility, an extremely popular strategy over the last decade, options writers hope to scrape up a premium while the underlying stays calm and parked. In this case, Cordier got a lesson on why managing that risk is important – and exactly what can happen when unexpected volatility strikes.

Jack Scoville, vice president at Price Futures Group in Chicago, put it a different way: “People like to sell options rather than buying options because the odds of making money are better. However, as we saw with natural gas, that’s not always the case. You can get into a situation where the market is getting away from you pretty quickly.”

A nicer way to say it is that shorting options carries theoretically unlimited risk, which Cordier took on, and then passed on, to his clients. As Bloomberg confirms our own reports, Cordier’s clients not only lost 100% of their account values but now also owe money to the fund’s clearing broker. Meanwhile, the firm had its accounts liquidated by its clearing broker, FCStone.

Jason T. Albin, a lawyer at ChapmanAlbin LLC, confirmed to Bloomberg that some of the accounts held naked options positions and he estimated that losses from the failure of the fund could run in excess of $150 million: “FCStone borrowed on margin against their clients’ accounts to cover, which caused them to not only lose 100 percent of their account values, but now they also owe FCStone for the loans.”

A video of Cordier apologizing and sobbing (though not really explaining the blowup) likened his fund to a shipwreck and went viral within the investing community last weekend. The video can be viewed here:

Cordier once wrote in his book:

“While writing naked options may sound outrageously aggressive and even frightening to some, if it is done correctly, one should be able to sleep very well at night. The downside, of course, is that the market potentially can exceed your risk parameter.”

Wouldn’t the thought of the market exceeding your risk parameter be the last thing that would have you sleeping well at night? 

Naturally, financial Twitter poked fun at the video.

Proof we’re in a simulation pic.twitter.com/IeR3oG9z4c

— Trade War Wynne (@Emanuel_Wynne) November 20, 2018

While we would like to assume that this will be a lesson to investors and that it could mark the beginning of the end of the “shorting volatility” craze that has made even Target managers rich, the most likely scenario is that nobody has learned anything from this unfortunate episode of risk mismanagement.

However, as Bloomberg reports, it appears there are plenty of other funds out there willing to short volatility across various asset classes on any spike.

A hedge fund is placing a risky wager equivalent to 11 percent of its volatility portfolio that the fear gripping global debt markets will prove short-lived. Credence Capital, the volatility-trading arm of KM Cube Asset Management with 110 million euros ($125 million), is shorting expected price swings in the world’s largest junk-bond ETF, which has nose-dived this month in the most violent upheaval since 2016.

“…this kind of vol risk premium is the highest since the February volmageddon.”

“In the past few days we are observing higher vol in assets other than equities,” said Couletsis.

In addition to shorting volatility of the iShares bond fund, the firm has also been selling it on the Brexit-battered British pound and oil.

Of course, one can never know when that mini-spike to sell becomes a mega-spike and “Cordiers” you. As Bloomberg sums up so eloquently – shorting volatility can be immensely profitable — until it’s not.

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With volumes already sinking and liquidity disappearing ahead of tomorrow’s Thanksgiving Day holiday in the US, markets are jittery at best and deadly to one’s P&L at worst as the machines react to every headline with maximum pain.

And while today’s ‘sensitivity’ is likely exaggerated, as former fund manager and FX trader Richard Breslow notes, “not all headlines are designed to hurt you” but all headlines are now market movers, no matter how repetitious, ridiculous, or right they may be.

Via Bloomberg,

Having been woken up by a wrong-number call a little before midnight and unable to fall back asleep, I can assure you I’ve read a lot overnight. And by far the smartest thing I saw was written by one of my own colleagues, Sunil Kesur. Simple, almost to the point of stating the obvious. And yet it captured something that has to be considered every time you pull the trigger on a trade. “Italian Bond Rally Subject to Headline Risk.”

Sadly that’s true not only in that particular case, but to a large extent everything in our trading universe.

It’s a fact of life and it is driving traders to despair. But it needn’t be all bad. And how markets react can provide valuable clues. No matter how firm your resolve to do your own homework and make your own decisions, you ignore them at your own peril. Many of the thunderbolts are patently ridiculous. Some end up being loud, but short-term, noise. And others have lasting effect on market sentiment. Even if you disagree with how they are being interpreted.

Early this morning, as if on cue, I’m not making this stuff up, there was a quick downdraft in the dollar index on a Fed-pause report. On par with the course, the story cited unidentified “senior people.” It’s a meaningless contribution to the rate debate but this doesn’t make it any less impactful on your P&L.

And I know what just played out in trading rooms all over Europe.

• Those that were short dollars said, “Thank you very much I’m done.”

• Those playing from the long-side had some more colorful words before declaring, “This is stupid. I’m done.”

• And those with a somewhat longer perspective just said, “I can’t wait for these U.S. numbers to come out already so I can get out of here.”

Complete noise. Probably a gift of a fade opportunity or crying out to be ignored outright. But people are jittery. Particularly as they try to understand whether today’s equity bounce and rally in Italian assets means something more than a zag to yesterday’s zig.

Hope springs eternal and doesn’t it feel like the fear-versus-greed calculation is being re-evaluated. I’m at least open to that potentiality. Or maybe I’m just falling into a familiar trap. It’s like using an overbought RSI measure on the pace of bad news as a reason to be cautiously optimistic. Especially, because Brexit events and Sino/U.S. relations can easily take precedence if Italy decided to take a breather from the front pages. But the doom, gloom and apocalyptic warnings that we’ve been fed a steady diet of recently can easily turn 180-degrees around. Happens all the time. It’s just a matter of timing.

The ironic takeaway from the EU budget verdicts is the entire process is a mess, so that must be good, not bad for Italy. And BTPs are reflecting that. Headlines that “Italy Excessive Deficit Procedure” is warranted lost out to, “Belgium, France, Spain Risk Breaching Budget Rules.” That’s a strong indication of today’s mood.

I love finding a trend as much as anyone. But extrapolating events way out into the future based on confusion is a dangerous practice. I would urge being very open-minded. Sometimes those annoying headlines actually can tell you something valuable.

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Authored by Keith Weiner via Acting-Man.com,

The “Risk Asset” Dip Not Worth Buying is on its Way

The prices of the metals rose, gold by +$11 and silver by +$0.25. The question on everyone’s mind (including ours) is: what will cause a change in the gold price trend, or what will make gold go up in a large and durable way? And that leads to another way of looking at this question.

Here is a very good technical reason to adopt a constructive attitude toward gold despite the fact that its nominal price in USD terms is seemingly not going anywhere of late. By remaining fairly stable in recent weeks, gold is rising relative to the S&P 500 index (SPX). In other words, the purchasing power of gold is increasing – and not only relative to the stock market. Similar trend changes can be observed elsewhere (e.g. in gold vs. industrial commodities). We will soon discuss this in greater detail. [PT]

Price is set at the margin. We have covered several times Warren Buffet’s pointed (and disingenuous) comment that gold has no utility. It just sits, and there is a cost for it to sit. And an opportunity cost.

So why do people buy something which has no utility and no return?

One, which we discuss a lot, is speculation. They buy whatever is going up, in an attempt to cash in on the rise. So let’s not dwell on this.

A second reason is fear of counterparty default.

Third, is gold is a non-expiring hedge for monetary collapse and/or a currency regime change. This is a broader version of simple counterparty default.

Right now, General Electric is in the news. Its investment grade rated bonds are trading like junk bonds. This is like an echo from the past. Bear Sterns retained its investment-grade rating until just before its demise.

GE has about $115 billion in debt. If it defaults, that could put fear into a lot of investors. They will certainly buy Treasury bonds (which are defined as risk free). Will they buy gold, which is the only financial asset which is truly free of default risk? Maybe.

Cost of insuring against a default of GE bonds (5-year CDS spread) compared to an investment grade 5-year CDS index. This strongly indicates that the markets no longer regard GE worthy of an investment-grade rating. Naturally, the markets may err; in fact, based on the sum of its parts, an outright default of GE appears quite unlikely at the moment. GE has assets whose value and profitability compares favorably to its admittedly large debt hoard (which it is busy reducing via non-core asset sales). Of course the markets are actually not saying “GE will default” – what they are saying is that the risk of a default down the road has increased. Hence the qualifier “at the moment” above: we have to at least assume ceteris paribus conditions – but conditions are certain to change in the future and may well become challenging (e.g. a recession could strike). [PT]

However, in addition to GE we know that a significant fraction of bonds out there are issued by so-called zombie corporations, whose profits are less than their interest expenses. Rising interest rates can only have increased the percentage, though the increased cost kicks in with a lag (as each bond matures and must roll).

In addition to the problem of rising default risk from these companies, there is the risk that if a large enough number of them is hit at once, the credit market they depend on goes “no bid” again, as it did in 2008. Of course, if their bonds are impaired then their equities will become worthless. Stocks will be crashing in this scenario.

We raise the issue of price being set at the margin to make a point. In this scenario, the marginal buyer of gold will not be the speculator. It will be the mainstream investor who is desperate to protect himself from a financial system going mad again. When will this happen? Watch for news of GE and other major debtors sinking deeper into trouble.

As to systemic default risk, i.e. monetary collapse, it is early yet. There are some peripheral currencies like the bolivar and lira that could go away soon. But their troubles are widely known, and visible far in advance. We would not expect their demise to have much impact on the world’s monetary order (though of course it is horrific for the people who live in Venezuela and Turkey).

A currency on its way to oblivion – the exchange rate of Venezuela’s bolivar vs. the USD in the black market near the border with Colombia. Note, this is a log chart, otherwise one would see a longish almost flat line near the bottom of the chart, followed by a near vertical upside move beginning in 2016 (the chart shows the number of bolivares needed to purchase 1 USD). The move since 2010 was from around 8 to 1 to the current level of ~28,000,000 to 1. To call this currency toilet paper would by now be an insult to the latter. The bolivar has definitely ceased to be a viable medium of exchange and its collapse continues unabated – economic calculation has become impossible. [PT]

Other currencies are also in trouble — we have written a lot about the franc. It is impossible to predict the timing of such a thing, though our gut feeling is that it is still a ways out.

As to the de-dollarization, loss-of-reserve-status, end-of-petrodollar, gold-backed-yuan, SDR-to-replace-USD ideas, we say: rubbish. The dollar will get stronger from here, if not in terms of gold then as measured by other currencies.

Panicky people in Istanbul do not think “let me buy Brazilian reals, Russian rubles, Indian rupees, and Chinese yuan” because someone coined the glib term “BRICs”. They do not think “I will buy me some Saudi riyal because, petro.” They buy USD.

Postcard from Istanbul: a nice place offering plenty of opportunities to panic throughout its storied history… [PT]

So we end on a conclusion we have reiterated many times. When gold goes to $10,000 it is not gold going up. It is the dollar going down. It is inevitable that the dollar will go down. I just gave a talk at an Austrian economics conference in Madrid “There Is No Extinguisher of Debt” (paper to be published soon). The collapse of the dollar is baked into the mathematics.

People could buy gold today at an 88% discount from that price. But do yourself a favor. Watch any politician on TV. Watch a Republican promise to “grow our way out of the debt”. Or watch a Democrat promise a free university education to everyone. Watch even many libertarians promote Universal Basic Income(!).

If you think they don’t understand, you are right. But the vast majority of voters support these politicians. The voters, too, don’t understand. And the same holds for investors.

Buying gold is a non-expiring hedge. But only people who perceive a need to hedge, will buy the hedge. The rest may think that stocks are a bargain here, being down almost 7% from the high last month. So far in this incredible boom following the crisis, every time people who bought the dip were rewarded.

Are we getting close to the point where it won’t be? If GE is any indication, if GE will have a contagion effect (remember that word?) then the answer is likely yes.

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The last time we looked Goldman Sachs Hedge Fund VIP index one month ago, it confirmed what we already knew, namely that it was in freefall as the pain for hedge funds refused to stop. Now, in its latest quarterly hedge fund tracker, Goldman digs into the just released barrage of 13F filings, analyzing the holdings of 823 hedge funds with $2.2 trillion of gross equity positions at the start of 4Q 2018, and finds even more bad news, namely that “hedge fund returns, portfolio leverage, and the performance of popular stocks have entered a vicious downward cycle.“

As one would expect, Goldman strategist Ben Snider being by looking at the bank’s proprietary hedge fund performance index, and finds that after outperforming in 1H 2018, the Hedge Fund VIP basket of the most popular long positions has lagged the S&P 500 by 725 bp since mid-June (-9% vs. -2%) alongside a downturn in growth and momentum stocks and rise in S&P 500 volatility.

As a result of the adverse combination of headwinds from alpha and beta, the average equity hedge fund YTD return has tumbled to -4%, returning +2% through May before declining 5% in recent months, including a -4% return in October; the recent sharp declines have forced funds to cut gross and net exposures even more, to the lowest levels since 1H 2017, weighing further on the most popular positions.

As is widely known by now, the biggest culprit for yet another year of woeful hedge fund returns was the high exposures to growth and momentum stocks, which eroded alpha as these factors declined in the second half of 2018. Growth and momentum stocks, including the popular “FANG” stocks, continued their 2017 outperformance in early 2018 but have lagged since mid-year, bringing down hedge fund returns with them.

Returns for the 2 and 20 crowd were additionally crippled by capitulating on timing the market bottoms, instead choosing to delever into the growing market turbulence. As we noted last night, hedge fund net exposures have steadily declined throughout 2018, including during 2Q and 3Q while the broad equity market rallied. Net long exposure calculated based on 13-F filings and publicly-available short interest data registered 49% at the start of 4Q, a decline from 56% at the start of 2018. Data calculated by Goldman Sachs Prime Services show a similar picture, with net leverage peaking in January 2018 and declining steadily since.

Curiously, while net exposures declined all year as a result of adding more shorts – most of which ended up blowing up at every bottom resulting in furious short squeezes that only detracted from overall performance – gross exposures remained elevated until the recent equity drawdown. In fact, according to Goldman data, gross exposures only declined sharply since the S&P 500 turned lower in early October. Yet while both net and gross exposures are currently at the lowest levels since 1H 2017, they remain significantly above levels earlier this cycle, including the lows alongside concerns of recession in early 2016, suggesting that if the selloff continues, even more outright liquidations are possible, especially if redemption requests continue piling in into the end of the year as LPs demand to be cashed out.

Which is not to say that there were no major rotations under the surface, because there were. Having been burned by the tech sector in Q2, hedge fund sector allocations reflected a continued defensive shift in Q3, with funds continuing their rotation into Health Care and away from Info Tech, which may explain the furious slide in the FANG and tech sectors as more funds joined the liquidations.

As a result of this defensive shift, Health Care now accounts for 18% of hedge fund net exposure, representing a 385 bp overweight versus the Russell 3000, the largest of any sector, as long gone are the days when hedge funds bet it all on growth.  According to Goldman, funds also incrementally tilted toward the defensive Utilities and Consumer Staples sectors.

And, not surprisingly, funds reduced exposure to perennial favorites Consumer Discretionary and Info Tech. In fact, Tech now represents the largest underweight.

Although long portfolio allocations in the sector were largely unchanged in 3Q, Tech weight in short portfolios grew from 17% to 18% as increasingly more funds shorted tech outright. Funds also reduced their overweight in the new Communications Services sector but remain overweight relative to the Russell 3000. In contrast to the defensive trend, funds modestly increased positions in Industrials and Financials

Also worth noting is that one of the largest increases in hedge fund sector allocation was toward Utilities, with the defensive sector now representing an overweight for the first time since 2008. Funds benefited from this increased tilt; amid concerns of decelerating economic growth, Utilities has been the best-performing sector since the start of 4Q (+5% vs. –7% for the S&P 500). Two Utilities stocks were added to the Hedge Fund VIP basket this quarter (VST and PCG).

Putting relative hedge fund exposure in context, Goldman finds that a number of current hedge fund net sector tilts stand out as extremes relative to the last decade. The Utilities overweight is the largest in the recent past, and the 503 bp tilt away from Information Technology is the largest underweight since 2014. Among the classic cyclical sectors, hedge fund overweights in Energy and Materials are at or near decade lows, while the Industrials overweight is a record high.

Summarizing the relative exposure – in terms of estimated hedge fund long, short, and net exposure, by sector – as hedge funds entered Q4, they were most overweight healthcare, and most short information tech.

Yet even as hedge funds rotated away from tech and into healthcare and utilities, a surprising reversal was seen in the hedge fund concentration in top portfolio positions, which actually increased in 3Q, mirroring narrow market breadth in the equity market. As a result, the average hedge fund holds 68% of its long portfolio in its top 10 positions, slightly below the record “density” of 69% in 1H 2016.

And here is the punchline for why hedge funds were hit especially hard in Q3: the share of S&P 500 market cap accounted for by the 10 largest index constituents reached 24% during the summer, the highest share this cycle, consistent with the narrowing evidenced by other measures of market breadth.  However, during the latest equity market volatility this share has tumbled from its highs as the hedge fund darling were whacked.

And one final observation: with the market hitting an all time high just as Q3 ended, hedge funds became even more complacent and portfolio turnover declined further in 3Q 2018. Across all portfolio positions, turnover fell by 2 pp to 25%, close to the record low reached in mid-2017, while turnover of the largest quartile of positions, which make up the vast majority of portfolios, fell slightly to 14%.

It is this lack of changing the most popular positions that ended up crippling returns the most as hedge funds entered the bloodbath that was October.

Finally, for those asking just which were the 20 most and least concentrated hedge fund holdings according to Goldman, that caused so much pain, here is the answer.

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Following another boisterous PMQ Wednesday morning where the Prime Minister notably hinted at the possibility that Brexit could be “cancelled” following a question posed by Labour leader Jeremy Corbyn (he asked if there are “no circumstances under which the UK will leave the EU without a deal”, to which the prime minister said killing her deal would lead to “greater uncertainty…or perhaps no Brexit at all”), Theresa May is jetting off to Brussels Wednesday afternoon for a round of last-minute negotiations over the political statement that is supposed to act as a framework for negotiations over the future UK-EU trade deal that both sides will attempt to hammer out during the transition period that ends in December 2020.

Jeremy Corbyn: Are there “no circumstances under which the UK will leave the EU with no deal? “

Theresa May: “The alternative… is uncertainty, division, or the risk of no #Brexit at all”

Follow #PMQs live: https://t.co/0DJiVrm8lN pic.twitter.com/q3GQwzifXm

— BBC Politics (@BBCPolitics) November 21, 2018

Facing accusations that her last-minute meeting with EU negotiators is merely a political stunt for May’s wildly unpopular draft Brexit plan (this according to the BBC), May is facing a tight deadline to hammer out several still-unresolved issues in the political statement, which must be worked out by Thursday morning to stop the EU from cancelling a weekend summit where both agreements are expected to be finalized.

Until this week, the political statement (which is merely a non-binding memo laying out what both sides should expect during negotiations) has been an afterthought as most of the Brexit-related drama centered on May’s efforts to shore up support for her flailing draft agreement (which she apparently has finally done by making promises she likely won’t be able to keep). But media reports that have surfaced since the beginning of the week suggest that some EU members – most notably Spain and France – are unsatisfied with the political statement as it stands, and would like to see terms added governing the treatment of Gibraltar post-Brexit and Europeans’ access to UK waters for fishing purposes (something that we noted last week could emerge as a serious sleeper risk to a deal). The EU has already blown a Tuesday deadline to complete its draft of the political declaration because of these objections, which is why May is being brought in for the last-minute meetings.

Most of the leaders involved are understandably exhausted by the interminable negotiations, and German Chancellor Angela Merkel, who has already declared that she won’t seek another term in office after her current term ends in 2021, has said she won’t join the negotiations until both documents are ready to sign, per the BBC. “Both documents need to be ready by Sunday so that we can sign the exit agreement and accept the declaration on the future relationship.”

Though it’s unlikely considering that the EU has come this far and has shown a willingness to make concessions to help increase May’s chances of passing the deal through Parliament, a failure to produce final agreements by the end of the weekend would upset markets, which have only just begun to recover from last week’s Brexit chaos-induced drubbing.

Aides to the EU leaders, dubbed “sherpas” due to their role in sheperding the final agreement, want a finalized deal ready by Thursday so they will have a day to look it over before they meet in Brussels ahead of the weekend summit. If no deal is produced, there won’t be a summit.

But even if a deal is reached (which it likely will) and the summit goes off without a hitch, May must still face down the insurgent Brexiteer Torys who have made it abundantly clear that they won’t back her deal.

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While Deutsche Bank may have a far greater headache now that it has been implicated as an accomplice in Danske Bank’s giant money-laundering efforts, helping some $150 billion in funds transit out of Europe illicitly, in an amusing tangent showing how the biggest, and most troubled, German lender can seemingly get nothing right these days, the most troubled German lender had put on a hedge to minimize risk at its U.S. equities business. Instead, the company lost tens of millions on the trade.

According to Bloomberg, Deutsche Bank’s New York traders pooled billions of dollars of positions into one portfolio, known as a central risk book, in an attempt to avert losses and potentially make more money (or maybe in hopes of recreating JPM’s London Whale “hedging” behemoth). Alas, it did not work out quite as expected, and the trade backfired leading to a $60 million loss, and forcing Deutsche Bank to slash the book’s size.

A reversal of the “pod” or silo strategy popularized by such hedge funds as Millennium and SAC, central risk books have become a trend at some of the world’s biggest investment banks which have been seeking to minimize risk exposure. As Bloomberg explains, instead of dozens of workers across numerous desks working to limit possible losses, trades are transferred to a single CRB where they are managed by a small team, often with the help of complex algorithms.

But at Deutsche Bank, part of that strategy “didn’t perform as well as desired“… which considering the bank’s recent “successes” in equity trading was to be expected, and judging by the bank’s response, desired:

“Looking at isolated losses in central risk books is misleading since it does not take into account other related trading books or offsetting factors such as commissions earned,” Kerrie McHugh, a spokeswoman for Deutsche Bank in New York, said in an e-mail. She declined to elaborate on specifics.

While the size of the loss was manageable for one of Europe’s top investment banks, it represents a new glimpse into Deutsche Bank’s problems both at its equities business, which has reported quarterly declines in revenue since 2015, and in the U.S., where the Fed has been scrutinizing its controls.

Adding insult to injury, CEO Christian Sewing has targeted the stocks division for cutbacks since he took the top job in April.

Some more details from Bloomberg on the evolution of Deutsche’s CRB:

Executives at the firm started increasing the size of the CRB for the U.S. equities business in late 2016 and continued until this year, when it contained about 2 billion euros ($2.3 billion) of trades, the people said. One person said the pool contained positions in both common stock and equity derivatives, complex contracts that derive their value from shares.

While CRBs are meant to allow banks to cut costs, improve profit and bolster risk management, this particular strategy floundered, partly because of issues with the CRB’s technology, the sources said, and as Bloomberg explains, one of the problems was how well the team’s algorithms analyzed the trading success of counterparties. Another source said that the CRB may also have become “too big to manage properly.”

Deutsche Bank executives have since shrunk the size of the CRB to about several hundred million euros, the people said. 

Ryan O’Sullivan, a trader who helped oversee the strategy, moved to the role of global co-head of electronic equities in May of this year, according to his LinkedIn page. Amusingly, according to McHugh, the DB spokeswoman, “he was promoted” confirming that all one needs to do to get to the top at the German bank is lose tens of millions.

And so with this latest failed attempt to prove to the world that its equities trading desk is competitive now safely in the rearview mirror, Deutsche Bank can focus on what truly matters: defending itself from the upcoming accusations that it helped Russians launder – by way of Danske Bank – some $150 billion in “hot money” into the US.

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