Hedge funds are dumping Deutsche Bank

Hedge funds are starting to pull business from Deutsche Bank, amid mounting concerns about the struggling German lender.

Bloomberg News reported last night that about 10 hedge funds have moved to limit exposure to the bank and have withdrawn funds, fearing that the bank could collapse under the weight of a proposed $14 billion fine from the US Department of Justice.

The hedge funds include $34 billion Millennium Partners, $4 billion Rokos Capital Management, and the $14 billion Capula Investment Management, according to Bloomberg. These funds clear transactions through Deustche Bank - basically relying on it to act as a middle man for trades - but have taken business elsewhere.

These funds are just a handful of Deutsche's 800 hedge fund clients but the move will do nothing to reassure already jittery investors. Shares fell to 30-year lows earlier in the week amid concerns over the bank's ability to withstand the proposed huge fine for mis-selling of mortgage-backed securities in the run-up to the financial crisis.

US shares in the bank fell over 6% to a new low after the hedge fund withdrawals story broke.

Michael Hewson, chief market commentator at CMC Markets, says in an emailed statement on Friday morning: "While these firms represent a fairly small part of the banks clients, as a weather vane in the current febrile environment, it doesn't exactly represent a vote of confidence either, and sent the US listed shares of the bank to a record low.

"This could well trigger a similar negative reaction when the German listed shares start trading later this morning."

Deutsche Bank provided the following statement to Bloomberg and the Financial Times in response to the story:

"Our trading clients are amongst the world's most sophisticated investors. We are confident that the vast majority of them have a full understanding of our stable financial position, the current macroeconomic environment, the litigation process in the US and the progress we are making with our strategy."

Deutsche Bank this week reassured staff in an internal memo, obtained by Business Insider, that it has "no current plans to raise capital" and is a "much safer and stronger bank than it was before the financial crisis."

However, the eye-watering $14 billion fine the US Department of Justice has proposed for mis-selling of mortgage-backed securities is more than the bank's market capitalisation. This has led to reports in Germany that Berlin is preparing a bailout for the lender as a final backstop, although the government has repeatedly denied this.

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