Deutsche Bank stands to make $1 billion on a single long-shot trade involving a distressed Israeli shipping company, report says

• A Deutsche Bank trader stands to earn $1 billion for the bank as a result of a single trade on an Israeli shipping company.
• Starting in 2016, the bank loaded up on debt and equity of Zim Integrated Shipping Services.
• When shipping cost surged in 2020 as the pandemic waned, the value of the positions ballooned.

Deutsche Bank's investment in a distressed Israeli shipping firm is set to pay out as much as $1 billion, according to a report from Bloomberg.

Beginning in 2016, the bank bought tens of millions of debt and equity in Haifa-based Zim Integrated Shipping Services, one of the world's biggest cargo carriers. The trade came at a time when freight rates were near record lows, and the shipping company was trading at a steep discount.

The bank's bet on Zim, which debuted on the New York Stock Exchange in January, was the brainchild of Deutsche trader Mark Spehn. According to Bloomberg, Zim quickly became Spehn's closest-held conviction trade, even as he faced skepticism around buying into the flagging freighter.

Now, with Zim's share price up 290% from its January IPO, Deutsche looks poised to make as much as $1 billion off Spehn's bet. The bank has already taken gains on Zim's debt as well as on $90 million worth of shares cashed in. Its remaining stake totals some $645 million, potentially adding up to $1 billion if liquidated at current valuations, per Bloomberg.

Spehn's initial pitch focused on the carrier's moves to digitize shipping records and create industry partnerships, the Bloomberg report said. He figured consolidation in a capital-intensive industry would give Zim a boost.

Ultimately however, broader-market dynamics provided the real boost. As shipping costs skyrocketed in late 2020, Zim saw its business take off. With the pandemic waning, a surge in consumer demand was combined with idle shipping capacity to create widespread supply bottlenecks. Indices of cargo rates, such as the Shanghai Containerized Freight Index, soared.

The billion-dollar win for Deutsche is more good news for the bank, fresh off reporting its highest quarterly profit since 2014.

Other players that made bets on Zim will also reap a significant windfall, including Goldman Sachs and Danaos Corp., according to Bloomberg.