Squeezing the bottom line of out sub-prime

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Not everyone's doing badly out of sub-prime; some bankers at Deutsche may even get a bonus uplift as a result.

According to Bloomberg, the German bank could be on track to reap anything from US$270m to US$540m from the crisis thanks to a strategy that allowed its traders to sell sub-prime mortgage contracts that appreciated as the US housing market has fallen.

It all seems to be the work of a perspicacious US-based analyst Eugene Xu, who apparently foresaw the current sub-prime meltdown two years ago. Unfortunately, Mr. Xu was unwilling to share the secret of his success with us. The main beneficiaries of his advice are likely to be a) himself and b) members of Deutsche's fixed income trading team. Bloomberg quotes Kinner Lakhani, an analyst at ABN AMRO in London, as saying that traders led by Gregg Lippman, global head of asset backed securities trading and syndicate at Deutsche, sold index contracts based on Xu's advice.

Deutsche won't be alone in making hay out of sub-prime. The Financial Times quotes Gary Vaughan-Smith, former head of the Alternative Investment Group at ABN AMRO, who predicts "Hedge funds will win more than they lose [out of the crisis]." Hedge funds Hayman Capital and Corriente Advisors, plus San Francisco-based Passport Capital are all said to have made money so far.

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