Todd Harrison: Trading Deutsche Bank and the Tape
Looking for pairs in all the long places.
Deutsche Bank (NYSE:DB) painted the tape yesterday and it was none-too-pretty. According to the WSJ: "Financial reports produced by some of the bank's U.S. arms "are of low quality, inaccurate and unreliable. The size and breadth of errors strongly suggest that the firm's entire U.S. regulatory reporting structure requires wide-ranging remedial action."
The bank responded by saying, "We have been working diligently to further strengthen our systems and controls and are committed to being best in class." The bank is investing €1.0B as part of this effort, and we have appointed 1,300 colleagues to focus on it as part of a dedicated program. That includes 500 compliance, risk and technology employees that the bank plans to hire in the US this year.
We've been talking about this stock for a few weeks, given that it lost 1/3 of its entire market capitalization since the January high. I don't claim to know how much of this latest news is "in" the stock, but I would venture to guess that some of it is.
As the news (and the stock got) hit late yesterday, I nibbled on some upside calls (in real-time on the Buzz & Banter), fully aware that we could see some analyst downgrades this morning (I haven't seen any yet). It's a small position as these things go, consistent with my current stylistic approach of surgical trading.
Someone pinged me on Twitter last night to opine that DB could be a modern day Lehman Brothers, and that "Sloppy accounting - sell." I don't believe that to be true, but lest there is more to the story than meets the eye, those calls are currently paired against the SPY puts I've layered into the last few sessions, although that exposure is this close from being stopped out above recent highs.
A chart of the two positions -- a tale of two fates -- can be found below.
Click to enlarge
- The VXO is again trading in the single digits again. Some historical perspective for these historic times:
- Goldman Sachs (NYSE:GS) has been thumbing its nose at the insider sales window.
As always, I hope this finds you well.
Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
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