U.S. hedge funds Hudson Executive Capital and Cerberus Capital Management are the top two shareholders in Germany’s embattled Deutsche Bank. But despite myriad efforts to try to turn around the floundering giant, both funds have so far lost hundreds of millions of dollars on their big bet.
One overhanging problem is that Deutsche Bank continues to be dragged further into investigations of its most prominent and controversial client: President Donald Trump.
Hudson, led by former JPMorgan Chase & Co. senior executive Doug Braunstein, is now the top shareholder of Deutsche Bank. It revealed an activist 3.1 percent stake on Nov. 1, 2018 in the Wall Street Journal, when the stock was trading at $10.25.
Hudson added slightly to its position by year end, and now owns 64.7 million shares, for a 3.14 percent stake. The stock has dropped 30 percent since the hedge fund first announced the initial investment, said to be worth $620 million, which it purchased during last year’s third quarter. At that time, the stock traded as high as $12.50. Hudson’s stake is now worth about $463 million, meaning it has lost at least $157 million.
Meanwhile, Cerberus’s stake — taken a year earlier — is even more in the red. The private equity giant owns slightly less than Hudson, with about 62 million shares, purchased in the third quarter of 2017. Cerberus disclosed its 3 percent stake in Deutsche Bank in November of 2017, with the shares valued at that time at $1.18 billion, according to a 13F Securities and Exchange Commission filing by Stephen Feinberg, Cerberus co-founder and co-CEO. The stake is now worth about $444 million, for a loss of almost $736 million.
[II Deep Dive: Cerberus Loses on Big Deutsche Bank Bet]
Deutsche Bank shares have fallen 12 percent this year alone, closing Wednesday at $7.16.
Cerberus president Matt Zames has been formally advising Deutsche Bank on cost-cutting and operational challenges in addition to being a shareholder. Zames, like Braunstein, was a senior JPMorgan banker before joining Cerberus.
Both hedge funds have been holding onto their stakes this year, as the bank sheds employees and continues to search for a lifeline. Earlier plans to merge with Germany’s Commerzbank have gone nowhere, and on Monday new reports surfaced that Deutsche Bank had held talks with Switzerland’s UBS about an investment banking alliance but could not agree on a deal.
Overhanging any turnaround is a steady drumbeat of bad news regarding Deutsche Bank’s ties to President Trump and Russian money laundering, which is under active investigation by the U.S. House of Representatives. Earlier, Congress subpoenaed the bank to turn over Trump’s tax returns and other documents. On Tuesday, lawyers for the bank told a U.S. federal judge that they do have some of Trump’s tax returns, but they have not turned them over to Congress, according to the New York Times.
The House’s financial services committee is investigating Trump’s finances to see if he “helped Russians and other foreign buyers launder money through his properties,” the Times reported, citing the committees’ lawyer, Douglas Letter, who said the committee is investigating whether “Trump’s financial dealings made him subject to foreign influence.”
Meanwhile, federal authorities are continuing to probe Deutsche Bank for money laundering, following reports that the bank failed to look into suspicious activity by Trump’s son-in-law, Jared Kushner.
In 2017, Deutsche Bank paid $630 million in penalties related to laundering $10 billion in illicit Russian money.
