Deutsche Bank/Bill Hwang: courting disgraced investor dents lender’s reputation

Deutsche Bank executives’ meetings with Bill Hwang and Archegos Capital Management, as the Financial Times has revealed, may not have broken any rules. But shareholders should wonder how a bank that regularly irritates US watchdogs could allow such an embarrassing situation to arise.

Hwang’s now defunct fund, after last spring’s collapse, was both a shareholder of Deutsche and a client of the bank’s prime brokerage. Deutsche first started to engage with Hwang after the bank appointed Christian Sewing as chief executive in early 2018.

Reports of who courted who vary. The prospect of a then deep-pocketed new shareholder would probably have appealed to the new boss. Deutsche shares were already down by half at the end of 2018 and hitting new lows.

Hwang’s past should have raised red flags internally. He had settled charges of insider trading with the US Securities and Exchange Commission in 2012. Hwang and his Tiger Asia fund received a securities trading ban in Hong Kong for four years in 2014 for market misconduct. Then again, Hwang’s chequered past did not stop other banks, such as Morgan Stanley, later working with him.

Having a client as a large shareholder suggests a conflict of interest. The bank counters that Hwang’s holding in Deutsche, made up using derivatives, was below the 10 per cent legal threshold for special treatment. It also sat below the bank’s 3 per cent limit requiring extra scrutiny for its borrowers. Also no evidence exists that Hwang’s Deutsche position funded his bets on US media and technology stocks. These imploded in March 2021, forcing the Archegos sell-off.

Yet unsavoury questions must arise as to why Sewing or chair Paul Achleitner were soliciting Hwang as a shareholder. Repeatedly meeting Hwang in New York as opposed to on home turf also hints at some desperation at a difficult time for the bank.

Rival banks including Credit Suisse and Morgan Stanley incurred losses totalling $10bn. Deutsche in line with appropriate risk management — and unlike rivals — demanded additional collateral for Hwang’s positions within its then prime brokerage unit. The bank closed these without losses. There is no evidence that Hwang had any influence on the timing of these.

Deutsche has completed the transfer of its prime brokerage division to BNP Paribas, agreed in 2019. Achleitner will also step down at the end of this year. His replacement, Alex Wynaendts, oversaw the bailout and recovery at Dutch insurer Aegon. That is still a work-in-progress at Germany’s largest bank.