One might have thought that Deutsche Bank was facing a huge financial loss in the current subprime mortgage meltdown as its name is quite ubiquitous as a plaintiff in so many of the mortgage foreclosures in South Florida.
Think again. Today’s Financial Times reports that Deutsche Bank’s fixed income desk entered into short positions in late 2006 in the ABX index which is a derivative based on high-risk mortgages and home equity loans. The ABX index represents a basket of credit default swaps on high-risk mortgages and home equity loans and provides a type of insurance against default of a specific security. By doing so, the bank bet that the US mortgage market would weaken. Upon the subprime mortgage market correction and near collapse in March, 2007, Deutche Bank profited handsomely. In contrast to some of its peers, the German bank yesterday reported record first-quarter earnings in this sector.
Posted by Jordan Bublick 