Hedge fund manager Boaz Weinstein bets the market is wrong at Credit Suisse

LONDON, Jan 17 (Reuters) – Hedge fund manager Boaz Weinstein doesn’t believe Credit Suisse will default on its debt but if it does, the deal he has on the bank could be a winner mostly, it shows how the market hedge takes advantage of market uncertainty. try to make it more organic.

Investors have stepped up their bearish bets on the Swiss bank over the past year on fears of more cash needed to shore up its balance sheet. a credibility problem deepened by unconfirmed media reports on the bank’s financial health.

Hedge funds and other speculators borrowed more than a fifth of Credit Suisse’s stock to be shorted as of Oct. 31, the highest since 2006, according to S&P Global Market Intelligence.

Weinstein told Reuters that he holds both a long and a short position on Credit Suisse’s credit default swap (CDS), a contract that offers insurance and payouts if a company defaults on its debt. Long 2-year and short 10-year protection on the bank.

“The trade exchange at Credit Suisse reflects my opinion that one way or another, in the next two years the drama about Credit Suisse will be resolved for better or for worse . I believe it will be better and they will recover,” said Weinstein, offering a glimpse of his marketing strategy.

Weinstein led a venture capital fund at Deutsche Bank that was piloted to start Saba Capital Management in 2009. Famously, the fund sold JP Morgan’s “London Whale” trading position to CDS securities in the 2012.

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The demand for the company’s CDS can also attract investors seeking protection from the company or trading in its decline. Credit Suisse’s CDS increasedi price by the end of November after $2.4 billion of bank rights and the company’s stock skin at the lowest level in its 166-year history.

As bearish bets against Credit Suisse grow by the end of 2022, Weinstein said he sees Credit Suisse’s CDS prices four times higher. less and less: the security for 2-years on the bank is the same as 10-years.

“I think Credit Suisse’s CDS and bonds are mispriced because it assumes the bank will be seen as just as risky several years down the road as it is now,” Weinstein said.

So, he bought the 2-year CDS and sold the 10-year CDS, which market traders sometimes call a spread or a straddle.

Weinstein’s $4.8 billion hedge fund is at its best when markets are down. Among the 54 major central bank rate increase, its principal return on 28% in 2022, according to industry research. In 2020, the same fund returned 73% after losses in 2021 and 2019, the study revealed.

Investors are increasingly turning to CDS transactions to protect themselves or to express a negative view. CDS instruments such as iTraxx and CDX traded more than $30 trillion in 2022, the most since the COVID-19 pandemic in 2020 , according to research by S&P Global Market Intelligence.

Credit Suisse declined to comment.

Report by Nell Mackenzie; edited by Dhara Ranasinghe and Susan Fenton

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