Deutsche Bank lost $1.8B on Boaz Weinstein's credit bets — first loss in 50 years

Boaz Weinstein was one of Deutsche Bank's most successful proprietary credit traders, named a managing director at age 27 in 2001. His Saba trading group grew to roughly $30 billion in positions and $10 billion in capital by early 2008.

Weinstein's strategy was capital structure arbitrage — buying corporate bonds and credit default swaps (CDS) on the same company, betting that the relationship between the two would converge. The strategy had generated huge profits: roughly $900 million in 2006 and $600 million in 2007.

When Lehman Brothers collapsed in September 2008, two things went wrong simultaneously. Corporate bond prices collapsed as investors sold everything. And the CDS market froze — market participants were afraid to enter trades with banks that might fail. The 'basis trade' hedge broke: the CDS protection Weinstein thought he had was worthless exactly when he needed it. Losses hit $1.8 billion by year-end, though $600 million was later recovered.

Deutsche Bank reported its first annual loss in 50 years — €3.9 billion ($5 billion) for 2008. The bank shut down Weinstein's operation and scaled back proprietary trading. Weinstein left in early 2009 and founded Saba Capital Management, a hedge fund that now manages $6 billion. He later became known as the counterparty who identified the mispricing that led to JPMorgan's 'London Whale' $6.2 billion loss.