Deutsche Bank's Pande to Depart for Hedge Fund

(August 28, 2012) — Vinay Pande, the chief investment advisor of Deutsche Bank, is set to leave for Brevan Howard Asset Management, a $36.7 billion hedge fund.

Pande served as chief investment advisor of Deutsche Bank since 2006, based in London and New York.

“He hasn’t done exceptionally well this year, with performance being flat. Given cost-cutting at the bank, I’m not surprised by his departure,” a Deutsche employee, who agreed to comment on anonymity, told aiCIO, adding that London-based Brevan Howard, a global alternative asset manager, is a Deutsche Bank client.

The firm, founded in 2002, has also grown to be the second-biggest hedge fund firm in Europe.

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Pande was unavailable for comment by the time of publication. Sigalit Grego, a spokeswoman for Deutsche Bank, declined to comment.

Pande worked for more than two decades as a trader, running a macro strategies fund for hedge fund Caxton Associates between 2003 and 2006 before joining Deutsche. He obtained his MBA in finance from the University of Pennsylvania’s Wharton School.

In January 2008, Pande told the Wall Street Journal that the outlook for US financial markets is either “outstanding or awful,” with little chance of something in between. He also said that there would be a 60% to 70% probability of “outstanding” returns over the next three to five years. He noted that the reason for his optimistic expectations were largely due to growth in emerging markets.

Pande’s expectations in January 2008 surely proved to be overly optimistic. He did correctly predict at the time that the outlook was “bimodal,” a term meaning the likeliest outcomes are banded around two opposite extremes as opposed to in the middle.

(August 28, 2012) – Citigroup has agreed to pay $25 million to settle a lawsuit brought by investors, including two public pension funds, who accused the firm of lying about the quality of subprime mortgage-backed securities.

The Ann Arbor Employees’ Retirement System and Greater Kansas City Laborers Pension Fund led the class action suit, which was filed in 2008. Both pensions purchased millions of dollars worth of the securities in 2007, based on information they say “misrepresented and, more specifically, under-represented, the risk profile of the investment,” according to court documents.

Compared to some other financial crisis-related lawsuits against big banks, Citigroup’s settlement is fairly modest. In July, BNY Mellon settled a securities lending lawsuit headed up by a union and a hospital pension for $280 million. Likewise, JP Morgan agreed to pay $150 million to a group of pension funds that filed a lawsuit alleging securities lending improprieties. They accused JP Morgan of predicting Sigma Finance Corp.’s collapse and engaging in “predatory repo with substantial haircuts to ‘cherry-pick’ the best assets in Sigma’s portfolio.” JP Morgan denied the charges.

With the Citigroup case, the complaint itself reads like a primer on the sub-prime mortgage crisis. The investors claimed that Citigroup Mortgage managers “pressured underwriters charged with evaluating the pools of mortgages to accept all loans. These managers allegedly “set the underwriting guidelines so low that any mortgage would pass, even if it was clear that the borrower was unable to repay the loan.” Citigroup did argue successfully that “the high risk profile of the investment offered was disclosed” in their prospectuses. A judge presiding over the case at a district court in Eastern New York concluded, after “extensive review of the disclosure documents,” that “the strong nature of the cautionary language contained in the disclosure materials brings this case very close to the dismissal line.” But, given the extent of the plaintiffs’ other grievances, the case remained open.

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The case only named the one defendant, Citigroup, but the complaint outlines a subprime securities system fraught with deception and negligence. On the ratings agencies, for instance, the complaint argued: “In addition to using flawed models to generate ratings, Moody’s and S&P repeatedly eased their ratings standards in order to capture more market share of the ratings business. This easing of ratings standards was due in large part to the fact that rating agencies like Moody’s and S&P were compensated by the very entities that they provided ratings to, and the fact that those entities were free to shop around for the rating agency that would provide them with the highest ratings.”