Deutsche Bank's Thomas Paul, head of the firm's interest-rate risk committee and the former head of its government bond trading unit, has launched a proprietary trading desk based in New York. Paul, who had been based in London after leaving New York last September when Susan Estes was brought in to run New York Treasury and agency trading, did not return a phone call seeking comment on the fund. Deutsche Bank spokesman Ted Meyer declined to comment on the initial capital base allotted to the fund, but says that "the guy's background is Treasuries and related interest-rate derivatives, so that'll be his focus to start."
Meyer emphatically denied the rumor that Deutsche Bank was setting up the operation as a hedge fund and soliciting outside capital. That denial was seconded by two fixed-income fund-of-fund executives, who say they have seen no investment memoranda regarding such a fund. Meyer did not comment on the fund's initial staffing levels, nor its future hiring plans.
Paul's move comes at a time when many dealers are expanding and reconfiguring their fixed-income prop desks to take advantage of the steep yield curve. One Treasury sales veteran who says he is aware of Paul's efforts reasons that "the guy is by training a trader and sitting in London chairing risk committees is a nice break, but isn't what he wanted to do in this huge rally." He continues, "Deutsche [Bank's] low cost-of-funding advantage versus a hedge fund, coupled with the ability to leverage house expertise in derivatives, makes it hard to see how he loses, assuming he bets smart." One dealer trader reasons prop trading "is the biggest schism between commercial and investment banks--commercial banks come in to it big every few years, they make big announcement's, throw money around and blow up; dealer's can't afford to not be in this because of the profits so they bet smart and small."