Two Rules | Rule #1 Do Not Lose Your Principal | Rule #2 See Rule #1

Eight years ago this month, Lehman Brothers failed in large part due to panicked hedge funds pulling their money. With some big hedge funds worried enough to cut their exposure to Deutsche Bank AG, the parallel is obvious—but also deeply misleading. Deutsche Bank’s shares have plummeted in recent weeks after The Wall Street Journal reported that the U.S. Justice Department suggested the bank pay $14 billion to settle allegations around mortgage securities. The bank expects to agree to a lower figure. Some hedge-fund clients have grown concerned about their exposure to the German lender, prompting them to pull assets and forcing bank executives to step up reassurances about its stability, according to people close to clients and the bank. Hedge funds face the same dilemma all bank customers face. The gains from sticking with Deutsche are very small, while the potential losses if it were to run into trouble are very large. “Everyone is hypersensitive,” said one hedge-fund manager caught out by the Lehman collapse. “Lehman’s taught everyone that there’s very little upside in keeping your exposure.”

Source: Ghost of Lehman Haunts Deutsche Bank – WSJ