Exposed: chess genius who lost his bank $1.8bn
Deutsche trader had taken home $40m annual bonuses
Saturday 07 February 2009
During the boom of the Eighties, the last time greed was good and Wall Street ran wild, it was a game called Liar's Poker that captured the testosterone-fuelled risk-taking of the trading floor for the public's imagination. This time round, as we pick over the wreckage caused by the latest frenzy of greed, maybe it will be Blindfold Chess.
With more than 100 colleagues gathered round, Boaz Weinstein, a derivatives trading whiz at Deutsche Bank, sat with his back to a chess board and dictated moves in a "blindfold" game against a Russian colleague. Keeping the board in his head, and thinking many moves ahead, it took him two hours to crush his hapless opponent. It was 2005 and Mr Weinstein was already a legend on Wall Street; two years later he would be taking home annual bonuses of about $40m; today, he is out, leaving behind him a $1.8bn (£1.2bn) hole that has wiped out the profits and shredded the reputation of Germany's most powerful bank.
Mr Weinstein is brilliantly clever. But, it turns out, too clever by half. His rise and his fall follow the arc of Wall Street's boom and bust, and now the 35-year-old gambler has been unmasked as the latest face of the finance industry's excess. He used to boast that he was using simple maths to make giant profits. "It's not rocket surgery," he would joke to friends, but the dazzling complexity of the bets he was making finally overwhelmed him.
Born to Israeli and Polish émigré parents, Mr Weinstein has always had the instincts of a game player, a gambler and a trader. His parents enrolled him in chess workshops at the age of five, and he was a chess master by 16. He excelled, too, at poker. And at university, he was fascinated by blackjack and used his card-counting abilities to dominate any game. At Deutsche Bank he surrounded himself with similar people, including alumni of MIT's secret card-counting blackjack team, whose exploits were the basis for the Kevin Spacey film 21 last year. The Deutsche team was called Saba, the Hebrew word meaning grandfatherly wisdom. They would gather after market close on Fridays to play poker, with $100 as the minimum buy-in. Team-bonding trips to Las Vegas were common, where members would often win big.
In their work, though, they were gambling with other people's money. Deutsche Bank posted its first annual loss in five decades this week, and promised it would never again put so much of its shareholders' funds at risk. When times were good, it was Mr Weinstein's team of ace traders who were bringing in a large chunk of the profits, and taking home tens of millions in bonuses.
He had almost single-handedly turned it into a powerhouse in the trading of complex new derivatives called credit default swaps. These instruments allowed traders to bet on the creditworthiness of individual companies, but their value has been questioned by economists, who think the market became little more than a casino, a casino with $60trn of bets outstanding at its peak last year. The enterprise collapsed in September when one of the biggest gamblers, Lehman Brothers, went bust, and Mr Weinstein's charmed position began to decay. Losses spiralled to $1.8bn, wiping out two years of notional gains.
Deutsche Bank yesterday refused to comment on the fall of Mr Weinstein, beyond confirming that he was no longer with the company. He had not been fired, though; rather he left because the company would no longer hand him the cash to gamble in the credit markets. Across Wall Street, the heady days of so-called "proprietary trading", when banks set up giant trading desks that mimicked the risk-taking of hedge funds, are over. It was a strategy that took many banks to the brink of bankruptcy, and tipped some of them over the edge.
Josef Ackermann, the Deutsche Bank chairman, said the firm is scaling back its own trading business, and cutting the amount of borrowed money it puts at risk in the markets. As for Mr Weinstein, he plans to set up his own hedge fund, and is now soliciting cash from potential investors. Deutsche Bank may no longer be willing or able to gamble; the 35-year-old chess whiz believes there will always be plenty of people who are.
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