Deutsche Bank Explores Hedges For Data Centre Exposure as AI Lending Booms (ft.com)
- Reference: 0179974968
- News link: https://slashdot.org/story/25/11/05/182230/deutsche-bank-explores-hedges-for-data-centre-exposure-as-ai-lending-booms
- Source link: https://www.ft.com/content/c0428010-1373-463e-91e6-8fe7d64a26df
> Deutsche Bank is [1]exploring ways to hedge its exposure to data centres after extending billions of dollars in debt to the sector to keep up with demand for artificial intelligence and cloud computing. Executives inside the bank have discussed ways to manage its exposure to the booming industry as so-called hyperscalers pour hundreds of billions of dollars into building infrastructure for their AI needs that is increasingly funded by debt.
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> The German lender is looking at options including shorting a basket of AI-related stocks that would help mitigate downside risk by betting against companies in the sector. It is also considering buying default protection on some of the debt using derivatives through a transaction known as synthetic risk transfer (SRT).
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> Deutsche's investment banking business has "bet big" on data centre financing, according to one senior executive. However, the scale of expenditure on AI infrastructure has prompted concerns that a bubble is forming with some likening the enthusiasm to that which preceded the dotcom crash. Sceptics have pointed out that billions of dollars have been deployed in an untested industry with assets that quickly depreciate in value due to the rapid change in technology.
[1] https://www.ft.com/content/c0428010-1373-463e-91e6-8fe7d64a26df
SRT = CDS = here we go again (Score:2)
remember the real estate melt down? CMO = CDS = meltdown (although people got mortgages for which the risk was understated)
Re: (Score:2)
see the post by yuppiescum regarding the real estate bubble...
Beats betting on Epstein, I guess (Score:1)
Data centers might end up looking like that empty mall you drive past, but at least they don't implicate you in a child rape gang including the US president.
Everyone else might want to think a little bit about their 401K allocation.
2008 again (Score:2)
We don't trust our borrowers, so package up the debt and sell it to someone else then lend some more. Rinse, repeat, crash, boom.
Re: (Score:3)
While I agree we may be facing a terrible bubble, that doesn't really seem to be what they're doing. They aren't dressing up bad debt to sell off, like in 2008. Short selling the borrower's stock, which sounds ridiculous, would mean selling discounted stock to someone who is aware of the risk but wants to bet the opposite way.
The SRTs though, I don't know. It sounds like there are a lot of rules around them to prevent 2008 issues, but they're also in that same realm of financial mystery that mortgage-
Only now? (Score:2)
I'd have hoped that such a large bank would have put all the hedging in place before they made billion-dollar loans.
Re: (Score:2)
Probably just took out reinsurance policies. That won't work if they all come tumbling down and the insurance companies claim an act of god or something.
I'd like to place some shorts too. I'm not an institutional investor so ..
AI Lending (Score:2)
I thought this would be about banks using AI to make decisions to who to lend money to. I am disappoint.
What if there is a breakthrough in efficiency? (Score:1)
Hi,
What if there is a breakthrough in efficiency (remember when Deepseek came along?), and big data centers are no longer required? The "basket of AI-related stocks" would benefit, as cost would drop for them.
No idea how shorting them would provide downside protection for investments in oversized data centers.
What if there is a breakthrough in sanity? (Score:5, Insightful)
Does anyone remember 2007/8? Some banks bundled up various forms of debt - some good, most bad - and sold them on... it all ended badly for everyone except the banks.
AI is a bubble waiting to burst, and DB deserve to take a bath on their AI/DC debt.
Re: (Score:2)
It is likely they will try and do exactly that. There were no laws created in the USA to prevent it from happening again. Not sure about EU.
Basically this is saying they are looking to offload risk.
Re: (Score:2)
2007/8 was also the result of fraud and the interdependence of the banking and rating system. For a study on how this worked and what happened, you can [1]read this paper [aeaweb.org].
Also, I distinctly remember banks giving a loan to anyone with a pulse despite the rules saying otherwise as well as double or even triple mortgaging the same property.to different people.
As for the banks, it did end badly, right up to the moment the taxpayers were once again held at gunpoint and told to hand over their money. Tha
[1] https://www.aeaweb.org/content/file?id=13538
Re: (Score:2)
Well, it looks like DB remembers, why do you think they're hedging?
Come to think of it, this article is probably here because someone wants to point out that there is a big lender starting to worry about a potential bubble.
Re:What if there is a breakthrough in sanity? (Score:4, Insightful)
> Well, it looks like DB remembers, why do you think they're hedging?
Do you remember the housing bubble? The banks hedged then too. They bundled loans into mortgage-backed-assets that they sold on the investor markets -spreading the risk to individuals and hedge funds (aka our retirement accounts). When the bubble popped we all lost because of the banks hedging their bad loans.
If the AI datacenter bubble pops, we will all be left holding the worthless loans. Our retirement funds. Our government's bailing the banks out.
There were supposed to be new banking rules put in place to avoid this happening again. And yet. Here we go again.
Overinvestment in a single asset class creates a vulnerability to a single-point-of-failure leading to a cascade failure of the financial system.
Blame the voters (Score:1)
We had laws against what caused the 2008 crash and voters voted people in who removed all those laws. Reagan, Clinton and both of the Bushs.
Post 2008 we put some of those laws back in place and once again along comes the voters to put Trump in the White House and away goes all those regulations.
People really really hate bureaucrats because they have to wait in line at the DMV.
But in our country laws rich people break are enforced by bureaucrats. And those rich people have spent an awful lot of m
Re: (Score:2)
clinton took down glass-stegal and greenspan failed to rein in the banks and insurance companies
Re: (Score:2)
As I recall, the law separating investment from other bank functions was repealed during Clinton's administration, which led to a bit of a boom, and during the W. Bush administration, there was a big push for subprime lending to get people into homes. Those two things that seemed like good ideas that would help everyone came together in a bad way.
Bureaucrats don't enforce laws, they're middle management. They produce and process red tape to look important. The analysts, investigators, and prosecutors t
Re: (Score:2)
What do you mean was bad for everyone else? Housing plummeted. I bought my first condo in 2010 in San Diego for 118k. During 12 years of ownership, it raised up to 400k when I then solid it. I probably could of got a bit more but was doing through a divorce and wanted out. So essentially, in 12 years, my home more then tripled in value.
I'd say that was a nice win for me.
Now, I'm waiting patiently for another market failure that will cut deep enough that it will force equity firms to sell off their assets. I
Re: (Score:2)
Well, I guess hosting costs will collapse as the centers look for new customers. Huge boon for game streaming if there are tons of GPUs doing nothing.
Shorting would shield against a bubble bursting because they'd recoup a large portion of the defaulted loan, but it only makes sense if they do it shortly before a collapse. What really doesn't make sense is betting against someone you just lent a billion dollars.