German manager goes short European banks

By Peter Starck

FRANKFURT (Reuters) - German asset management boutique Flossbach & von Storch, which has not owned any bank shares for the past two years, is now shorting European banks, its chief investment strategist said on Wednesday.

"We still don't trust the quality of the earnings," Philipp Vorndran told Reuters, referring to the European banking sector.

Flossbach & von Storch, with 2.2 billion euros (two billion pounds) in assets under management, of which one-third is in equities, decided on Tuesday to go short European banks by investing in an exchange traded fund whose performance is inverse to that of the FTSE European banks index .FTE3X8350EC.

That index rose by more than 80 percent from its March 9 low-point until April, when it reached its highest level since early January.

The rally, which clearly outpaced the broader stock market's gains, was driven primarily by hopes measures announced by Washington to stabilise the U.S. financial industry and kick-start the economy would bear fruit.

At the headline level, many banks on both sides of the Atlantic have reported better than expected earnings for the three months to end-March.

Vorndran remained sceptical.

"What has been the positive outcome of the first-quarter earnings season has been predominantly originated by the good numbers from investment banking, especially the fixed income side, or the corporate bond issues," he said in an interview.