Jeffrey Gundlach, chief executive of DoubleLine Capital, said on Thursday that investors should tread carefully when trading Deutsche Bank AG shares because a government bailout is not out of the question.
The bank's U.S.-traded shares have hit a record low.
"I would just stay away. It's un-analyzable," Gundlach told Reuters by phone about Deutsche Bank shares and debt. "It's too binary. The market is going to push down Deutsche Bank until there is some recognition of support. They will get assistance, if need be."
Gundlach, who oversees more than $100 billion at Los Angeles-based DoubleLine, said investors who are betting against shares in Deutsche Bank might find it futile.
"One day, Deutsche Bank shares will go up 40 percent. And it will be the day the government bails them out. That jump will happen in a minute," Gundlach said. "It is about an event which is completely out of your control."
Concerns over the stability of Germany's largest bank pushed its U.S-listed shares down as much as 9.1 percent to a record low of $11.185. Daily volume was also at a record, with more than 43 million shares changing hands.
The latest fall came after Bloomberg reported that a number of funds that clear derivatives trades with Deutsche had withdrawn some excess cash and adjusted positions held at the lender because of its problems.
Gundlach, known on Wall Street as the "Bond King," said financials and banks have been poor relative performers all year.
"Something has been hurting the banks," he said. "It is not a coincidence that increased regulation and bizarre monetary policies have coincided with relatively poor performance from the banking sector. They have been very poor relative performers, particularly for the last five quarters at the onset of negative interest rate policies."
Gundlach said investors should continue to stay defensive. About recent market weakness, Gundlach said: "It doesn't feel like it's over."
In July, Gundlach told Reuters said stock investors had entered a "world of uber complacency," as the S&P 500 had been hitting fresh record highs almost daily.
"The artist Christopher Wool has a word painting, 'Sell the house, sell the car, sell the kids.' That's exactly how I feel - sell everything. Nothing here looks good," Gundlach said.
The Dow Jones Industrials Average closed down on Thursday by more than 195 points, or 1.07 percent, while the S&P 500 closed down by over 20 points, or 0.93 percent.
© 2023 Thomson/Reuters. All rights reserved.