Markets turn lower as Deutsche Bank drops on worries of client flight

U.S. equities markets turned lower Thursday after reports of hedge funds cutting their exposure to Deutsche Bank (DB) began crossing, building on an already significant period of volatility for Germany's largest lender and sparking comparisons to previous crises in the banking sector. HEDGE FUNDS CUT EXPOSURE TO DEUTSCHE: According to a Bloomberg report shortly after noon, about 10 hedge funds that clear their derivatives trades through Deutsche Bank, including Millennium, Capula and Rokos, have withdrawn excess cash and positions held at the bank as they seek to cut their exposure to the embattled lender. Bloomberg cautioned that the "vast majority" of the 200-plus clients that conduct derivatives clearing with Deutsche haven't made any changes, and a company spokesperson told the publication that "our trading clients are amongst the world's most sophisticated investors. We are confident that the vast majority of them have a full understanding of our stable financial position, the current macroeconomic environment, the litigation process in the U.S." MARKETS, FINANCIALS DIP: Shares of Deutsche Bank trading in New York quickly fell as much as 8.5% after today's news, which also weighed on a number of other European banks. France's Societe Generale (SCGLY) is lower by 4.5%, while Lloyds (LYG) and Barclays (BCS) have fallen in the range of 3%. Among Deutsche's U.S. competitors, JPMorgan (JPM) and Goldman Sachs (GS) have slumped a respective 1.4% and 2.6%, and the wider KBW Bank Index (BKX) and Financial Select Sector SPDR (XLF) are each down over 1%. The CBOE Volatility Index (VIX), a commonly-used measure of market risk, has spiked 17% alongside a sudden slump in the three major U.S. stock indices.