JPMorgan Chase & Co. : Hedge Fund Exits From Trades That Made Waves for J.P. Morgan's 'Whale' - Sources
06/26/2012| 06:24pm US/Eastern
By Katy Burne
Saba Capital Management has exited from a series of credit derivatives trades that pitted the New York hedge fund against now-infamous derivatives trades by the London-based Chief Investment Office of J.P. Morgan Chase & Co. (JPM), according to people familiar with the matter.
The complex trade that saddled J.P. Morgan's "London whale" with at least $2 billion in losses had three key components, according to people familiar with the strategy, but the bank earlier this month reduced a substantial chunk of that exposure, traders said.
Saba's original exposure couldn't be determined and a spokesman declined to comment on the recent exit or the fund's future strategy. Also unclear is how much the fund profited on the trades. The hedge fund's master fund manages $5 billion and is run by former Deutsche Bank AG (DB, DBK.XE) credit derivatives trader Boaz Weinstein.
Bloomberg and Reuters previously reported on Saba's moves.
In May, The Wall Street Journal reported that two other hedge funds had made bets opposite the bank: BlueCrest Capital Management and BlueMountain Capital Management.
In the first quarter, J.P. Morgan's problem positions were said to be in excess of $100 billion, and the firm said it was willing to tolerate some price swings over time to maximize its benefit. J.P. Morgan hasn't disclosed the exact trades that caused its losses, but said in a May 10 filing that since March 31 it had seen "significant mark-to-market losses in its synthetic credit portfolio," a reference to insurance-like derivatives called credit-default swaps that have recently moved against the bank.
Earlier this month, J.P. Morgan reduced its exposure to a credit derivatives index known as the CDX.NA.IG.9 by tens of billions of dollars, according to people familiar with its trades. Anonymous data provided by Markit show that $31 billion of trades in the index maturing in 2017 took place June 19, a record daily volume for contracts of that maturity.
The amount of protection dealer banks had sold on that index fell to $26.3 billion from $45.8 billion between the week ended June 1 and June 8, according to data from the Depository Trust & Clearing Corp. J.P. Morgan's CIO office would be counted as a dealer.
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