JPMorgan traders bet against bank's CIO unit
Reuters reports a new twist in the JPMorgan London Whale "hedging" fiasco. Some of the firm's own traders bet against the very derivatives positions placed by its chief investment office.
"The U.S. Senate Permanent Committee on Investigations, which launched an inquiry into the trading loss last fall, is looking into the how different divisions of the bank wound up on opposite sides of the same trade, said one of the people familiar with the matter."
It's unclear what the importance of this will ultimately be. It's not unusual for a bank to hold in aggregate opposite sides of a bet. That's what hedging is all about in some ways. A mutual fund at JPMorgan Chase, the Strategic Income Opportunities Fund, was taking the opposite side of various CDS trades. Those trades worked out well for the fund, to the detriment of the JPMorgan CIO unit that stuck the bank ultimately with losses of more than $6.5 billion.
There might be an issue if the CIO unit was somehow coordinating the activity in a bid to hedge the bank more fully in aggregate against expected losses from the losing positions, or if there was inappropriate information flow somehow. But this seems more like the mutual fund situation. Various units can act independently of each other, which is often a good thing. More information may come to light on this, as a report from the committee is expected soon.
- here's the article