JPMorgan Chase has sold the majority of its damaging position in a credit derivatives index that contributed to losses of more than $2bn and prompted multiple regulatory and legal investigations.
People familiar with the situation said on Wednesday that the bank had sold up to 70 per cent of its position in the CDX.NA.IG.9 index, which tracks the spreads on credit derivatives of US corporations.
Data from Markit, the index provider, showed a record $31bn traded on Tuesday in the index, with 238 trades, a sharp jump compared with the average of less than 50 trades a day.
Traders said the activity showed the footprints of JPMorgan exiting trades that had been placed by Bruno Iksil, the London-based JPMorgan banker who gained notoriety as the “London whale” after taking the positions that are behind the bank’s losses.
The position on the index is one part – though not the entirety – of the bank’s loss-making trading strategy. CNBC first reported the sale of the position.
JPMorgan insiders had said the bank would not be rushed into escaping the lossmaking position, as a hasty exit could exacerbate the losses.
Jamie Dimon, chief executive of JPMorgan, said in May that the position should “not be an issue by the end of the year”. He appointed Matt Zames, former co-head of fixed income, as chief investment officer to lead the bank’s unwinding of the trade.
However, the accelerated trading activity may indicate the bank is attempting to minimise its exposure before July 13, when it has promised to give a full account of the position and an updated loss estimate.
One major dealer said he did not see larger than normal trading volumes on Monday, suggesting that the unwind was being conducted with either a concentrated group of dealer banks or with hedge funds and asset managers active in CDS trading.
Mr Iksil and his colleagues took a significant long position in the CDX.NA.IG.9, selling protection on a basket of US corporate debt as one part of a complex credit trade. It was designed, JPMorgan says, to reduce its risk exposure before it “morphed” into a trade that added risk and started causing significant losses.
Mr Dimon refused to provide more detail on the position in congressional hearings in the last two weeks ahead of the July announcement.
The Securities and Exchange Commission and the Federal Bureau of Investigation are examining the trading activity and JPMorgan’s disclosures of the problems. Mr Dimon first described the positions as a “tempest in a teapot” in April before announcing “egregious” losses in May.
“The specific [trading] incident has come and gone and I think JPMorgan has done a very good job trying to disclose everything they can possibly disclose about the incident,” Gary Cohn, president of Goldman Sachs, said on Wednesday. “It’s not good for us to have JPMorgan going through what they’re going through,” he told Bloomberg TV.
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