Saba's Weinstein exits bet against JPMorgan: sources

Tue Jun 26, 2012 5:09pm EDT
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By Katya Wachtel

NEW YORK (Reuters) - Hedge fund manager Boaz Weinstein, who was one of the first traders to call attention to a derivatives bet that cost JPMorgan Chase at least $2 billion recently exited from the trade, booking a tidy profit, according to sources familiar with the trade.

Weinstein, a former Deutsche Bank trader, was one of the early proponents of a trade that involved buying Investment Grade Series 9 10-Year Index CDS, discussing it at the Harbor Investment Conference in February. Ironically, the conference was held at JP Morgan's Madison Avenue offices.

In May, JPMorgan reported a $2 billion trading loss in its chief investment office, due to large bets on an obscure group of indexes that track the performance of corporate bonds, including the Markit CDX NA IG Series 9 index. Weinstein's Saba, among other funds, bet against that trade.

Weinstein's Saba Capital Management, which has liquidated the position in its entirety, "exited directly to JPMorgan's CIO office," according to a source familiar with the hedge fund.

Weinstein did not immediately return a request for comment.

JP Morgan Chief Executive Jamie Dimon was forced to defend his bank's policy before the U.S. Congress after disclosing the loss in May.

It could not be determined how much money Saba, which manages about $5 billion, made on the trade. The Saba Capital Master Fund rose 1 percent for the year through May. That fund has gained 2.3 percent for the year through June 22.

Saba was one of a number of hedge funds that were on the other side of the index trade from JPMorgan, a bet that turned lucrative for many of those managers this spring. Some of the other funds that made a trade similar to Saba included BlueMountain Capital Management and BlueCrest Capital Management.   Continued...