Exclusive: JPMorgan bet against itself in "Whale" trade

Tue Jan 29, 2013 5:07pm EST
 
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By Emily Flitter

NEW YORK (Reuters) - There is a new twist in the London Whale trading scandal that cost JPMorgan Chase $6.2 billion in trading losses last year. Some of the firm's own traders bet against the very derivatives positions placed by its chief investment office, said three people familiar with the matter.

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.

The committee is expected to release a report on its investigation in the next few weeks.

The people familiar with the situation did not comment on the dollar value of the opposing trades placed by JPMorgan Chase & Co's JPM.N investment bank traders, which was much smaller than the total positions put on by the CIO.

The intra-bank trading was not mentioned in a 129-page report JPMorgan released on January 16, which chronicled some of the bank's risk management failures. The scandal has led to a number of management changes at JPMorgan and has sullied CEO Jamie Dimon's image as a hands-on risk manager.

Kristin Lemkau, a spokeswoman for JPMorgan, declined to comment on the investment bank's trading positions.

A spokeswoman for the Senate committee, led by Michigan Sen. Carl Levin, a Democrat, declined to comment on its investigation.

It was widely known that a group of about eight credit-focused hedge funds, such as BlueMountain Capital Management and Saba Capital Management, were on the other side of the trades that JPMorgan's London-based Whale team made on an index tied to corporate default rates. But the role JPMorgan's own investment bank may have played in the messy unwinding of the derivatives trade has not come out until now.   Continued...

 
A man walks past JP Morgan Chase's international headquarters on Park Avenue in New York in this July 13, 2012 file photo. REUTERS/Andrew Burton/files