JPMorgan (NYSE:JPM) may be facing even bigger losses than previously thought on faulty bets in credit markets if Europe’s debt worsens, according to the leader of one hedge fund that took the other side of the trades.
Investing Insights: Barclays Puts BlackRock on the Block.
“They’re not out of those positions,” Michael Platt, co-founder and chief executive officer of BlueCrest Capital Management LLP, said today on Bloomberg Television. “If we end up with a catastrophe in Europe in the short run, they’re probably not positions that anyone would want to have.
Platt said a credit fund run by his firm, which managed $32 billion, took a “small” position against JPMorgan after finding “anomalies” in the pricing of certain credit derivatives. BlueCrest would make money as the prices corrected, he said.
JPMorgan revealed a $2 billion loss on May 10, much to the dismay of shareholders, and CEO Jamie Dimon said that loss could widen by as much as $1 billion in the present quarter alone.
Platt said he doubted Dimon’s explanation that the trades were the result of hedges meant to protect the value of credit assets such as corporate loans. “I don’t think they could be described in any way as a hedge,” he told Bloomberg TV. “I think it’s a trading loss. They deliberately put the positions on. The London whale, who has subsequently been harpooned, put the positions on.”
The “London whale” Platt refers to is Bruno Iksil, a JPMorgan trader who earned the moniker for placing big bets. Iksil was responsible for the positions that resulted in the highly-publicized losses.
Dimon has said that he is in no rush to unwind the trades, despite the losses,even if adverse market conditions should produce bigger losses in the short term. Platt agreed with his approach.
“They would ultimately be able to exit this position,” he told Bloomberg. “I would be looking, if I was in that position, creatively at finding other avenues to reduce the value at risk of the book.”