J.P. Morgan’s Big Unwind?

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FT Alphaville (FT Blog) – Unwind? What unwind? – Part 1

FT Alphaville had a serious case of the F5 on Tuesday at 10pm London time, for it was at that hour that last week’s DTCC credit derivatives data was released to the masses. Here we would be able to see signs of what CNBC had reported last Wednesday: that JPMorgan had sold “65 percent to 70 percent of the so-called London Whale position, a hedging strategy gone so wrong that in early May JPMorgan conceded it had already lost $2 billion.” Long story short — we have been sorely disappointed. Pour over the data as we may, there’s nothing earth-shatteringly big in there. The Whale doesn’t appear that close to the beach at all.


Last week trading activity in the IG9 series of CDX contracts spiked, leading many to believe that J.P. Morgan was exiting its London Whale position.  As we warned last week:

Unfortunately the DTCC only offers weekly data on notional amounts outstanding. As of June 15, the net notional amount of CDX.NA.IG.9 outstanding had not fallen appreciably. If J.P. Morgan has truly exited the majority of its IG9 position in the past couple days, the chart below should show a considerable drop when the June 22 data is released next Tuesday.

Yesterday’s update from the DTCC is reflected in the last panel of the chart above.  Hedging their position using the 5-year IG17 series has become less likely as the spread between it and IG9 remains unstable and widening (middle panel).  While the net notional amount of IG9 outstanding did fall some, we would imagine this market would have shrunk considerably more for the rumors of J.P. Morgan exiting 70% of its position to be true.  This is an ongoing process.  If J.P. Morgan is indeed trying to unload their position, it would be very difficult for them to do so overnight without taking big losses.

Source: Bianco Research

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