Hedge funders were not the only market whiz-kids betting against JPMorgan’s disastrous London Whale trading positions. Another part of the bank was too.
It emerged today that JPMorgan Asset Management, run by Mary Callahan Erdoes, was one of the investors betting big against London trader Bruno Iksil, exacerbating his $2 billion (£1.25 billion) losses.
Erdoes’ Strategic Income Fund was one of the investors which profited handsomely from JPMorgan’s chief investment office’s losing bets, which were essentially insurance against clusters of big US companies defaulting on their debts.
Bloomberg reported that the Strategic Income Fund had about $380 million of insurance identical to that being sold by Iksil. It is unclear how much profit Erdoes’ team made on the trades. Most of it will go to investors in the fund, rather than the bank, but it will do no harm to the bonuses of the fund managers, led on that particular fund by William Eigen. He began buying the Iksil contracts about a year ago and quickly built up a position of about $150 million, which it doubled in the summer before buying about $80 million since.
JPMorgan’s problems will be at the fore tonight when US politicians on the House Financial Services Subcommittee debate how to regulate Wall Street banks. The meeting was planned long before JPMorgan admitted to its potential losses.
Treasury secretary Tim Geithner said after news of the Whale’s trading losses that they strengthened the case for tougher curbs on investment banks’ trading. Some Democrats have claimed JPMorgan’s crisis would not have occurred had the Volcker Rule banning investment banks from betting with their own cash been in force.
