Friday, 25 July 2014
Last updated 1 hour ago
May 22 2012 | 11:12am ET
BlueCrest Capital Management founder Michael Platt says that JPMorgan Chase is not out of the woods yet when it comes to its $2 billion trading loss earlier this month.
Platt, whose firm is a counterparty to a "small" number of the bank's bad bets, told Bloomberg Television that his former employer is "not out of those positions."
"If we end up with a catastrophe in Europe in the short run, they're probably not positions that anyone would want to have."
"The order of events would be a Greek exit [from the euro], shock wave across Europe, massive stress in banks, Spain turns into the battleground for the euro, because of the stresses in their own banking system," Platt said, laying out JPMorgan's nightmare scenario. "Then we either get a very swift and strong European solution or we get a hugely disordered meltdown in Europe."
Platt's words aren't the first indication that JPMorgan could be on the hook for an even bigger disaster. Other counterparties have said that the markets, fueled by hedge funds seeking to profit from the bank's pain, have moved even further against JPMorgan's credit-default swap index bets. JPMorgan CEO Jamie Dimon himself has admitted that the loss could grow to $3 billion this quarter alone.
For his own firm's part, Platt said BlueCrest found "anomalies" in the pricing of some of the JPMorgan credit derivatives. The hedge placed bets designed to profit from a price correction.
Platt also dismissed Dimon's claim that the CDS investments were hedges on the bank's other credit assets.
"I don't think they could be described in any way as a hedge," he said. "I think it's a trading loss. They deliberately put the positions on. The London whale"—Bruno Iksil, the JPMorgan trader who built the trades and who is now leaving the firm—"who has subsequently been harpooned, put the positions on."
Jul 8 2014 | 10:48am ET
The surge in derivatives regulation is among the most complex challenges facing the financial services industry today. Northern Trust’s Joshua Satten recently spoke with FINalternatives to share insights into the challenges presented by new regulation and explore how the industry is responding. Read more…