JPMorgan Turns To BlueMountain To Unwind CDS Disaster

Jun 21 2012 | 11:31am ET

BlueMountain Capital Management earned a tidy profit from JPMorgan Chase's $2 billion credit-default swap index loss last month. Now, the hedge fund is profiting by helping the bank clean up the mess.

BlueMountain has been buying trades to allow JPMorgan to unwind its huge position in the index and selling them to the bank, Bloomberg News reports. Using BlueMountain as a middleman has helped JPMorgan quietly retire some of the roughly $100 billion portfolio of Markit CDX North America Investment Grade Index swaps the bank's Bruno Iksil, known as the London Whale, bought up.

JPMorgan lost billions—the precise amount is unknown and could be growing—when its swap purchases grew so large they began to distort the market. Hedge funds, including BlueMountain, led by former JPMorgan executive Andrew Feldstein, jumped in, earning impressive returns at the bank's expense.

"They used BlueMountain to disguise what they were doing," TF Market Advisors' Peter Tchir told Bloomberg. "It all gets a little bizarre, and shows how screwy this whole market is."

Feldstein helped build the credit-default swaps market during his tenure at JPMorgan in the 1990s. He co-founded BlueMountain in 2003.


In Depth

Q&A: TCA Fund Management's Bob Press on Small-Cap Private Equity

Aug 25 2016 | 8:55pm ET

The emergence of private credit as a replacement for traditional bank financing...

Lifestyle

Kiawah: Island Reversal

Aug 24 2016 | 9:59pm ET

Looking for real estate investments but the typical real estate fare isn’t cutting...

Guest Contributor

Old Hill Partners: Embrace Illiquidity

Aug 9 2016 | 2:39pm ET

The age-old financial concept that higher yields are the result of higher risk and...