Within the past few weeks, BlueMountain, which oversees $9.2 billion across all of its funds, has been buying default protection on IG9, a position that would offset the bets JPMorgan already has, and then selling it to the bank.
The transactions, first reported by Bloomberg News on June 20, are among trades that may have helped reduce the bank's exposure to the index by more than half, according to estimates from market participants familiar with trading activity.
Exiting Wagers
Both Saba and Hutchin Hill have exited their bets against JPMorgan, people familiar with the funds said last week. Hutchin Hill returned 2.65 percent this year through June 22, according to a person familiar with the fund. That compares with a 1.1 percent gain for hedge funds worldwide over the same period, according to Chicago-based Hedge Fund Research Inc.'s benchmark HFRX Global Hedge Fund Index.
During the three weeks ended June 22, as the cost of the IG9 index contracts fell to 159 basis points from as high as 175, swaps dealers cut the net amount of protection they had sold on the index by 65 percent, DTCC data show. JPMorgan is the only one of the six biggest U.S. banks to have sold more protection on investment-grade companies than it had bought, Fed data through the end of March show.
Dimon said on May 10 that the bank's loss could reach $3 billion or more. Charles Peabody, an analyst at Portales Partners LLC in New York, estimated the amount could be between $4 billion and $5 billion. JPMorgan hasn't disclosed how much of the money-losing trades it's still holding. The bank has said it will provide an update on the loss and where its position stands when it reports earnings July 13.