GO
Loading...

BlueMountain: We Swam With 'London Whale'

Wednesday, 18 Jul 2012 | 3:32 PM ET
JP Morgan Chase headquarters
Bloomberg | Getty Images
JP Morgan Chase headquarters

Shortly after appearing on a panel at CNBC and Institutional Investor's “Delivering Alpha” conference in New York on Wednesday, BlueMountain Capital Management chief Andrew Feldstein explained how his firm got involved in JPMorgan'sdisastrous bet on corporate debt, otherwise known as the “London Whale” trade.

It was through an arbitrage trade a year ago, and, more recently, by helping JPMorgan unwind the bank’s corporate-derivatives position this past May and June.

About a year ago, Feldstein said, BlueMountain shorted the CDX IG-9, a relatively illiquid credit index that tracks the debt of 121 different companies. At the same time, the firm went long the debt of the companies reflected in that index, profitably exploiting the gap in spreads between the index and the bonds.

Those trades are of the sort that the fund company engages in frequently, Feldstein said.

Then in May, when JPMorgan announced a wrongheaded bet on the CDX IG-9 that had already cost it $2 billion, BlueMountain began purchasing some of the bank’s exposure to the credit index, essentially going long corporate risk as a result.

Feldstein declined to say how much his firm made on the trades.

BlueMountain & the 'London Whale'
CNBC's Kate Kelly reports on the details of her conversation with BlueMountain Capital Management CEO Andrew Feldstein.

The London Whale trade, which is named after the U.K. based trader who initially put it on, has had broad and negative ramifications for JPMorgan. The bet has forced the departure of a number of traders and a senior executive, forced the bank’s first-quarter earnings to be restated, prompted appearances on Capitol Hill, and generated $5.8 billion in losses—a figure that is expected to climb yet higher.

Feldstein, who worked at JPMorgan himself before opening BlueMountain, said that while the trades worked out well for his fund, he has been troubled by some misperceptions.

First, he said, “the notion that we traded against JPMorgan connotes an adversarial relationship” which was not the case. Although BlueMountain was at various points JPMorgan’s counterparty, the relationship between the two entities is friendly, Feldstein said.

His other concern is that BlueMountain has been described as acting as an “agent” for JPMorgan, when in fact, his firm was always acting as principal, on its own behalf.

A spokeswoman for JPMorgan did not dispute Feldstein’s description of the trades.

— Written by CNBC's Kate Kelly

  Price   Change %Change
JPM MLP ETN
---

Delivering Alpha

Delivering Alpha 2012 Video

  • Signs that investors are moving out of defensive names like Wal-Mart and Exxon-Mobil and into more risky areas like specialty retail, with David Kotok, Cumberland Advisors and Michael Farr, Farr, Miller & Washington

  • The American Antitrust Institute says that less competition in the airline industry would produce higher fares. Diana Moss, American Antitrust Institute, and Henry Harteveldt, Atmosphere Research Group, discuss.

  • U.S. Attorney for the Southern District of New York Preet Bharara is interviewed by Jim Cramer at the "Delivering Alpha" conference presented by CNBC and Institutional Investor on July 18, 2012 in New York City. This is an unedited video of the complete event.

Delivering Alpha 2012 Advisory Board

  • Afsaneh Mashayekhi Beschloss, President and CEO, The Rock Greek Group

    After a long and successful career on Wall Street, Schloss now works for New York City, where he is deputy comptroller for asset management and chief investment officer for the New York City Retirement System.

  • Ashbel Williams, Executive Director and Chief Investment Officer, Florida State Board of Administration (SBA)

    Williams, executive director and CIO of the Florida State Board of Administration, has spent much of his career in state government, but he's also worked in the hedge fund business in New York.   

  • Jennifer Vaccaro, Director of Institutional Sales, Investec Asset Management

    Vaccaro is director of institutional sales at Investec Asset Management, overseeing new business development in the North America institutional market. She has held senior sales positions at several other firms.