Did One Of Jamie Dimon's Closest Traders Betray Him And Cost The Firm Billions In Losses?

As we predicted some time ago, it would be only a matter of time before the story of how one failed prop desk trader, in this case Boaz Weinstein who blew up DB Prop only to be resurrected as the successful head of Saba Capital, took down the London whale Bruno Iksil. Sure enough over the weekend, the NYT penned a largely one-sided if entertaining read: "The Hunch, the Pounce and the Kill" which begins as follows 'It was last November, and Mr. Weinstein, a wunderkind of the New York hedge fund world, had spied something strange across the Atlantic. In an obscure corner of the financial markets, prices seemed out of whack. It didn’t make sense. Mr. Weinstein pounced." The trade of course was the IG 9 -10 year which we have dissected infinitely in the past two days. And while the NYT story makes for great copy, and has a great narrative it is missing one crucial feature, namely what happened in those two crucial months before Boaz was pitching the IG9 trade, and thus during which he was establishing the position (because only those "hedge fund managers" who appear on CNBC discuss their positions if they haven't already built up their max positions). What happened is the following: "Saba Capital Management LP... hired Toby Maitland Hudson from JPMorgan Chase & Co. as the firm’s assets reach $4.1 billion, according to people familiar with the hire. Maitland Hudson, who started at Saba in New York last month, ran JPMorgan’s proprietary trading of derivatives tied to commercial-mortgage bonds and will focus on relative value trades."

So... one wonders, did Boaz hire JPM prop trader Maitland Hudson (who was also formerly a correlation trader at Credit Suisse from 2003 to 2004 per LinkedIn) in what is nothing but a fishing expedition, so well known to the hedge fund industry, where one gets a job and a guarantee in exchange for the firm's entire P&L and positional blotter? Yes, Hudson traded prop CMBS, put with all prop traders sitting next to each other and full updated portfolios instantly available to all, everyone knew what everyone else was doing, something we discussed back in 2009 when we demanded a seating chart of Goldman's prop and flow traders. In which case did Saba know well in advance of everyone what the biggest CIO prop bet was, allowing it to take appropriate bets? Furthermore, if Saba learned of Iksil's entire blotter by hiring one JPM trader, does he know all other JPM positions as well? And how soon until a "hedge fund syndicate" leaks to the WSJ and Bloomberg at the same time just what other Fed-backstopped market moving JPM positions need the urgent attention of the market?

Of course, all this assumes that Iksil and the CIO had the IG9 trade on in September. Which is possible because as we noted this is around the time the delta hedge started going horribly wrong for JPM and it was forced to start selling IG9 to offset its tranche exposure.

And if indeed the case, the biggest irony here is the implied one: that Jamie Dimon was ultimately betrayed by one of his own - sure he had to go on gardening leave, but with a $100 billion notional position, being out of the market for 1 month does nothing for a positional refresh - it is not like JPM could unwind that position then.

It certainly can't unwind now. And with every day that IG9-10Y leaks wider, it simply means more and more pain for JPM which allowed itself to be taken in by the oldest ruse on Wall Street.

Finally, and this is the $64K question: what other trade secrets of JPM have been leaked to the hedge fund world, which suddenly finds itself with all the leverage in taking on the TBTFs?


No comments yet! Be the first to add yours.