JPMorgan Cuts London Losses, Trades Could End Up Costing $6bn

JPMorgan has sold off most of the losing corporate-credit position put on by a trader nicknamed the London Whale, say people familiar with the matter, marking a significant step toward putting an embarrassing chapter behind it.

CNBC reports that in recent weeks, the bank has divested itself of 65 - 70% of its holdings in a credit, or bond, derivative index known as the CDX IG 9, which tracks a certain cross-section of corporate debt instruments.

JPMorgan has refused to speculate on what the final number might be, but the debacle still could cost the firm between $4bn - $6bn in trading losses, people familiar with the matter have told The New York Post.

In the meantime, Bloomberg reports that a hedge fund run by a formerJPMorgan executive who helped create the credit-derivatives market is assisting the lender as it unwinds the trades.

BlueMountain Capital Management LLC, co-founded by Andrew Feldstein, has been compiling trades in Series 9 of the Markit CDX North America Investment Grade Index in recent weeks, then selling the positions to the New York-based bank, according to three people outside the firms who are familiar with the strategy.

Finally, the news organisation also reports that JPMorgan, Goldman Sachs and other U.S. banks would be subject to Dodd-Frank Act swaps rules in their overseas offices under guidance that may be proposed by the Commodity Futures Trading Commission.

The proposal for so-called interpretive guidance, scheduled for a vote today at a CFTC meeting in Washington, has been criticized by U.S. bankers who say it could put them at a disadvantage to overseas competitors. The international reach of clearing and trading regulations gained urgency after JPMorgan disclosed at least $2 billion in losses on trades by the bank’s chief investment office in London.

'I think if we were to leave the London branches of the U.S. banks or even the guaranteed affiliates out, it would be, so to speak, another loophole and a retreat from reform, where risk would come crashing back to our taxpayers and our Federal Reserve', CFTC Chairman Gary Gensler testified to the House Financial Services Committee lawmakers during a June 19 hearing on the JPMorgan loss.