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Sunday, April 8, 2012

Casablanca gambling? I'm shocked!


JPMorgan Trader Iksil Fuels Prop-Trading Debate With Bets


JPMorgan Chase & Co. (JPM) trader Bruno Iksil’s outsized bets in credit derivatives are drawing attention to a little-known division that invests the company’s reserves and fueling a debate over whether banks are taking excessive risks with federally insured and subsidized money.  (DEPOSITS!  And money borrowed from the Fed at zero percent!)
Iksil’s influence in the market has spurred some counterparts to dub him Voldemort, after the Harry Potter villain. He works in London in the bank’s chief investment office, which has assembled traders from across Wall Street to its staff of 400 who help oversee $350 billion in investments. While the firm describes the unit’s main task as hedging risks and investing excess cash, four hedge-fund managers and dealers say the trades are big enough to move indexes and resemble proprietary bets, or wagers made with the bank’s own money.  (NAH!  COULDN'T BE!)

This year, Iksil has been betting on an index of 121 companies.
The net amount of wagers on the index, which is tied to the creditworthiness of companies such as Wal-Mart Stores Inc. and now-junk-rated bond insurer MBIA Insurance Corp., soared to almost $145 billion at the end of March from $90 billion three months earlier, according to DTCC, which runs a central registry for credit-default swaps and reports weekly aggregate volumes.

Widening Gaps

Iksil may have built a position totaling as much as $100 billion in contracts in one index, (WHILE, GEE, JPM'S NET PROFITS WERE 14 BILLION LAST YEAR - EXCLUDING MASSIVE OFF BALANCE SHEET LIABILITIES) according to the market participants, who said they based their estimates on the trades and price movements they witnessed as well as their understanding of the size and structure of the markets.

Iksil’s trades have been so large that they’re widening gaps between the relative value of the indexes and the average price of contracts tied to companies in those indexes, according to the market participants. That has frustrated some hedge funds that had bet the gaps would close, the people said.

 Joe Evangelisti, a spokesman for New York-based JPMorgan, declined to comment on Iksil’s specific transactions, and Iksil didn’t respond to phone messages and e-mails seeking comment.

(But he laughed with his trading buddies that if the bets do go south, the taxpayers can damned will pick up the tab.  And he'll sure as hell keep his trading bonus either way.)

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