NEW YORK Saba Capital Management's Boaz Weinstein recently exited a now famous and profitable credit derivative bet against JPMorgan Chase & Co (JPM.N), according to sources familiar with the trade.
In May, JPMorgan reported a $2 billion trading loss in its chief investment office, due to large bets on an obscure group of indexes that track the performance of corporate bonds, including the Markit CDX NA IG Series 9 index. Weinstein's Saba, among other funds, bet against that trade.
Saba, which has liquidated its position in its entirety, "exited directly to JPMorgan's CIO office," according to a source familiar with the hedge fund.
Weinstein, a former Deutsche Bank trader, was one of the early proponents of a trade that involved buying Investment Grade Series 9 10-Year Index CDS, discussing it at the Harbor Investment Conference in February. Ironically, the conference was held at JP Morgan's Madison' Avenue offices.
Weinstein did not immediately return a request for comment.
JP Morgan Chief Executive Jamie Dimon was forced to defend his bank's policy before the U.S. Congress after disclosing the loss in May.
It could not be determined how much money Saba, which manages about $5 billion, made on the trade. The Saba Capital Master Fund rose 1 percent for the year through May. That fund has gained 2.3 percent for the year through June 22.
Saba was one of a number of hedge funds that were on the other side of the index trade from JPMorgan, a bet that turned lucrative for many of those managers this spring. Some of the other funds that made a trade similar to Saba included BlueMountain Capital Management and BlueCrest Capital Management.
JP Morgan, which is trying to unwind its own side of the trade, has taken fire for its risk management practices. Meanwhile, the U.S. Securities and Exchange Commission has opened an investigation into the trading loss.