BackJPMorgan trader Iksil fuels prop trading debate with swaps bets
JPMorgan trader Iksil fuels prop trading debate with swaps bets
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New York : JPMorgan Chase & Co. trader Bruno Iksil’s outsized bets in credit derivatives are drawing attention to a little-known division that invests the company’s reserves and fuelling a debate over whether banks are taking excessive risks with federally insured and subsidized money.
The trades, first reported by Bloomberg News 5 April, stirred debate among US policy makers over the Easter-holiday weekend as they wrangle over this year’s implementation of the so-called Volcker rule, the portion of the Dodd-Frank Act that sets limits on risk-taking by banks with government backing. The law passed after the collapse of the subprime mortgage market triggered the worst financial crisis since the Great Depression.
“I wouldn’t be surprised if the pro-Volcker folks used this as a test case," said Douglas Landy, a partner at law firm Allen and Overy LLP who is representing Canadian banks in opposing a current draft of the rule.
Senator Jeff Merkley criticized the transactions in a statement that called for the rule’s prompt implementation, while representative Brad Miller said they show why related US laws should apply internationally.
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. Neither Iksil nor JPMorgan have been accused of wrongdoing, and the full extent of his trading and the bank’s total risk of loss, or total gain, on his investments isn’t known. “Authorities will need more information from JPMorgan, the biggest US bank by assets, to discern the precise purpose of Iksil’s transactions," said Clifford Rossi, an executive-in- residence at the University of Maryland’s Robert H. Smith School of Business. “It clearly calls attention to the Volcker issue," said Rossi, who previously was a managing director at Citigroup Inc.
Chief executive officer Jamie Dimon, 56, sent a 38-page letter to shareholders last week, saying he agrees with the Volcker rule’s intent to eliminate pure proprietary trading and ensure market-making won’t jeopardize banks.
Still, as with derivatives laws, the rule must be written so that it doesn’t put US banks at an international disadvantage, he said.
“We cannot and should not be in a position where the rule affects US banks outside the US but not our foreign competition," he wrote.
Iksil drew attention from market professionals in recent months as trading accelerated in a group of credit-default-swap indexes created before and during the 2008 financial crisis. Until then, transactions had been dwindling as Wall Street banks stopped creating structured debt that the indexes were used to hedge against. Investors use credit-default swaps to shield themselves from losses on corporate debt or to speculate on a firm’s creditworthiness.
The trader became such a big client of credit-derivatives dealers that some started calling him Voldemort, the Harry Potter book-series villain so powerful he simply was referred to as “He Who Must Not Be Named", said one fund manager, who asked not to be identified because his firm does business with JPMorgan. “Iksil also has been dubbed the London whale," another trader said.
Iksil joined JPMorgan in 2005, according to his career- history record with the UK Financial Services Authority. He worked at the French investment bank Natixis from 1999 to 2003, according to data compiled by Bloomberg. Public records showing Iksil’s date of birth couldn’t be located. One person who has done business with Iksil said he’s in his late 30s. When a group of hedge-fund traders last year bet that a cluster of companies in one of the indexes wouldn’t default before contracts expired in December, Iksil was taking the opposite view, according to four market participants at hedge funds and banks, who spoke on condition of anonymity because they aren’t authorized to discuss the transactions.
Bloomberg
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