(Bloomberg) – JPMorgan Chase & Co. suffered a $70 million loss on a few large bets on bonds and credit default swaps set up by its European high-yield trading desk.
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The majority of the losses relate to trades overseen by Gianfranco Canepa, the bank’s former co-head of high-yield trading for EMEA, according to people familiar with the trades.
Positions tipped from a gain, with losses accelerating rapidly in the weeks following Canepa’s recent departure to play a role at credit hedge fund GoldenTree Asset Management, according to people who asked. not be identified during confidential conversations.
Spokespersons for JPMorgan and Goldentree declined to comment. Canepa did not respond to multiple attempts to contact him.
Europe’s high-yield credit market, where investors buy and sell billions of euros in risky corporate bonds and derivatives, has been rocked by volatile geopolitics this year, ranging from the ongoing war in Ukraine to the UK’s economic collapse, all in an interest rate environment. The cost of insuring junk bonds against default soared in late September to the highest since the Covid pandemic before declining thereafter.
Canepa acquired a position of around 500 million euros ($526 million) in Casino Guichard-Perrachon SA, including the purchase of credit default swaps securing the French grocer’s underlying debt, said some people.
This position accounted for part of the losses. The price of Casino’s one-year swaps has fallen sharply since October, indicating a much lower probability of default.
Canepa had also bet on commodities company Metalcorp, a subsidiary of Monaco Resources Group SAM, which failed to repay 70 million euros of debt to investors on time in October. This position resulted in losses of around $20 million, some people said.
JPMorgan’s high-yield desk had offered above-market prices for Metalcorp’s bonds in October, people familiar said. Although it is not uncommon for there to be differences in bid prices, the premium offered by the bank on Metalcorp’s bonds compared to other companies was seen as unusual by investors. In a note to clients late last year, the lender said it had a long position in these bonds.
Read more: JPMorgan stuns bond traders with premium deals for struggling miner
–With the help of Nishant Kumar.
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