Zacks highlights commentary from People and Picks Member «JDShots».
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JP Morgan wins on its contracts, even on both sides of essentially the same bet
Here is an excerpt from Janet Tavakoli, president of Tavakoli Structured Finance, as reported by Mike "Mish" Shedlock in his post titled "Mish's Global Economic Trend Analysis: Credit Default Swaps Useless as Hedge Against Default; CDS on Greece a Purposeful Sham; Derivatives King Always Wins":
Mike says ... "Note how the 'Derivatives King' JP Morgan ([url=https://www.zacks.com/stock/quote/jpm]JPM[/url]) wins on its contracts, even on both sides of essentially the same bet." ...
Snippet of Janet's comment:
... Hedge funds Eternity Global Master Fund Ltd. and HBK Master Fund LP thought they purchased protection against an Argentina default and sued when J.P. Morgan refused to pay off on Argentina credit protection contracts they had purchased.
At issue was the definition of restructuring. Did Argentina's "voluntary debt exchange" in November of 2001 meet the definition of a restructuring? The Republic of Argentina gave bondholders the option to turn in their bonds in exchange for secured loans backed by certain Argentine federal tax revenues. J.P. Morgan claimed this didn't meet the definition of restructuring, at least for the protection it sold to Eternity.
J.P. Morgan's story was different when it wanted to collect on the protection it bought from Daehon, a South Korean Bank. J.P. Morgan claimed its slightly different contract language met the definition of restructuring under the credit default protection contract it had with the South Korean Bank.
In other words, J.P. Morgan made sure its contract language would allow it to get paid when it bought protection and would make it harder for its counterparty to get paid when it sold protection.
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