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December 04, 2006

How JP Morgan Made $750 Million by Pushing Amaranth Off the Cliff

posted by MR WAVETHEORY at 12/04/2006 08:09:00 PM
In the world of finance, there is no right and wrong. Finance is amoral as far as industries or professions go. There is no Hippocratic oath - only the hyprocatic oath! Reports are coming out that JP Morgan, the prime dealer for Amaranth's derivatives trades, made $750 million after Amaranth went bust according to Investment Dealers’ Digest. I'd say that's a pretty nice pay day for a few days worth of work.

But even more importantly, the IDD story provides the outlines of what we’ve come to think of as the Amaranth Conspiracy Theory.

In its third-quarter earnings call, JPMorgan said it profited by taking over Amaranth's natural-gas positions. JPMorgan did not disclose how much it made, but according to one senior commodities executive at a JPMorgan rival, the bank earned $750 million on the trades. A JPMorgan spokesman declined to disclose the size of the bank's windfall.

JPMorgan earned money from Amaranth's losses by purchasing the hedge fund's natural gas positions when prices were under pressure and the fund was forced to liquidate to meet its margin requirements. When prices rebounded, JPMorgan reaped the benefits.

The eyebrow-raising part, for some observers, is that JPMorgan was prime broker to Amaranth and so was presumably the one doing the forcing. "I don't know if they did anything wrong, but when you pull the plug on a company and make a lot of money, it's a bit curious," says Berman (a lawyer for some Amaranth investors). The JPMorgan spokesman declined to give details on the dealings between Amaranth and the bank.

Amaranth didn't fall off the cliff. Mr. JP Morgan shoved it off the cliff.

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