The offering memorandum for the Citadel bonds bore its first journalistic fruit today when Bloomberg reported that JPMorgan had exited the energy trading positions it picked up from Amaranth, the prominent hedge fund that collapsed after making bad bets on energy futures over the summer, selling them to Citadel. Since the offering memo went public, analysts, market watchers and, of course, financial journalists have poured through it looking for clues as to how the hedge fund giant does business. No doubt there is lots more information to be mined from the 363 page document.
JPMorgan Chase & Co., the third- biggest U.S. bank, sold its half of Amaranth Advisors LLC's energy trades to Citadel Investment Group LLC for $725 million less than two weeks after taking over the positions.
Amaranth, reeling from more than $4.6 billion in losses, transferred its energy investments to JPMorgan and Citadel on Sept. 19. Citadel, a Chicago-based hedge fund manager with $12.8 billion in assets, on Sept. 29 bought JPMorgan's share of the natural-gas, power and oil trades, Citadel said in a prospectus for a bond sale distributed to investors this week.
The proceeds helped New York-based JPMorgan cushion a third- quarter decline in trading revenue. Last week, Chief Executive Officer Jamie Dimon said the Amaranth transaction was a victory for his energy-trading department, which hasn't produced consistent gains since beginning an expansion last year.
But there’s more than that in the Citadel memo. First, there is clear evidence that JP Morgan and Citadel entered the transaction as partners. Previous reports had left it unclear whether each had bought off separate pieces of the portfolio or entered under some mutual arrangement. The memo refers to a “risk-sharing agreement” between the bank and the hedge fund, implying the institutions partnered on the deal.
Perhaps more importantly, the memo reveals how quickly the energy portfolio that wrecked Amaranth was “reshaped” so as to substantially less risk to Citadel and JPMorgan. It took all of two weeks. That’s a very quick turnaround.
JPMorgan Sold Its Amaranth Energy Trades to Citadel [Bloomberg]