J.P. Morgan is looking to capitalize on the increased growth of hedge funds and public accounts in the loan market by moving its loan trading group from the private to the public side of the informational wall. The change will reduce compliance concerns and boost J.P. Morgan's distressed bond business by enabling the loan trading desk to trade and sell both loans and securities.
"The growth of hedge funds and public accounts over the last five years has been exponential. An increasing number of accounts are looking at relative value trades between bonds, [credit default swaps], loans, the whole range of debt securities. So that was a big driver," said Eric Rosen, managing director and co-head of credit trading at J.P. Morgan. "We are co-locating credit trading on one floor. Our clients will be able to more seamlessly buy and sell loans, high yield and high-grade bonds, CDS and preferred stocks." As reported last week on LMW's Web site, John Abate, J.P. Morgan's distressed loan trader, has been named head of par and distressed loan trading and distressed bond trading under the new reporting lines. Additionally, Angie Long, the head high-yield credit derivatives trader, became head of high-yield credit trading.
The change helps sort out what can be a complicated compliance issue at banks. A loan source familiar with the situation said this was not the primary driver, but a trader at a major buyside account said it played a major role. "J.P. Morgan is trying to avoid compliance issues," the trader said, adding that when talking to different market participants it becomes hard to keep track of the information that gets out.
The bank, which for the past three years has been named the best overall loan trading shop in LMW's annual poll of investors, has asked its clients to withhold syndicate information levels from its secondary loan trader, salesperson or analyst, according to a letter sent to clients. However, on special situations J.P. Morgan's trading desk could opt to assume a private profile toward a borrower.
Some of the groundwork of the move was instituted last November when Rosen was promoted to the co-head role with Geoff Sherry, and loans were incorporated into the credit group. But a banker at a rival shop added that J.P. Morgan's loan syndications and trading desks have always been more separate compared to other banks, making the switch easier.
The move also does not represent a shift in either direction for the market, according to bankers and buyside traders. Citigroup, Credit Suisse First Boston andDeutsche Bank have par and distressed trading on the private side. Goldman Sachs and Morgan Stanley are on the public side and Bank of America and Lehman Brothers are public on distressed credits.
For some sellsiders at these banks, keeping their trading operations private "keeps the business unified in terms of information levels," according to one loan sales pro. Indeed, the buyside trader believes that firms that have kept their loan trading desks private will "probably move to take advantage of this." He stated, "If you don't know what's going on in the name, you get pasted." But a sellsider from a top tier bank disagreed, saying, "J.P. Morgan's decision to be public does not affect anyone else. Some clients that like to stay on the private side will still be able to do business with them. They will just have more information than J.P. Morgan."
