Moore Capital Management LLC, the hedge fund that had boosted its JPMorgan Chase & Co. (JPM) investment earlier this year, joined other firms in selling the bank’s shares following a multibillion-dollar trading loss.
Moore, the $15 billion New York-based firm run by Louis Moore Bacon, sold its full JPMorgan holding of about 6.47 million shares in the second quarter, according to a filing yesterday with the Securities and Exchange Commission. TPG-Axon Management LP, the $4 billion fund run by Dinakar Singh, sold its stake of 3.13 million shares.
JPMorgan stakes held by hedge funds, mutual funds and other asset managers with at least $100 million in U.S listed equities shrank by $28.7 billion to $89.8 billion in the second quarter, the biggest position decrease among all U.S. equities in the quarter, according to data compiled by Bloomberg. Firms sold a net 65.5 million shares in the period after the New York-based bank disclosed a trading loss that has grown to at least $5.8 billion and its stock slumped 22 percent.
The hedge-fund sales are “a reflection of the fact that at least for the near term, it’s dead money,” said Nancy Bush, an analyst and contributing editor at SNL Financial LC, a research firm based in Charlottesville, Virginia. “We’re only a couple months into this process so we have at least several more months of this playing out. You just don’t know what the collateral damage is going to be.”
JPMorgan Chief Executive Officer Jamie Dimon, 56, initially called the trade a “tempest in a teapot” before the bank said it had found “material weakness” in its internal controls and financial reporting. The lender is being investigated by at least 11 state, federal and international enforcement bodies, the company said in an Aug. 9 regulatory filing.
The stock has settled into a range and isn’t likely to break out until more legal and regulatory repercussions are known, Bush said. “When you get into the penalty box, particularly when you surprise your regulator, it’s not a good thing,” she said.
JPMorgan fell 3 cents to close at $37.07 in New York. Its market value has declined by about $28 billion since Bloomberg News reported April 5 that the bank had built up a large and illiquid position in credit derivatives.
Moore Capital’s move is a reversal from the first quarter when it bought 6 million shares to make JPMorgan its largest U.S. stock holding, according to filings.
Others selling a JPMorgan stake included George Soros’s Soros Fund Management LLC, which disposed of 606,000 shares, and Owl Creek Asset Management LP, the New York-based fund founded by Jeffrey Altman, which sold 2.94 million, filings show.
Highfields Capital Management LP, the Boston-based hedge fund run by Jonathon Jacobson, sold 2 million shares, ending the quarter with 7.36 million. Leon Cooperman’s Omega Advisors Inc. sold 1.43 million shares, retaining almost 791,000.
Some investors were buyers. London-based Odey Asset Management Ltd., run by Crispin Odey, added to its holdings in JPMorgan, Wells Fargo & Co. and Citigroup Inc. (C), making the lenders its three largest U.S. stock holdings at the end of the period. The hedge fund purchased more than 645,000 shares of JPMorgan, lifting its position to 3.04 million shares.
Capital Growth Management LP, the firm run by Kenneth Heebner, who ranked as America’s No. 1 stock picker before losing most of his main fund’s assets, added 3 million JPMorgan shares. John Paulson’s Paulson & Co. held 4 million shares as of June 30 after reducing its holdings of JPMorgan warrants in the quarter. The filing doesn’t indicate whether Paulson exercised the warrants to accumulate the shares. Armel Leslie, a spokesman for the New York-based hedge fund, declined to comment.
Hedge funds soured on other banks as financial companies lost 7.3 percent in the second quarter.
At least one firm exited its investment in Citigroup in the second quarter as the New York-based bank retreated from plans to disburse more capital to shareholders. Citigroup, led by CEO Vikram Pandit, 55, said in a June 8 statement that it won’t seek permission to increase 2012 payouts.
Viking Global Investors LP, run by Andreas Halvorsen in New York, sold 8.45 million Citigroup shares while Bill Ackman’s Pershing Square Capital Management LP sold 25 million, ending June with 1.1 million. Moore Capital also sold its stakes in Wells Fargo and U.S. Bancorp.
For JPMorgan, the risks remain, said Bush. Dimon ousted traders and managers and overhauled the ranks of senior executives after disclosing the trading losses in May.
“The biggest risk is that they can’t deliver the earnings,” Bush said. “Does this make the company have to essentially change their appetite for risk and does that change their earning ability?”