JPMorgan’s Risk Swap Ends Up at a Familiar Place: Rival Banks
SRT trades are meant to shift loan risks out of the banking system, but the use of leverage by buyers of the complex securities is calling that into question.
A Wall Street sign in New York.
Photographer: Alex Kent/BloombergWhen JPMorgan Chase & Co. arranged a series of trades to shift the risk of losses from $20 billion of its loans, some of those dangers wound up at a familiar place: rival banks.
The deal, struck late last year, was one of the biggest ever Synthetic Risk Transfer trades, or SRTs, opaque transactions heralded by Wall Street and approved by regulators that are supposed to hand possible loan losses to hedge funds and other nonbank investors. Yet some buyers in the JPMorgan deal — and in multiple other SRT trades — borrowed money from other banks to help finance their stakes and inflate returns, people familiar with the matter say.