Quick Thinking Contained Amaranth Woes

It took some quick thinking – and quick work – on the part of a Wall Street giant and a major hedge fund to keep the Amaranth Advisors collapse from becoming a global disaster, The Wall Street Journal reports. With Amaranth on the verge of immediately closing if it couldn’t get rid of its energy investments, JPMorgan Chase and Citadel Investment Group managed to accomplish the complex task in 48 hours, first coming up with a valuation – constantly dropping – of Amaranth’s sometimes highly illiquid portfolio of trades, and then making deals with the Greenwich, Conn., firm’s counterparties on new agreements. Citadel and JPMorgan concluded that once the trades were off Amaranth’s books, they would be worth more than expected, partly because the pair are bigger than Amaranth and could afford to wait them out. After the trades – and $2 billion in collateral – were transferred to them, Citadel and JPMorgan were able to shift more than half of the risk they assumed to others.