Trading & Options · Profile from Trading and Options Research Companion
JPMorgan London Whale
The 2012 trading loss in the Chief Investment Office (CIO) of JPMorgan Chase, the largest US bank, in which a London book of credit-default-swap index positions called the Synthetic Credit Portfolio (SCP) grew to a notional $157bn in the first quarter of 2012 and then lost at least $6.2bn (Senate Permanent Subcommittee on Investigations, report and release of 14 Mar 2013). The trader at the centre, Bruno Iksil, was nicknamed the "London Whale" because his positions in thinly traded indices such as CDX.NA.IG.9 were large enough to move them. The unit called the book a hedge but, the Senate found, could not say what it hedged. In the first quarter of 2012 the CIO breached all five of the SCP's major risk limits, adopted a new value-at-risk (VaR) model that roughly halved measured risk, and hid more than $660m of losses through favourable marks (PSI). Jamie Dimon called the press reports "a complete tempest in a teapot" on 13 Apr 2012, disclosed a loss of at least $2bn on 10 May 2012, and by 13 Jul 2012 the bank had restated its first quarter. In Sep 2013 JPMorgan paid ~$920m to the SEC, OCC, Federal Reserve and UK FCA and admitted to the SEC that it had broken the securities laws; in Oct 2013 it paid the CFTC $100m in the first case under Dodd-Frank's ban on manipulative devices. Criminal charges against two of Iksil's colleagues were dropped in Jul 2017. For this knowledge base the Whale is the case of a hedge that became a proprietary bet — and of a risk system bent to fit the position. The bank-as-a-business story is in Finance: JPMorgan Chase and its London Whale move; this profile takes the trading and risk angle.
At a glance
- Entity
- JPMorgan Chase & Co. (New York; listed, NYSE: JPM); the Chief Investment Office, part of Corporate/Private Equity, with the SCP run from London
- Type
- Bank trading desk / blow-up (single-event entity)
- Purpose of the unit
- Investing the bank's excess deposits — ~$350bn (Finance KB, reported) or ~$400bn (IFRE, Jan 2013, citing the Task Force report) — and hedging structural risks
- The book
- Synthetic Credit Portfolio: long and short protection on investment-grade and high-yield CDS indices (CDX, iTraxx) and index tranches; notional $157bn in Q1 2012; grew tenfold in 2011 and tripled in 2012 (PSI release, 14 Mar 2013)
- Key people
- Ina Drew (Chief Investment Officer; retired 14 May 2012); Achilles Macris (head of CIO International); Javier Martín-Artajo (head of credit trading, London); Bruno Iksil (trader); Julien Grout (junior trader who marked the book); Irvin Goldman (CIO chief risk officer in 2012); Jamie Dimon (CEO)
- Loss
- At least $6.2bn in 2012 (PSI); ~$5.8bn at 13 Jul 2012 ($4.4bn in Q2 plus $1.4bn recalculated for Q1, per company figures as summarised by Wikipedia)
- Penalties
- ~$920m on 19 Sep 2013: SEC $200m, OCC $300m, Federal Reserve $200m, UK FCA £137.6m (SEC release 2013-187 for the total and the SEC share; agency split as in Finance KB); CFTC $100m, 16 Oct 2013 (release 6737-13)
- Regulators
- SEC (books and records, internal controls, Exchange Act 13(a) and 13(b)); OCC and Federal Reserve (safety and soundness); UK FCA (Principles for Businesses); CFTC (Dodd-Frank §753 manipulative device); US Senate PSI; DOJ (SDNY)
- Moves in this profile
- Seven — the Whale is a single-event entity in this KB (rule 6). It covers the book's origin, the Q1 2012 decisions, the model and limit changes, the disclosure and unwind, the investigations, the settlements and the failed prosecutions. JPMorgan's corporate history (ten moves) is in the Finance KB
- Signature moves (incl. failures and enforcement)
- Turning a credit hedge into a profit centre (2006–11); the Q1 2012 "reduce RWA without selling" trades and the $157bn book; the new VaR model and limit breaches (Jan–Mar 2012); "tempest in a teapot", disclosure and unwind (Apr–Dec 2012); the Task Force and Senate reports (Jan–Mar 2013); the SEC/OCC/Fed/FCA and CFTC settlements (Sep–Oct 2013); the trader prosecutions and their collapse (2013–17)
7 strategic moves analysed
Each one gets a full strategy file in the companion: context, the decision, the financing, what happened, and the lesson.
2006
Synthetic Credit Portfolio as a Hedge
New strategy / strategy pivot (hedge to profit centre)
2012
RWA Reduction Trades and the 157bn Book
Large trade or position
2012
Tempest Disclosure and Unwind
Loss, drawdown or blow-up response
2012
VaR Model Change and Limit Breaches
Leverage, sizing or risk-limit change
2013
Global Settlements and the CFTC Order
Regulatory, enforcement or legal action
2013
Task Force and Senate Reports
Regulatory, enforcement or legal action (investigation and response)
2013
Trader Prosecutions and Their Collapse
Regulatory, enforcement or legal action (individuals)