JPMORGAN CHASE WHALE TRADES: A CASE HISTORY OF DERIVATIVES RISKS AND ABUSES

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“In terms of the worse case scenario for us for Q2 [second quarter] I am redoing
the work once again to make sure that if we exclude very adverse marks to our
book the potential loss due to market moves or any economic scenario including
defaults would not exceed a number higher than -200 MM USD [$200 million] at
the end of Q2 with the current book as it is.” 753
The email did not explain to Ms. Drew how the CIO could “exclude very adverse marks” from
the SCP book, and in that email exchange, she did not ask.
The first trading day after the whale trade media reports was April 10, 2012. 754 At the
close of business in London, the CIO traders sent out an SCP P&L Predict projecting a daily loss
of only about $6 million, 755 which suggests that a decision had been made to continue the
mismarking. Less than ninety minutes later, however, a second P&L Predict email was sent
showing an estimated loss of $395 million. 756
That loss was 60 times greater than the loss
reported in the first SCP P&L Predict.
The difference between the two estimates was $389 million. Of that difference, a
comparison of the two estimates shows that $142 million or nearly half of the difference was
directly attributable to the CIO’s changing the marks on two of its largest positions, the
“CDX.IG S09 10Y” and the “iTraxx.Main S09 10Y.” The mark for the SCP’s IG9 10 year credit
index position was changed from 123.75 to 126, 757 a significant change on a position with a
notional value of $79 billion; it increased the daily loss on this position from $330 million to
$418 million, a $88 million increase. Almost as dramatic, the mark for the iTraxx Main S9 10
year position was changed from 164 to 167.25, 758
which, for a position with the notional value of
$23 billion, increased its daily loss from $227 million to $282 million, a $55 million increase.
These increased losses were combined with over 100 other gains and losses in the SCP book.
When asked about the huge increase in the reported daily loss after the 90-minute
interval, Bruno Iksil later told the JPMorgan Task Force investigation that the first number was
simply an “accident.” 759
When the two emails are compared, however, they contain multiple
differences at various points, including the new marks just described; there is no single
typographical or arithmetic mistake. In its 2013 report, the JPMorgan Chase Task Force wrote
that the CIO trader responsible for the SCP daily marks – who was Mr. Grout – had been
753
4/6/2012 email exchange among Javier Martin-Artajo, Ina Drew, and Achilles Macris, CIO, “Update,” JPM-CIO-
PSI 0001429.
754
The markets were closed on Monday, April 9, due to Easter. See 2013 JPMorgan Chase Task Force Report, at
64, footnote 78.
755
See 4/10/2012 email from Julien Grout, CIO, to the CIO Estimated P&L mailing list, dated April 10, time
19:02:01 GMT, subject “CIO Core Credit P&L Predict [10 Apr]: -$5,711k (dly) -$626,834k (ytd). See JPM-CIO
0003570-572.
756
See 4/10/2012 email from Julien Grout, CIO, to the CIO Estimated P&L mailing list, time 20:30:42 GMT, “CIO
Core Credit P&L Predict [10 Apr]: -$394,735k (dly) -$1,015,858k (ytd),” JPM-CIO 0003573-576.
757
Compare email from Julien Grout, CIO, to the CIO Credit Positions mailing list, dated April 10, time 19:02:23
GMT, JPM-CIO-PSI 0032406, with email from Julien Grout to the CIO Credit Positions mailing list, dated April 10,
time 20:31:08 GMT, JPM-CIO-PSI 0023061.
758
Id.
759
Subcommittee interview of Michael Cavanagh, JPMorgan Chase (12/12/2012) (Harry Weiss).