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

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As discussed earlier and as outlined in more detail in Chapter III, on December 22, 2011,
Javier Martin-Artajo, head of the CIO’s equity and credit trading operation, sent an email to CIO
head Ina Drew recommending that the SCP’s RWA be reduced primarily by modifying the
models used to calculate the CIO’s RWA. 1067 The largest single reduction he advocated was a
change in the model for calculating CRM, which is a key component of RWA. His email stated
that changing the CRM model could reduce the CIO’s overall RWA by as much as $5 billion. 1068
Patrick Hagan, the CIO’s lead quantitative expert, told the Subcommittee that, at the
direction of Mr. Martin-Artajo, his supervisor, he had begun work on developing a new CRM
1069
model for the CIO during the summer of 2011. He confirmed to the Subcommittee that he
provided the estimate that the new CRM model he was developing could lower the CIO’s RWA
by $5 billion. 1070
As explained above, a few weeks later, on January 18, 2012, Mr. Iksil provided a written
presentation to Ms. Drew and others related to reducing the SCP’s RWA. The presentation
showed that, while the bank’s standard “QR” model produced a CIO RWA of $40.3 billion, an
1071
RWA model – a “shadow model” in Mr. Weiland’s words – developed by the CIO would
produce an RWA of just $20.9 billion, a reduction of nearly 50%. 1072 In addition, Mr. Iksil’s
presentation projected that if the QR model prevailed, and the SCP had to be actively reduced in
size, it would cost $590 million; whereas, if the CIO model prevailed, reduction of the portfolio
could cost as little as $100 million. 1073
These projections show that the CIO had a strong
incentive to see its shadow RWA model approved, including its revised method for calculating
CRM.
Soon after the January 18 presentation, however, the bank’s QR team experienced
technical difficulties and did not provide new CRM results for the CIO for five weeks.
results for the CIO were not calculated again until the beginning of March. 1075
At that time, the
1074 CRM
1067 See 12/22/2011 email from Javier Martin-Artajo, CIO, to Ina Drew and John Wilmot, CIO, “RWA – Tranche
Book,” JPM-CIO-PSI 0000032-34, at 33. See also 12/22/2012 email from Javier Martin-Artajo, CIO, to Bruno
Iksil, Patrick Hagan, Julien Grout and Samir Ratel, CIO, “urgent ----- : Rwa,” JPM-CIO-PSI 0001227 (listing
similar “model reduction[s]”).
1068
See 12/22/2011 email from Javier Martin-Artajo, CIO, to Ina Drew and John Wilmot, CIO, “RWA – Tranche
Book,” JPM-CIO-PSI 0000032-34, at 33 (“Model reduction QR CRM (ackno[w]ledged already) 5 (Pat [Hagan]
estimate).”).
1069
Subcommittee interview of Patrick Hagan, CIO (2/7/2013).
1070
Id.
1071
Subcommittee interview of Peter Weiland, CIO (8/29/2012).
1072
See 1/18/2012 email from Bruno Iksil to Julien Grout, “Meeting materials for 11am meeting,” conveying a
presentation entitled, “Core Credit Book Highlights,” prepared by Mr. Iksil, JPM-CIO-PSI 0000098-104.
1073
Id.
1074
See 5/3/2012 email from Irvin Goldman, CIO, to Douglas Braunstein, JPMorgan Chase, and others, “CSW
10%,” with attached JPMorgan Chase presentation entitled “CIO Synthetic Credit: Risk background information for
upcoming meetings,” slide entitled “Capital Metrics History,” at 8, JPM-CIO-PSI-H 0000546-556, at 555 (“From
late January through February model output was halted due to technology issues. … QR could not provide
information for 5 weeks.”).
1075
See 3/2/2012 email exchanges among Peter Weiland, CIO, and Javier Martin-Artajo, CIO, and others, “CIO
CRM Results,” JPM-CIO-PSI 0000338-339. See also 3/8/2012 email exchanges among Ina Drew, CIO, and Javier
Martin-Artajo, CIO, and others, “CIO CRM Results,” JPM-CIO-PSI 0000373-375.