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

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After the article was published on April 6, and in preparation for an earnings call on April
13, 2012, the bank’s Operating Committee was informed about the size of the positions in the
Synthetic Credit Portfolio. 1179 On April 11, 2012, the CIO’s Chief Financial Officer John
Wilmot emailed Mr. Dimon a presentation about the portfolio that included an analysis of the
notional positions. He wrote: “Attached please find a presentation on the synthetic credit book
that was reviewed this afternoon with Doug [Braunstein], Jes [Staley], Ina [Drew], Barry
[Zubrow] and John [Hogan]. It covers the relevant data requests from the past several days.” 1180
The first page of the presentation was entitled, “Synthetic Credit Summary: Notional
Exposure.” 1181
The presentation included the following bullet points:
“Gross external (to CIO, including IB) notional is $836bio [billion] long risk vs.
$678bio short risk across all index and tranche products….
CDX.IG.9 net position for CIO is $82.2bio, which is approximately 10-15 days of
100% trading volume[.]
ITX.9 net position for CIO is $35bio, which is approximately 8-12 days of 100%
trading volume.”
JPMorgan Chase personnel acknowledged to the Subcommittee that these figures represented
enormous concentrations in specific credit instruments, including an $82 billion net long position
in the IG9 credit index and a $35 billion net long position in the ITX.9 credit index. In addition,
John Hogan and Douglas Braunstein separately explained to the Subcommittee that, while it is
theoretically possible to trade 100% of the average daily volume of an instrument in a single day,
it is impractical to do so, since a single party trading that volume in a day would cause
significant adverse movements in the price of the instruments. 1182 They explained that, while the
IG9 and ITX indices were normally considered liquid instruments, in that they are easily traded,
the massive volume of the CIO’s positions made them relatively illiquid in terms of how long it
would take to exit the positions. Mr. Hogan said that if concentration limits like those in use at
the Investment Bank had been in use at the CIO, it would have prevented the CIO from
accumulating positions of that size. 1183
On April 13, 2012, Mr. Hogan emailed Mr. Dimon that concentration limits similar to
those at the Investment Bank would be implemented at the CIO within a matter of weeks:
“I spoke with Ashley [Bacon] this morning who is working with Achilles [Macris]
to implement a similar limit/governance structure on this book to the one that we
1179 See 5/3/2012 JPMorgan Chase presentation, “CIO Synthetic Credit,” JPM-CIO-PSI-H 0000547, at 550
(“Significant increase in net notional position (not indicative of risk position)”.).
1180 4/11/2012 email from John Wilmot, CIO, to Jamie Dimon, JPMorgan Chase, and others, “synthetic credit
information,” JPM-CIO-PSI 0001701.
1181 Id. at 702.
1182 Subcommittee interviews of John Hogan and Ashley Bacon, JPMorgan Chase (9/4/2012) and Douglas
Braunstein, JPMorgan Chase (9/12/2012).
1183 Subcommittee interview of John Hogan and Ashley Bacon, JPMorgan Chase (9/4/2012).