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

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understanding: “We were informed at year end 2011 that they were going to ‘take the book
down, reduce the risk.’ That meant getting RWA down. My understanding, in my mind, they
were going to reduce the book.” 1288 When asked about his statements to the OCC during the
January 2012 meeting, Mr. Wilmot told the Subcommittee that when he spoke of “decreases,” it
was only in terms of RWA, and that he was unaware of the tactics the CIO traders planned to use
to decrease the RWA. 1289
Yet, a few days earlier on January 26, 2012, the CIO traders had proposed lowering the
SCP’s RWA, not by reducing the size of the trading book, but by purchasing increased amounts
1290
of long credit instruments to offset the book’s short positions. The notes of the quarterly
meeting do not contain any reference to that proposal, and the OCC examiners informed the
Subcommittee that the bank never raised it. 1291
Because the bank’s strategy for reducing the
CIO’s RWA – by adding long positions – would increase risk, and because it was contrary to
usual practice for “decreasing” the portfolio, JPMorgan Chase should have told the OCC about
its plans at the time.
Moreover, at the time of the quarterly meeting on January 31, 2012, CIO trader Bruno
Iksil had already informed CIO management that the SCP had lost $100 million and was
1292
expected to lose another $300 million. Together, that huge loss would eliminate the CIO’s
entire fourth quarter 2011 gains and, according to the OCC examiner, constituted “material”
information that the bank should have shared, but which Mr. Wilmot did not disclose. 1293 Mr.
Wilmot told the Subcommittee that, even though he was the CIO’s Chief Financial Officer, he
did not review the SCP’s daily profit and loss numbers, and that even if he had, the profits and
losses for the book would have “moved around.” 1294
It was the first of many SCP losses that the
bank did not disclose to the OCC, but should have.
The bottom line is that the OCC’s quarterly meeting with the CIO took place at a critical
time. Had the CIO disclosed the size, risk profile, losses, and plans for the SCP to its regulator
during the January 2012 meeting – rather than downplayed the portfolio by saying the CIO
planned to reduce it – the OCC could have evaluated the trading strategy and raised questions
about the rapid expansion in size and risk that took place over the next two months and later led
to multi-billion-dollar losses.
1288
Subcommittee interview of Scott Waterhouse, OCC (9/17/2012).
1289
Subcommittee interview of John Wilmot, CIO (9/11/2012).
1290
1/26/2012 email from Bruno Iksil, CIO, to Andrew Perryman, CIO, “credit book last version,” JPM-CIO-PSI
0000159, conveying “Core Credit Book Highlights,” (1/2012), prepared by Mr. Iksil; Subcommittee interview of
Peter Weiland, CIO (8/29/2012). For more information about this proposal and its approval, see Chapter III.
1291
Subcommittee interview of Scott Waterhouse, OCC (9/17/2012). Subcommittee interview of Jaymin Berg, OCC
(8/31/2012).
1292
1/26/2012 email from Bruno Iksil, JPMorgan Chase, to Julien Grout, JPMorgan Chase, “credit book last
version,” conveying “Core Credit Book Highlights,” (1/2012), prepared by Mr. Iksil, JPM-CIO-PSI-0000159. The
$100 million in losses was also reported in the daily profit and loss reports recorded internally by the CIO.
1293
Subcommittee interview of Jaymin Berg, OCC (8/31/2012).
1294
Subcommittee interview of John Wilmot, CIO (9/11/2012).