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

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respond to regulators’ questions about the SCP, and included Mr. Braunstein on his email, 1548
but JPMorgan Chase never produced it. 1549
Net Long Posture. Mr. Braunstein explained to the Subcommittee that JPMorgan
Chase, by its very nature as a bank which loans money, was “long” credit, because when credit
1550
deteriorated, the bank lost money. In contrast, a portfolio that held a “short” credit position
generally gained money when credit deteriorated. On April 5, 2012, in anticipation of the press
articles due to be published the following day, 1551
Ms. Drew sent Mr. Dimon, Mr. Braunstein,
and other members of the JPMorgan Chase Operating Committee an email on April 5 stating:
“The book has been extremely profitable for the company …. Going into the
[financial] crisis we used the book to hedge ... credit widening .... Post December
as the macros scenario was upgraded and our investment activities turned pro risk,
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the book was moved into a long position.”
Mr. Braunstein told the Subcommittee that he was sure he read the email, though he was not
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aware of this particular sentence.
The Subcommittee staff asked JPMorgan Chase’s officials to reconcile how the SCP
could simultaneously be both “long,” and serve as a hedge in 2012, when the bank itself was
“long.” If the SCP had the same overall long exposure as the bank overall, the SCP would lose
money when the bank lost money, instead of offseting the bank’s losses. The Chief Risk Officer
for the firm, John Hogan, and his deputy, Ashley Bacon, conceded that they could not reconcile
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the SCP holding a long position and also functioning as a hedge for the bank. Similarly, John
Wilmot, the Chief Financial Officer of the CIO, was unable to do so. 1555
Joseph Bonocore, the
former Chief Financial Officer for the CIO and the former Treasurer for JPMorgan Chase, stated
that he did not believe the book could both be long and maintain a hedge against losses in a
1548
4/10/2012 email from John Hogan, JPMorgan Chase, to John Wilmot, CIO, Douglas Braunstein, JPMorgan
Chase, Jamie Dimon, JPMorgan Chase, and others, “Materials for FED/OCC Questions,” JPM-CIO-PSI 0001021.
1549
Subcommittee interview of Scott Waterhouse, OCC (9/17/2012). See also Subcommittee interview of Michael
Kirk, OCC (8/22/1012); 4/10/2012 email from Michael Kirk, OCC, to Fred Crumlish, OCC, and others, “CIO info
on elephant trade,” OCC-00004730 (Mr. Kirk: “What would be helpful would be to see the stress scenarios without
these assets, and with these assets so one can understand the impact. … It would also be helpful if the CIO could
provide some indication of a present target level they are trying to achieve, and hence the change of activity that
resulted in the same (in other words results prior to and after recent trades.).” Mr. Crumlish: “In my response on
JPM email …. I also said it would be useful if they provided analytics or a summary that recapped the hedge
strategy, such as the expected impact of the hedge on the projected stress loss identified. I asked for this on the call
as well.”); see 4/10/2012 email from Fred Crumlish, OCC to Scott Waterhouse, OCC, and others, JPM CIO trades,
OCC-00004087 (“We asked the bank for a number of items yesterday that reflect details on the trades and support
the stress loss hedge rationale associated with this particular strategy.”).
1550
Subcommittee interview of Douglas Braunstein, JPMorgan Chase (9/12/2012).
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4/5/2012 email from Ina Drew, CIO, to Jamie Dimon, JPMorgan Chase, and others, “CIO,” JPM-CIO-PSI
0000539 (“I want to update the operating committee on what is going on with the credit derivatives book in CIO
especially given a wsj article which will come out tomorrow.”)
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4/5/2012 email from Ina Drew, CIO, to Jamie Dimon, JPMorgan Chase, and others, “CIO,” JPM-CIO-PSI
0000539.
1553
Subcommittee interview of Douglas Braunstein, JPMorgan Chase (9/12/2012).
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Subcommittee interview of John Hogan and Ashley Bacon, JPMorgan Chase (9/4/2012).
1555
Subcommittee interview of John Wilmot, CIO (9/11/2012).