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

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that CIO would exit the synthetic business as a hedging mechanism over the course of the next
year. 397
An additional consideration, however, militated against simply unwinding the SCP book.
According to Mr. Iksil, Ms. Drew was mindful of the $400 million gain the SCP had achieved by
having default protection on its books to profit from the American Airlines bankruptcy. Mr. Iksil
told the JPMorgan Chase Task Force investigation that, in early December 2011, Ms. Drew
instructed him to “recreate” the American Airlines situation, because those were the kinds of
398
trades they wanted at the CIO: the CIO “likes cheap options.” Thus, as he described it, he
was told to maintain the SCP’s default protection in order to position the CIO to profit from
future American Airlines-type defaults. 399 Ms. Drew confirmed to the Subcommittee that she
gave guidance to the traders to position the book for another gain like in late 2011. 400
In short,
Ms. Drew indicated her preference to avoid reducing the SCP book in a way that would reduce
its default protection and the opportunity to profit from future corporate defaults.
On January 4, 2012, the CIO traders prepared a presentation for Ms. Drew, John Wilmot,
and Irvin Goldman that set out the execution costs for unwinding the SCP. The cover email
stated: “[P]lease find attached a grid for the Core credit Book RWA reduction scenarios ....
Currently any major reduction will lead to a very high cost through proportional reducing.”
That presentation estimated the execution cost for achieving a $10 billion reduction in RWA to
be $516 million. 402 The presentation also identified the possible lost profits from eliminating
default protection if one or two corporations were to declare bankruptcy. 403
On January 10, 2012, Javier Martin-Artajo, head of CIO equity and credit trading, sent an
email to Ms. Drew informing her that initial efforts to unwind the SCP were proving costly:
“Bruno has been unwi[n]ding some of these pos[i]tions opportunistic[al]ly. The
other side of the P/L [profit and loss] is that it has been somewhat costly to
unwind too so net net we have actually lost a little bit of money to unwind.”
Ms. Drew responded: “Let’s review the unwind plan to maximize p l [profit/loss]. We may
have a tad more room on rwa.” Her comments followed information the day before, that the
397
Subcommittee interview of Irvin Goldman, CIO (9/15/2012).
398
JPMorgan Chase Task Force interview of Bruno Iksil, CIO (partial readout to Subcommittee on 8/27/2012).
399
Id.
400
Subcommittee interview of Ina Drew, CIO (12/11/2012). See also 2013 JPMorgan Chase Task Force Report, at
3 (indicating CIO traders were “directed to ensure that the Synthetic Credit Portfolio was well-positioned for future
corporate defaults”); 1/9/2012 email from Ina Drew, CIO, to Ina Drew, CIO, “CRM results for Q4,” JPM-CIO-PSI
0000073 (Ms. Drew wrote that she wished to avoid “deleveraging” the SCP book to maintain “option[al]ity”). Mr.
Wilmot told the Subcommittee that “deleveraging” meant exiting positions. Subcommittee interview of John
Wilmot, JPMorgan Chase (9/11/2012). JPMorgan Chase counsel explained that “optionality” referred to default
protection. Id. (Jay Balacek).
401
1/4/2012 email from Julien Grout, CIO, to Ina Drew, John Wilmot, and Javier Martin-Artajo, CIO, “RWA
reduction for Core Credit- scenario analysis summary,” JPM-CIO-PSI 0001259.
402
Id. at JPM-CIO-PSI 0001260.
403 Id.
401