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

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Of the four scenarios laid out in the Decision Table, the fourth, or “Target Scenario,” had
the lowest “drawdown” or expected loss. 444 Under the first two scenarios, if the QR model
prevailed, produced a higher RWA, and required the CIO to reduce SCP assets, the Decision
Table estimated the SCP losses at $200 to $300 million, depending upon whether the traders
reduced the risk actively – meaning immediately – or opportunistically – meaning over time. 445
Under the third scenario, if the CIO model prevailed and the traders reduced risk actively, the
Decision Table estimated losses at $150 million. Under the final scenario, if the CIO model
prevailed and the traders reduced risk over time, the Decision Table estimated the losses at $100
million. 446
A week after Mr. Martin-Artajo sent Ms. Drew the email describing the four scenarios
and providing the Decision Table, Mr. Iksil included the Decision Table again in a January 26
447
presentation proposing a trading strategy for the CIO on “the trades that make sense.” Mr.
Iksil later told the JPMorgan Chase Task Force investigation that the last scenario in the table
was the one that the CIO traders began to pursue. 448
The Subcommittee asked Ms. Drew about the Decision Table. In her first interview, Ina
Drew told the Subcommittee that she had never seen it before. In her second interview, the
Subcommittee staff drew her attention to Mr. Martin-Artajo’s email, which indicated that he had
discussed the scenarios with her, described them again in his email, and also sent her the table.
Ms. Drew conceded that she did receive the Decision Table as an attachment to another email
later on, but said she did not focus on it.
449
The Subcommittee has been unable to identify any
documentation establishing Ms. Drew’s approval of the RWA reduction strategy described in the
fourth scenario, although it’s difficult to understand why Mr. Martin-Artajo would have
discussed the options with her, followed up with an email, and had one of his traders include the
Decision Table in a subsequent presentation, if he had not intended to inform her of the strategy
and obtain her approval before proceeding.
The analysis undertaken in the January 18 presentation was designed to reduce the SCP’s
RWA so that the RWA for the CIO as a whole, and in turn, for the bank as a whole, would also
drop and reduce the bank’s capital requirements. Immediately after the presentation, however,
the SCP began to experience a series of dramatic losses stemming from the Eastman Kodak
default on January 19, and the credit market rally that reduced the value of the SCP’s credit
holdings, leading to SCP losses totaling $100 million by the end of January. JPMorgan Chase
has acknowledged that the traders’ goals of reducing RWA and avoiding losses were in “constant
444 1/19/2012 email from Javier Martin-Artajo, CIO, to Ina Drew, CIO, and others, “Credit book Decision Table –
Scenario Clarification,” JPM-CIO-PSI 0000106. The OCC explained to the Subcommittee that a drawdown in this
context is a loss that is expected to occur. Subcommittee interview of Michael Sullivan, OCC (11/7/2012).
445 1/19/2012 email from Javier Martin-Artajo, CIO, to Ina Drew, CIO, and others, “Credit book Decision Table –
Scenario Clarification,” JPM-CIO-PSI 0000106.
446 Id.
447 See 1/26/2012 email from Bruno Iksil, CIO, to Andrew Perryman, CIO, “credit book last version,” conveying
“Core Credit Book Highlights,” (January 2012), prepared by Mr. Iksil, at JPM-CIO-PSI 0000161.
448 JPMorgan Chase Task Force interview of Bruno Iksil, CIO (partial readout to Subcommittee on 8/27/2012).
449 Subcommittee interview of Ina Drew, CIO (12/11/2012). The Decision Table she received was attached to the
Iksil email sent a week later. See 1/26/2012 email from Bruno Iksil, CIO, to Andrew Perryman, CIO, “credit book
last version,” conveying “Core Credit Book Highlights” prepared by Mr. Iksil, at JPM-CIO-PSI 0000161.