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

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during a market rally so, according to CIO’s market risk officer at the time, adding longs would
help balance the portfolio’s losses if the credit market continued to rally. 456 Finally, buying long
credit products financed the CIO’s purchase of more short positions, enabling the CIO to retain
its ability to profit from another American Airlines-type default. 457
In short, the CIO traders began accumulating long credit derivatives – selling credit
protection – in a mistaken effort to address all of the CIO’s problems at once: to offset losses by
producing carry, reduce RWA, add appreciating positions to the portfolio during the market
rally, and allow the CIO to maintain default protection.
(11) Adoption of 2012 Trading Strategy
Accordingly, on January 26, 2012, Mr. Iksil prepared a presentation for the CIO’s
International Senior Management Group (“ISMG”) advocating a new trading strategy in which
the CIO would buy more long credit derivatives. 458 The ISMG was, as its name indicates, a
group of senior managers within the CIO’s International Office, including Mr. Macris, Mr.
Martin-Artajo, and CIO risk personnel, including Keith Stephan. 459 The ISMG participants were
resident in the CIO’s London office, and Ms. Drew attended their meetings when she was in
London. 460 Ms. Drew told the Subcommittee that she considered the ISMG to be the appropriate
level for an SCP strategy review. 461
The Iksil presentation began by noting that “the credit book ha[d] a YTD [year-to-date]”
462
loss of $100 million and was expected to lose another $300 million. The presentation
identified several sources of the loss, including the “rally in US HY [High Yield credit index]
and defaults at the same time (as Eastman Kodak this year).” 463
It also stated that the SCP
already included some long credit instruments which were providing “offsetting gains to the
that RWA could “typically” be reduced by offsetting instruments but only with the exact same characteristics,
including the same “tenor” or maturity date and counterparty. Subcommittee interview of C.S. Venkatakrishnan,
JPMorgan Chase (10/25/2012). See also 4/9/2012 email from John Wilmot, CIO, to Ina Drew and others, CIO,
“Deliverables for meeting tomorrow,” JPM-CIO-PSI 0001645 (referring to conversation with CFO Douglas
Braunstein, who explained that selling protection might not have been as economic, from an RWA perspective, as
reducing the existing protection); JPMorgan briefing (7/5/2012) (Greg Baer).
456
Subcommittee interview of Peter Weiland, CIO (8/29/2012).
457
See, e.g., 5/3/2012 email from Irvin Goldman to Douglas Braunstein and others, “CSW 10%,” conveying “CIO
Synthetic Credit” presentation (5/2012), JPM-CIO-PSI-H 0000549 (presentation indicating that the SCP sought to
retain the upside on potential defaults and thus sold protection on investment grade indices).
458
1/26/2012 email from Bruno Iksil, CIO, to Andrew Perryman, CIO, “credit book last version,” JPM-CIO-PSI
0000159-176, conveying “Core Credit Book Highlights,” (1/2012), prepared by Mr. Iksil; Subcommittee interview
of Peter Weiland, CIO (8/29/2012).
459
JPMorgan Chase Task Force interview of Javier Martin-Artajo, CIO (partial readout to Subcommittee on
9/6/2012).
460
Subcommittee interview of Ina Drew, CIO (9/7/2012).
461
Id. See also JPMorgan Chase Task Force Report, at 32, footnote 39 (stating “there is no evidence that Ms. Drew
received” the Iksil presentation and that she only “generally” understood “around this time that the traders were
planning to add long positions,” thereby implying that the ISMG rather than Ms. Drew actually approved the trading
strategy in January 2012).
462
1/26/2012 email from Bruno Iksil, CIO, to Andrew Perryman, CIO, “credit book last version,” conveying “Core
Credit Book Highlights,” (1/2012), prepared by Mr. Iksil, JPM-CIO-PSI 0000161.
463
Id. at JPM-CIO-PSI 0000161.