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

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derivatives and incurring even more losses. According to the key trader, Bruno Iksil, at the
beginning of February, Ms. Drew asked him how much the book would lose if the positions were
reduced, and he responded “a lot,” because the IG9 long positions were not liquid enough to sell
easily. 495 Apparently neither Ms. Drew nor any other CIO manager told the traders to stop the
book’s acquisitions or reduce any of the growing SCP positions. Instead, over the course of
February, the CIO traders increased the size of the IG9 forward position from $75 billion at the
beginning of the month to $94 billion at the beginning of March. 496 Those purchases
dramatically increased the SCP’s long holdings, leading one trader to describe the book as set to
“trade on the bullish side.” 497
At the same time, during the month of February, the credit market continued to rally, and
498 499
the overall value of the SCP book continued to fall. Mr. Iksil continued to trade. On
February 9, 2012, the SCP book breached a risk limit called “CS01.” 500 The book at that point
had reported losses exceeding $128 million since the beginning of the year. 501
Despite the
breach – and the losses – CIO managers allowed the traders to continue to implement their
trading strategy.
On February 13, 2012, an additional complication arose. According to notations in an
internal document authored by Mr. Iksil, Ally Financial, Inc. a bank holding company,
announced that it was preparing a pre-packaged bankruptcy petition for its mortgage subsidiary,
502
Residential Capital LLC (ResCap). Mr. Iksil explained that this news affected the prices of
the indices in which the SCP was trading to such an extent that the SCP had to post mark-to-
market losses on both the protection it had bought and the protection it had sold. 503
for this double loss were unclear, yet the traders continued to acquire still more credit
derivatives.
The reasons
495
JPMorgan Chase Task Force interview of Bruno Iksil, CIO (partial readout to Subcommittee on 8/27/2012).
496
See 4/9/2012 email from Achilles Macris, CIO, to Douglas Braunstein, JPMorgan Chase, and Ina Drew, CIO,
“Synthetic Credit Presentation,” conveying presentation entitled “Core Credit P/L estimates for Q2,” at 22, JPM-
CIO-PSI-H 0002212; Subcommittee briefing by JPMorgan Chase (8/15/2012) (Jeanette Boot).
497
2/22/2012 email by Bruno Iksil, CIO, to Javier Martin-Artajo, and others, CIO, “core credit latest version,”
conveying “Core Credit Book P&L Review,” (2/2012), at JPM-CIO-PSI 0001787.
498
Subcommittee briefing by JPMorgan Chase (10/4/2012) (Olivier Vigneron).
499
See, e.g., 2013 JPMorgan Chase Task Force Report, at 34-37; undated internal document authored by Bruno
Iksil, CIO, with his personal notes and comments on SCP trading activities from January to March 2012, JPM-CIO-
PSI 00021890.
500
2/13/2012 email from Syed Hassan, JPMorgan Chase, to Keith Stephan, CIO, Janet Lee, and others, JPMorgan
Chase, “CIO Global Credit spread BPV limit breach- COB 02/09/2012,” JPM-CIO-PSI 0001825. For more
information on how the CIO responded to the SCP’s breaching that risk limit, see Chapter V.
501
See chart, prepared by the Subcommittee and printed in Chapter 4, tracking SCP’s daily reported profit and losses
(P&L) from January to May 15, 2012, derived from an OCC spreadsheet, OCC-SPI-00000298. Numbers do not
reflect corrected P&L figures after JPMorgan Chase’s restatement in July 2012.
502
Undated internal document authored by Bruno Iksil, CIO, with his personal notes and comments on SCP trading
activities from January to March 2012, JPM-CIO-PSI 00021890. See also In re Residential Capital, LLC, Case No.
12-12020 (MG) (Bankr. SDNY), Voluntary petition for relief under Chapter 11 (5/14/2012),
http://www.kccllc.net/documents/8822900/8822900120514000000000001.pdf.
503
See undated internal document authored by Bruno Iksil, CIO, with his personal notes and comments on SCP
trading activities from January to March 2012, JPM-CIO-PSI 00021890.