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

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“Again, the book is getting hurt with losses in index forward spreads in S9 and
IG9, and in tranches (Weaker CDX.HY equity and mezzanine tranches, steeper
IG9 equity tranches). Today we sold protection in the following index:
iTraxx.Main (5.65B), iTraxx.Xover (300M), CDX.IT (3.95B) and FINSUB
(100M). Besides providing carry, these trades should reduce the VaR, but
increase the IRC. We are pausing in our sale of protection, to see what the overall
impact on capital numbers is going to be.” 537
Ms. Drew, who had met with Mr. Macris and Mr. Martin-Artajo the prior day, expressed
538
“confusion” over the SCP’s increased positions. According to both Ms. Drew and the bank, at
the March 21 meeting, she had been given SCP trading data as of March 7, and was told nothing
about the intense trading activity which had taken place over the following two weeks and
further enlarged the SCP book. 539 On March 22, 2012, her reaction to the increased positions
prompted one CIO risk manager to email another: “Ina is freaking – really! Call me.” 540
The CIO’s massive purchases in March magnified the SCP’s risks and later its losses.
Overall, according to JPMorgan Chase, by the end of March, the Synthetic Credit Portfolio had
swollen in notional value to $157 billion, three times greater than the $51 billion it held at the
541
end of 2011, just three months earlier. When asked for more detail, JPMorgan Chase told the
Subcommittee that, at the end of March, the SCP included $62 billion in IG index holdings, $71
billion in iTraxx index holdings, $22 billion in High Yield index holdings, and a variety of other
synthetic credit derivatives. 542 Other contemporaneous internal bank documents provide even
larger figures. For example, an April 2012 analysis stated that, at the end of March, the SCP
held an $82 billion long position in the IG9 index alone, 543 which comprised over half the market
in that index. 544
The differing figures over the SCP’s holdings are an indicator of not only how
537
See 3/22/2012 email from Julien Grout to the CIO Estimated P&L mailing list, “CIO Core Credit P&L Predict
[22 Mar]: +$82k (dly) -$276,990k (ytd),” JPM-CIO-E 00014689-691, at 691.
538
See 3/22/2012 email from Ina Drew, CIO, to Achilles Macris and Javier Martin-Artajo, “I was confused by the
inc[re]ased position noted today after yesterday’s exhaustive meeting,” JPM-CIO 0003492; see also Subcommittee
interview of Ina Drew, CIO (12/11/2012).
539
Subcommittee interview of Ina Drew, CIO (12/11/2012); 2013 JPMorgan Chase Task Force Report, at 44. See
also 6/29/2012 email from Elwyn Wong, OCC, to Scott Waterhouse and others, OCC, “2nd Wilmer Hale Call,”
OCC-SPI-00071386.
540
3/22/2012 email from Irvin Goldman, CIO to Peter Weiland, CIO, “I would really like to understand the increase
in positions in credit,” JPM-CIO-PSI 0000410.
541
“Summary of Positions by Type and Series,” prepared by JPMorgan Chase in response to a Subcommittee
request, JPM-CIO-PSI 0037609.
542
Id.
543
4/10/2012 email from John Wilmot, CIO, to Jamie Dimon and others, JPMorgan Chase, “Net positions vs.
average trading volumes,” JPM-CIO-PSI 0001026. See also 1/18/2012 email from Bruno Iksil, CIO, to Julien
Grout, CIO, “Meeting materials for 11am meeting,” conveying presentation entitled, “Core Credit Book
Highlights,” prepared by Mr. Iksil, at JPM-CIO-PSI 0000101 (reciting even larger SCP positions in January,
including a $278 billion notional position in the IG9 index, $115 billion notional position in the HY10 and 11
indices, and $90 billion notional position in the Main ITraxx S9). See also FDIC presentation, “JPMC &
COMPANY CIO Synthetic Credit Portfolio,” FDICPROD-0001783 at 22 (indicating JPMorgan Chase had
estimated that its IG9 position was $82 billion notional in March); FDIC Prod 0039218-219, at 218 (estimating the
notional value of the SCP’s long position in the IG9 alone was $75 billion).
544
See DTCC presentation to Subcommittee (9/27/2012) at 2, PSI-DTCC-01-000001 (showing total CDX IG9
untranched trading to total approximately $150 billion).