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

93
In another context, Mr. Dimon was even more blunt:
“We made a terrible, egregious mistake. There is almost no excuse for it. We
knew we were sloppy. We know we were stupid. We know there was bad
judgment. In hindsight, we took far too much risk. That strategy we had was
badly vetted. It was badly monitored. It should never have happened.” 593
Mr. Dimon directed his team of derivative experts to dismantle the CIO’s Synthetic
594
Credit Portfolio. At its height in March 2012, the portfolio included holdings of more than
100 types of credit derivatives, almost all index or tranche holdings, most of which had lost value
since their acquisition. The bulk of the SCP credit derivatives were transferred to the Investment
Bank, which closed out most of the positions; about $12 billion in notional amount was left with
the CIO which closed out those positions by the end of September. 595 Unwinding those positions
led the CIO to report another $449 million loss. 596
The escalating losses during 2012, which outpaced all predictions, provide concrete proof
of the high risk nature of the Synthetic Credit Portfolio. In January 2012, the SCP book lost
$100 million, with the largest daily loss during that month reaching $23 million on January 30.
In February, the book lost another $69 million, with the largest daily loss of $24 million on
February 8. In March, the SCP’s reported losses increased nearly eightfold, to $550 million,
with the month’s largest loss taking place on the last business day, March 30, 2012, of $319
million. The losses continued for the next six months. At the end of April, the CIO reported
year-to-date losses totaling $2.1 billion. On May 11, the SCP reported its largest single daily loss
of $570 million. In July 2012, the bank restated the first quarter’s financial results, disclosing
additional unreported losses of $660 million, and a year-to-date total of $4.2 billion. As of
September 2012, the bank reported additional SCP losses of $449 million. By December, yearto-date
losses from the whale trades exceeded $6.2 billion, or approximately 45% of the bank’s
597 598
pre-tax earnings through September, with another $1 billion possible. To date, the SCP
book has lost more than three times the revenues it produced in its first five years combined.
593
Statement by Jamie Dimon, quoted by Chairman Tim Johnson at “A Breakdown in Risk Management: What
Went Wrong at JPMorgan Chase?” before the U.S. Senate Committee on Banking, Housing, and Urban Affairs,
S.Hrg. 112-715 (June 13, 2012).
594
See JPMorgan Chase & Co. Form 10-Q (for period ending 9/30/2012), filed with the SEC (11/08/2012), at 10.
595
JPMorgan Chase & Co. Form 10-Q (for period ending 9/30/2012), filed with the SEC (11/08/2012), at 220.
596
Id.
597
See 12/12/2012 OCC Supervisory Letter, JPM-2012-66, PSI-OCC-18-000001 [Sealed Exhibit].
598
See, e.g., “Mortgage Lending Helps JPMorgan Profit Rise 34%,” New York Times (10/12/2012),
http://dealbook.nytimes.com/2012/10/12/jpmorgan-quarterly-profit-rises-34/?ref=global.