2012 JPMorgan Chase trading loss

$6 billion trading loss London whale the whale lost in the River Thames in 2006 River Thames whale September 2026 March 2025 In April and May 2012, large trading losses occurred at JPMorgan's Chief Investment Office, based on transactions booked through its London branch. The unit was run by Chief Investment Officer Ina Drew, who later stepped down. A series of derivative transactions involving credit default swaps (CDS) were entered, reportedly as part of the bank's "hedging" strategy.JPMorgan discloses $2B in losses in 'flawed' hedging strategy http://marketday.nbcnews.com/_news/2012/05/10/11644161-jpmorgan-discloses-2b-in-losses-in-flawed-hedging-strategy?lite August 17, 2012 NBC May 10, 2012April 2019 InternetArchiveBot yes Trader Bruno Iksil, nicknamed the London Whale, accumulated outsized CDS positions in the market. An estimated trading loss of 2billion was announced. However, the loss amounted to more than 6billion for JPMorgan Chase.https://www.bloomberg.com/quicktake/the-london-whale The London Whale February 24, 2016 Bloomberg June 27, 2019 enhttps://www.washingtonpost.com/business/economy/the-london-whale-trader-lost-62-billion-but-he-may-walk-off-scot-free/2017/04/12/14b3836a-1fb0-11e7-be2a-3a1fb24d4671_story.html The 'London Whale' trader lost $6.2 billion, but he may walk off scot-free Merle Renae April 13, 2017 The Washington Post June 27, 2019 These events gave rise to a number of investigations to examine the firm's risk management systems and internal controls. As a consequence, JPMorgan Chase agreed to pay a total of 920million in fines to US and UK authorities (including 137.6million to UK).https://www.npr.org/templates/story/story.php?storyId=224152632 JPMorgan Chase To Pay Huge Fine In London Whale Settlement Zarolli Jim September 19, 2013 NPR en June 27, 2019JPMorgan admits wrongdoing in 'London whale' trading scandal, fined more than $900m September 20, 2013 2013-09-19 Reuters / Agence France-Presse ABC News en-AU https://www.abc.net.au/news/2013-09-20/jp-morgan-fined-920-million-usd-in-london-whale-trading-scandal/4970068 June 27, 2019https://www.theguardian.com/business/2013/sep/19/jp-morgan-920m-fine-london-whale London Whale scandal to cost JP Morgan $920m in penalties Rushe Dominic September 19, 2013 The Guardian June 27, 2019 en-GB 0261-3077 JPMorgan Chase cut chief executive Jamie Dimon's 2012 pay in half, from 23million to 11.5 nomillion, as a consequence for the $6 billion trading loss.https://www.cbsnews.com/news/jpmorgan-ceo-gets-pay-cut-by-half-after-6-billion-loss/ JPMorgan CEO gets pay cut by half after $6 billion loss January 16, 2013 CBS News en-US June 27, 2019https://www.newsday.com/business/jpmorgan-chase-cuts-ceo-dimon-s-pay-in-half-1.4455252 https://web.archive.org/web/20180702070609/https://www.newsday.com/business/jpmorgan-chase-cuts-ceo-dimon-s-pay-in-half-1.4455252 dead July 2, 2018 JPMorgan Chase cuts CEO Dimon's pay in half Rexrode Christina January 16, 2013 Newsday en June 27, 2019 Background In February 2012, hedge fund managers such as Boaz Weinstein of Saba Capital ManagementThe Hunch, the Pounce and the Kill: How Boaz Weinstein and Hedge Funds Outsmarted JPMorgan https://www.nytimes.com/2012/05/27/business/how-boaz-weinstein-and-hedge-funds-outsmarted-jpmorgan.html The New York Times May 26, 2012 Azam Ahmed May 5, 2013 became aware that the market in credit default swaps was possibly being affected by aggressive trading activities. The source of the unusual activity turned out to be Bruno Iksil, a trader for JPMorgan Chase & Co. Market-moving trades by the bank's Chief Investment Office had first been uncovered in June 2011 by Dan Alderson, a reporter at trade journal Creditflux, which reported on anomalies in CDX HY index tranche pricing dynamics caused by Iksil's trading activity.http://creditflux.com/Newsletter/2011-06-01/Little-known-prop-book-makes-big-waves-in-tranches Creditflux Little known prop book makes big waves in tranches June 1, 2011 The same journal reported on further tranche trading activity by the JP Morgan unit two months later. By 2012, heavy opposing bets to his positions had been made by traders, including another branch of JPMorgan, who purchased the derivatives that JPMorgan was selling in high volume.https://www.wsj.com/articles/SB10001424052702303299604577326031119412436?mod=wsj_share_tweet The Wall Street Journal Gregory Zuckerman Katy Burne 'London Whale' Rattles Debt Market April 6, 2012As One JPMorgan Trader Sold Risky Contracts, Another One Bought Them https://dealbook.nytimes.com/2012/05/15/as-one-jpmorgan-trader-sold-risky-contracts-another-one-bought-them/ May 16, 2012 The New York Times May 15, 2012 Azam Ahmed JPMorgan denied the first news reports, with Chairman and CEO Jamie Dimon calling it a "tempest in a teapot".In Scrutiny of JPMorgan Loss, Bigger Questions Left Unanswered https://dealbook.nytimes.com/2012/05/16/in-scrutiny-of-jpmorgan-loss-bigger-questions-left-unanswered/ May 17, 2012 The New York Times May 16, 2012 Jesse Eisinger ProPublicaDimon: London Whale issues "tempest in a teapot" https://www.marketwatch.com/story/dimon-london-whale-issues-tempest-in-a-teapot-2012-04-13-937450 November 14, 2018 MarketWatch April 13, 2012 Poly Lesova MarketWatch Major losses of 2billion were reported by the firm in May 2012 in relation to these trades. By this point, the issue was being investigated by the Federal Reserve, SEC, and FBI.More Bad News as FBI gets involved Halah Touryalai May 15, 2012 Forbes https://www.forbes.com/sites/halahtouryalai/2012/05/15/more-bad-news-for-jpm-as-fbi-gets-involved/?sh=5bd5c5ca1df0/ May 17, 2012 On July 13, 2012, the total loss was updated to 5.8billion with the addition of a $4.4billion loss in the second quarter and subsequent recalculation of a loss of $1.4billion for the first quarter. A spokesman for the firm claimed that projected total losses could be more than $7billion.JPMorgan Fears Traders Obscured Losses in First Quarter https://dealbook.nytimes.com/2012/07/13/jpmorgan-says-traders-obscured-losses-in-first-quarter/ July 13, 2012 The New York Times July 13, 2012 Jessica Silver-Greenberg Dealbook blog On a conference call with analysts on Friday, Mr. Dimon said that the trade could result in another $1.7 billion in losses in the future, but added that the estimate was considering a worst-case situation. The disclosure, which resulted in headlines in the media, did not disclose the exact nature of the trading involved, which remained in progress as of May 16, 2012, as JPMorgan's losses mounted and other traders sought to profit or avoid losses resulting from JPMorgan's positions.JPMorgan's Trading Loss Is Said to Rise at Least 50% https://dealbook.nytimes.com/2012/05/16/jpmorgans-trading-loss-is-said-to-rise-at-least-50/ May 17, 2012 The New York Times May 16, 2012 Nelson D. Schwartz Jessica Silver-GreenbergJP Morgan's $2 Billion-Plus Loss Came On Three-Legged Trade Dow Jones http://www.efinancialnews.com/story/2012-05-16/jpmorgan-cdxig9-cds-whaletrader?mod=rss-investmentbankingl As of June 28, 2012, JPMorgan's positions were continuing to produce losses which could total as much as $9 billion under worst-case scenarios.JPMorgan Trading Loss May Reach $9 Billion https://dealbook.nytimes.com/2012/06/28/jpmorgan-trading-loss-may-reach-9-billion/ June 28, 2012 The New York Times June 28, 2012 Jessica Silver-Greenberg Susanne Craig The trades were possibly related to CDX IG 9, a credit default swap index based on the default risk of major U.S. corporationsMaking Waves Against 'Whale' https://www.wsj.com/articles/SB10001424052702304587704577336130953863286?KEYWORDS=making+waves May 16, 2012 The Wall Street Journal April 10, 2012 Katy BurneChart of the Day: London Whale trading http://www.efinancialnews.com/story/2012-05-11/jpmorgan-iksil-cds-hedgefunds May 16, 2012 Financial News May 11, 2012 Farah Khalique that has been described as a "derivative of a derivative".Crony Capitalism: After Lobbying Against New Financial Regulations, JPMorgan Loses $2B in Risky Bet http://www.democracynow.org/2012/5/15/crony_capitalism_after_lobbying_against_new May 16, 2012 Democracy Now! May 15, 2012JPMorgan Discloses $2 Billion in Trading Losses https://dealbook.nytimes.com/2012/05/10/jpmorgan-discloses-significant-losses-in-trading-group/ May 16, 2012 The New York Times May 10, 2012 Jessica Silver-Greenberg Peter Eavis On the company's emergency conference call, JPMorgan Chase Chairman and CEO Jamie Dimon said the strategy was "flawed, complex, poorly reviewed, poorly executed, and poorly monitored"."Two Billion Dollar Hedge" Financial Times. Trades On February 2, 2012, at the Harbor Investment Conference, speaking to an audience of investors, Boaz Weinstein recommended buying the Markit CDX North America Investment Grade Series 9 10-Year Index, CDX IG 9.JPMorgan's future losses at the mercy of an obscure index http://economictimes.indiatimes.com/news/international-business/jpmorgans-future-losses-at-the-mercy-of-an-obscure-index/articleshow/13200116.cms May 27, 2012 The Economic Times May 17, 2012 Reuters This contract was a standardized credit derivative contract with an initial ten-year maturity, maturing on December 20, 2017. The price of the CDX IG index reflects the credit risk of an underlying basket of North American investment-grade companies. Weinstein had noticed this contract was an unusually cheap way to buy credit protection relative to other more liquid indices. It turned out that JPMorgan was shorting the index by making huge trades.I Was In The Room When Boaz Weinstein Revealed His Trade That Creamed JPMorgan http://www.businessinsider.com/we-were-there-when-boaz-weinstein-announced-his-trade-that-would-cream-jpmorgan-2012-5 May 27, 2012 Business Insider May 18, 2012 Julia La RocheTo Understand JPMorgan's Trading Fiasco You Have To Go Back To 2005 http://www.businessinsider.com/timeline-jp-morgans-2-billion-trading-blunder-2012-5 May 27, 2012 Business Insider May 19, 2012 Lisa Du JPMorgan's bet was that credit markets would strengthen; the index is based on 121 investment grade bonds issued by North American corporations. Investors who followed Weinstein's tip did poorly during the early months of 2012 as JPMorgan strongly supported its position. However, by May, after investors became concerned about the implications of the euro area crisis, the situation reversed and JPMorgan suffered large losses. In addition to Weinstein's Saba Capital Management, BlueMountain Capital, BlueCrest Capital, Lucidus Capital Partners, CQS, III, and Hutchin HillHow Hutchin Hill Took Down JPMorgan Jacob Wolinsky are hedge funds which are known to have benefited from taking the other side of the trade to JPMorgan. A separate unit of JPMorgan was also on the winning side. The $6.2 billion loss came from three positions that partially offset one another. It occurred when the world's financial markets were in relative calm. Had quality spread curves twisted or worldwide economic distress been more pronounced the loss could have been much higher.Wallace C. Turbeville JP Morgan Chase Whale Trades: A Case History of Derivatives Risks and Abuses https://www.demos.org/research/jp-morgan-chase-whale-trades-case-history-derivatives-risks-and-abuses Demos December 28, 2022 The Financial Times column "Alphaville" analysis suggests that these positions were not volatile enough to account for the full losses reported. They suggest that other positions are likely involved as well.Pollack Lisa Tracking trades down https://www.ft.com/content/ba0728ae-ebf1-3191-b377-d6b1f407941b 10 February 2026 Financial Times 2012-05-19 Investigation The internal investigation concluded in July 2012. It involved more than 1,000 people across the firm and outside law firm WilmerHale.Cold Eye Over 'Whale' Probe - J.P. Morgan Board Picked 'Tough as Nails' Director to Head Trading Inquiry https://www.wsj.com/articles/SB10000872396390444508504577595260927581438#articleTabs%3Darticle August 22, 2012 WSJ August 20, 2012 A report issued in January 2013 made the following "key observations""Report of JPMorgan Chase & Co. Management Task Force Regarding 2012 CIO Losses", January 16, 2013 https://web.archive.org/web/20140319134801/http://files.shareholder.com/downloads/ONE/2272984969x0x628656/4cb574a0-0bf5-4728-9582-625e4519b5ab/Task_Force_Report.pdf March 19, 2014 . Retrieved June 25, 2014 "CIO [Chief Investment Office] judgment, execution and escalation in the First Quarter of 2012 were poor" "The Firm did not ensure that the controls and oversight of CIO evolved commensurately with the increased complexity and risks of certain CIO activities" "CIO risk management was ineffective in dealing with synthetic credit portfolio" "Risk limits for CIO were not sufficiently granular" "Approval and implementation of CIO Synthetic Credit VaR Model were inadequate" In July 2017, U.S. prosecutors dropped criminal charges against two derivative traders from France and Spain after unsuccessful efforts to extradite them from their countries.Stempel Jonathan https://www.reuters.com/article/us-jpmorgan-londonwhale-idUSKBN1A62M9 U.S. to drop criminal charges in 'London Whale' case July 21, 2017 Reuters July 21, 2017 The U.S. Securities and Exchange Commission charged JPMorgan "with misstating financial results and lacking effective internal controls to detect and prevent its traders from fraudulently overvaluing investments to conceal hundreds of millions of dollars in trading losses. According to the SEC’s order, in late April 2012 after the portfolio began to significantly decline in value, JPMorgan commissioned several internal reviews to assess, among other matters, the effectiveness of the CIO’s internal controls. From these reviews, senior management learned that the valuation control group within the CIO – whose function was to detect and prevent trader mismarking – was woefully ineffective and insufficiently independent from the traders it was supposed to police. As JPMorgan senior management learned additional troubling facts about the state of affairs in the CIO, they failed to timely escalate and share that information with the firm’s audit committee. Among the facts that JPMorgan has admitted in settling the SEC’s enforcement action: The trading losses occurred against a backdrop of woefully deficient accounting controls in the CIO, including spreadsheet miscalculations that caused large valuation errors and the use of subjective valuation techniques that made it easier for the traders to mismark the CIO portfolio. JPMorgan senior management personally rewrote the CIO’s valuation control policies before the firm filed with the SEC its first quarter report for 2012 in order to address the many deficiencies in existing policies. By late April 2012, JPMorgan senior management knew that the firm’s Investment Banking unit used far more conservative prices when valuing the same kind of derivatives held in the CIO portfolio, and that applying the Investment Bank valuations would have led to approximately $750 million in additional losses for the CIO in the first quarter of 2012. External counterparties who traded with CIO had valued certain positions in the CIO book at $500 million less than the CIO traders did, precipitating large collateral calls against JPMorgan. As a result of the findings of certain internal reviews of the CIO, some executives expressed reservations about signing sub-certifications supporting the CEO and CFO certifications required under the Sarbanes-Oxley Act. Senior management failed to adequately update the audit committee on these and other important facts concerning the CIO before the firm filed its first quarter report for 2012. Deprived of access to these facts, the audit committee was hindered in its ability to discharge its obligations to oversee management on behalf of shareholders and to ensure the accuracy of the firm’s financial statements. The SEC’s investigation has been conducted by Michael Osnato, Steven Rawlings, Peter Altenbach, Joshua Brodsky, Joseph Boryshansky, Daniel Michael, Kapil Agrawal, Eli Bass, Sharon Bryant, Daniel Nigro, and Christopher Mele."https://www.sec.gov/newsroom/press-releases/2013-187 JPM organizational structure, risk systems, accounting and internal control The trades occurred within the Chief Investment Office (CIO), where staff were reportedly "faithfully executing strategies demanded by the bank's risk management model". This unit is reported to have very wide latitude in otherwise unsupervised trading. The company had been without a treasurer for five months during the time of the trades and had a relatively inexperienced executive, Irvin Goldman, in charge of risk management in the CIO.Fitzpatrick Dan Key Void at Top for J.P. Morgan http://professional.wsj.com/article/SB10001424052702303879604577410612215377958.html?mod=ITP_moneyandinvesting_0&mg=reno64-wsj May 19, 2012 The Wall Street Journal May 18, 2012 Steinberg, Julie C1 The trades took place in a unit of JPMorgan that reported directly to Chairman & CEO Jamie Dimon. In Congressional testimony it came out that Dimon wanted to be responsible for what information was revealed, and information was withheld from the regulators. There had been a series of violations of the Sarbanes–Oxley regulations requiring certain protections.Business Daily http://downloads.bbc.co.uk/podcasts/worldservice/bizdaily/bizdaily_20140901-0832a.mp3 BBC September 1, 2014September 2025 medicmedic. Interview with Janet Tavakoli. On May 10, 2012, Dimon announced that there was a loss of at least $2 billion through "egregious mistakes" in trading.Reuters https://www.reuters.com/article/us-jpmorgan-risk-idUSBRE84H15120120518 Analysis: JPMorgan to be haunted by change in risk model May 5, 2013 Impact on Volcker Rule implementation The Volcker Rule, part of the Dodd–Frank Wall Street Reform and Consumer Protection Act, bans high-risk trading inside commercial banking and lending institutions. The Volcker rule is sometimes referred to as "a modern Glass-Steagall firewall that separates core banking system from higher-risk, hedge fund-style proprietary trading".Senate JPMorgan Probe Said to Seek Tougher Volcker Rule https://www.bloomberg.com/news/2012-09-21/senate-jpmorgan-probe-said-to-seek-tougher-volcker-rule.html September 21, 2012 Bloomberg The rule's implementation had been repeatedly delayed however, with analysts predicting implementation in 2014 and lobbyists simultaneously pushing to delay it longer. The final version of the Volcker Rule was passed on December 10, 2013, which was implemented in July 2015.Description: Final Regulations http://www.occ.treas.gov/news-issuances/bulletins/2014/bulletin-2014-9.html US treasury September 14, 2016 August 22, 2016 https://web.archive.org/web/20160822090621/http://www.occ.treas.gov/news-issuances/bulletins/2014/bulletin-2014-9.html dead Lobby efforts and government relations Bloomberg News and Robert Schmidt identified several people at JPM involved in the lobbying and its government relations response.JPMorgan Drafts Republicans for Damage Control https://www.bloomberg.com/news/articles/2012-06-12/jpmorgan-drafts-republicans-for-damage-control Bloomberg / Business Week June 12, 2012 June 12, 2012 See also Banks List of trading losses Proprietary trading Rogue trader Speculation Swap (finance) References and sources References 2 Sources https://web.archive.org/web/20130412010440/http://investor.shareholder.com/jpmorganchase/events-files.cfm Further reading Levine Matt May 11, 2012 The Tale Of A Whale Of A Fail http://dealbreaker.com/2012/05/the-tale-of-a-whale-of-a-fail/ Dealbreaker External links JP Morgan Chase Whale Trades: A Case History of Derivatives Risks and Abuses: Hearing before the Permanent Subcommittee on Investigations of the Committee on Homeland Security and Governmental Affairs, United States Senate, One Hundred Thirteenth Congress, First Session, March 15, 2013, Vol. 1 Vol. 2 Category:2012 in economic history Category:Derivatives (finance) Category:Rogue traders Category:Separation of investment and retail banking Category:Banking controversies Category:JPMorgan Chase