JPMorgan Chase London Whale A: Risky Business

Andrew Metrick
Authors registered in the RePEc Author Service: Daisuke Ikeda

Journal of Financial Crises, 2019, vol. 1, issue 2, 40-59

Abstract: In December 2011, the Chief Executive Officer and Chief Financial Officer of JPMorgan Chase (JPM) instructed the bank's Chief Investment Office to reduce the size of its Synthetic Credit Portfolio (SCP) during 2012, so that JPM could decrease its RiskWeighted Assets as the bank prepared to adopt the impending Basel III bank capital regulations. However, the SCP traders were also told to minimize the trading costs incurred to reduce Risk-Weighted Assets, while still maintaining the opportunity to profit from unexpected corporate bankruptcies. In an attempt to balance these competing objectives, head SCP derivatives trader Bruno Iksil suggested in January 2012 that the SCP expand a strategy first implemented in 2011 of buying large volumes of certain credit derivatives, while simultaneously selling large volumes of other credit derivatives. The strategy quickly proved unsuccessful, and JPM's Chief Investment Officer ordered Iksil and the other SCP traders to halt this strategy on March 23. However, losses continued to mount as the credit derivative positions were unwound, ultimately reaching $6.2 billion by December 2012.

Keywords: Risk-Weighted Assets; JPMorgan; London Whale; Capital Requirements; CIO (search for similar items in EconPapers)
JEL-codes: G01 G28 (search for similar items in EconPapers)
Date: 2019
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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