JP MORGAN CHASE LONDON WHALE

Laurent L Jacque

Chapter 17 in Global Derivative Debacles:From Theory to Malpractice, 2015, pp 285-307 from World Scientific Publishing Co. Pte. Ltd.

Abstract: On July 13, 2012 JP Morgan Chase & Co announced a stunning trading loss of $5.9 billion which wiped out more than $25 billion of the bank's market capitalization. The losses originated from the bank's Synthetic Credit Portfolio (SCP) which is itself part of the Chief Investment Office (CIO). This derivative debacle represented a significant misstep — if not an outright stumble — for JP Morgan Chase Chairman and CEO Jamie Dimon. Once vaunted for his risk management prowess in steering the bank deftly through the subprime crisis, Dimon was generally regarded as one of the most steadfast and savvy chieftains of the banking world. How did JP Morgan allow what began as a benign effort at hedging the bank portfolio to morph into a mammoth position in the credit market — which nicknamed it half-mockingly as the “London Whale”? Was it a deliberate attempt by the bank to bypass the Volcker rule in the new Dodd-Frank Act? How could JP Morgan Chase, which decades earlier had pioneered the new Value-a-Risk (V@R) metrics and was known for its expertise in risk management, seem so dysfunctional in taming its synthetic portfolio? How did a savvy giant banking institution allow the “London Whale” to be savagely harpooned by hedge funds?

Keywords: Derivatives; Debacles; Options; Swaps; Futures; Forwards; Financial Engineering; Market Manipulation; Rogue Traders; Speculation; London Whale (search for similar items in EconPapers)
Date: 2015
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