Document Type
Case Study
Case Series
JPMorgan Chase London Whale
JEL Codes
G01, G28
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.
Recommended Citation
Zeissler, Arwin G.; Ikeda, Daisuke; and Metrick, Andrew
(2019)
"JPMorgan Chase London Whale A: Risky Business,"
Journal of Financial Crises: Vol. 1
:
Iss. 2, 40-59.
Available at:
https://elischolar.library.yale.edu/journal-of-financial-crises/vol1/iss2/2
Date Revised
2019-08-30
Included in
Banking and Finance Law Commons, Bankruptcy Law Commons, Business Organizations Law Commons, Economic History Commons, Finance Commons, Finance and Financial Management Commons, Organizations Law Commons