Document Type

Case Study

Case Series

JPMorgan Chase London Whale

JEL Codes

G01, G28


After consistently producing positive results through 2011, the JPMorgan Chase (JPM) traders who oversaw the bank’s Synthetic Credit Portfolio (SCP) grew alarmed by a consistent string of losses beginning in January 2012. (The SCP was maintained by JPM to help hedge default risk and was the source of the 2012 London Whale trading loss.) To minimize the losses reported to their superiors until such time that market prices hopefully turned in their favor, the SCP traders began valuing their largest derivative positions in a manner that was not consistent with Generally Accepted Accounting Principles (GAAP) and JPM policy. The fair values recorded by the SCP traders were reviewed by the Valuation Control Group, as required by banking regulators, and by JPM’s Controller, but neither review raised any objection. However, after the JPM Task Force that investigated the 2012 London Whale incident uncovered evidence that the SCP traders had not estimated fair values in good faith, the bank restated its first-quarter 2012 earnings on July 13, reducing consolidated total net revenue by $660 million (2.5%), which in turn reduced after-tax net income by $459 million (8.5%).

Date Revised