July/August 2012

FinalCut: JPMorgan Loses $2B on Risk Unit’s ‘Grievous Mistakes’

In a conference call with investors, JPMorgan Chase CEO Jamie Dimon said the firm suffered a $2 billion trading loss after an “egregious” failure in a unit managing risks. ABF Journal illustrator Jerry Gonzalez offers his take on this “whale of a tale.”



jamie-dimon

Bloomberg reported that in a conference call with investors, JPMorgan Chase CEO Jamie Dimon said the firm suffered a $2 billion trading loss after an “egregious” failure in a unit managing risks, jeopardizing Wall Street banks’ efforts to loosen a federal ban on bets with their own money.

According to Bloomberg, the firm’s chief investment office run by Ina Drew took flawed positions on synthetic credit securities that remain volatile and may cost an additional $1 billion this quarter or next, Dimon told analysts. Losses mounted as JPMorgan tried to mitigate transactions designed to hedge credit exposure. “There were many errors, sloppiness and bad judgment,” Dimon said. “These were grievous mistakes, they were self-inflicted.”

Indeed the failure amounts to a “whale of a tale.” Since the announcement, Drew has vacated her post, and the Office of the Comptroller of the Currency has begun evaluating compensation awarded to chief investment officers and the possibility of instituting claw backs of said compensation in situations of this nature. The New York Times also reported that trading losses could reach a staggering $9 billion. Since the May 10 announcement, Dimon has appeared before the House and the Senate to shed light on what went wrong. As for the true identity of the calamitous London Whale, he has been identified as Bruno Iksil. Some describe Iksil as, “gentle, polite and smart,” while others have gone on record to say he would barrage his supervisors with advanced mathematical equations and technical jargon in an effort to further scrutinize on these trades.