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Complete Timeline Of Events In The JPM London Whale Implosion

Tyler Durden's picture




 

For those curious about the timeline of the world's biggest prop-desk blow up, here it is day by day and, pardon the pun, blow by blow.

Nov. 2006   

  • Bank authorizes Chief Investment Office (CIO) to trade credit derivatives.

2008   

  • Synthetic Credit Portfolio (SCP) acquires its name.

2009   

  • As financial crisis eases, SCP earns $1 billion.

2010   

  • OCC examines CIO investment portfolios; SCP is not explicitly mentioned. OCC requires documentation of investment decisions; Ina Drew criticizes OCC intrusiveness.

2011   

  • Over 2011, SCP's notional size increases tenfold from $4 billion to $51 billion.

Nov. 2011

  • SCP makes $1 billion credit derivatives bet for gain of $400 million.

Dec. 2011

  • Bank & CIO managers decide improving economy lessens need for credit protection. Jamie Dimon instructs Ina Drew to reduce the CIO's Risk Weighted Assets (RWA).

Dec. 22, 2011

  • CIO traders propose reducing RWA, in part, by manipulating models. CIO quantitative head Pat Hagan develops CIO models that artificially lower SCP risk results.

Jan. 6, 2012

  • SCP trading breaches CS01 risk limit; breach continues and increases until CIO risk metrics are overhauled in May.

Jan. 16-20, 2012

  • SCP trading causes four-day breach in bankwide VaR; breach reported to Jamie Dimon.

Jan. 23, 2012   

  • Dimon and Chief Risk Officer John Hogan approve a temporary bankwide VaR limit increase to end the breach; told a new CIO VaR model will reduce CIO's VaR by 44%.

Jan. 27, 2012   

  • CIO names SCP for the first time in a routine VaR report to OCC.
  • New VaR model  approval is rushed through and drops CIO's VaR overnight by 50%. Late Jan. 2012    SCP losses escalate. CIO traders begin mismarking SCP values to minimize losses.
  • Mr. Dimon orders bank to stop giving daily CIO profit/loss data to OCC; OCC objects; Chief Financial Officer Doug Braunstein restores data, angering Mr. Dimon.

Late Jan. 2012

  • CIO trader Bruno Iksil gives presentation showing SCP lost $100 million in January and could lose $300 million more; proposes "trades that make sense" -- buying more longs to offset losses and reduce RWA.
  • OCC holds standard quarterly meeting with CIO; told SCP would be reduced. Feb. 2012    Over February, SCP loses another $69 million.

Mar. 2, 2012   

  • Comprehensive Risk Measure (CRM) used to calculate RWA indicates SCP could lose up to $6.3 billion in 2012, in worst case scenario. CIO risk manager calls result "garbage."

Mid-Mar. 2012

  • Julien Grout, SCP trader, keeps 5-day spreadsheet showing reported SCP values deviated from midpoint prices by over $400 million. Trader Bruno lksil calls SCP's booked values "idiotic" and calls SCP book "more and more monstrous."
  • Over two weeks, CIO traders acquire $40 billion more in multiple long credit derivatives, in what OCC called "doubling down" on an already losing trading strategy.

Mar. 20. 2012   

  • Traders Iksil and Grout report internally $40 million loss, largest SCP loss to date, and a $600-800 million "lag" in SCP book, but Ina Drew says she did not read the email.

Mar. 23, 2012   

  • Ms. Drew orders "phones down" and stops SCP trading.
  • SCP trading breaches CSW10% limit; it continues until risk metrics overhauled in May. Mar. 29, 2012    SCP trading breaches CIO Stress Loss limit, which is tested weekly, through April.

Mar. 3 2012   

  • At quarter end, SCP's notional size triples from $51 billion to $157 billion, and SCP flips from net short to net long. Total quarterly losses reported internally as nearly. $719 million.
  • CIO London office head Achilles Macris says he's "lost confidence" in his team, SCP has moved into "crisis mode."

Apr. 5, 2012   

  • After media inquiries, bank prepares talking points that SCP is a "hedge" and regulators were "fully" informed of trades, but then drops both words from talking points.

Apr. 6, 2012   

  • Bloomberg and Wall Street Journal report whale trades by WM CIO office in London.

Apr. 9, 2012   

  • Senate confirms new Comptroller of the Currency, Thomas Curry.
  • Regulators have first meeting with JPM on whale trades; bank downplays any problem.

Apr. 10, 2012   

  • CIO traders report internal SCP daily loss of $6 million, then 90 minutes later, different credit derivative values leading to a loss of $400 million.

Apr. 11, 2012   

  • --Bank's chief spokesman, Joe Evangelisti, quoted saying whale trades were a "hedge" of bank's overall risk."
  • --To prepare for earnings call, bank executives receive SCP presentation showing, in a financial crisis, SCP would not offset bank losses, but lose $250 million.
  • SCP also lost money in 3 negative credit scenarios, showing it wasn't hedging bank's credit risks.

Apr. 13, 2012   

  • Bank executives learn SCP positions are huge & hard to exit; SCP reports $1.2 billion loss.
  • Bank files 8-K form previewing first quarter earnings and holds earnings call.
    • Bank CEO Jamie Dimon calls whale trade stories "a complete tempest in a teapot."
    • With respect to SCP, Chief Financial Officer Doug Braunstein says:
    • "All of those positions are put on pursuant to risk management at the firm-wide level."
    • "[A]ll those positions are fully transparent to the regulators" who get "information on those positions on a regular and recurring basis as part of our normalized reporting."
    • "All of those decisions are made on a very long-term basis."
    • "[W]e also need to manage the stress loss associated with that portfolio ... so we have put on positions to manage for a significant stress event in Credit."
    • "[W]e believe all of this is consistent with what we believe the ultimate outcome will be related to Volcker."
  • 8-K filing discloses CIO's VaR results, but not the January change in CIO's VaR model.

Apr. 19, 2012   

  • OCC inquires for first time about CIO breaches, including CS01 breach of over 1,000% for 71 days. CIO Chief Market Risk Officer, Peter
  • Weiland, tells OCC that risk limit will be replaced with something more "sensible" in the future.

Apr. 27, 2012   

  • Bank's Chief Risk Officer John Hogan dispatches Ashley Bacon, his deputy, to London CIO office to analyze SCP.

May 4, 2012   

  • Bank calls OCC Examiner-in-Charge Scott Waterhouse to disclose SCP loss of $1.6 billion; internally, losses were reported to be $2.3 billion.

May 9, 2012   

  • Bank meets with OCC; Chief Risk Officer John Hogan denies SCP books were in ismarked, despite collateral valuation disputes.

May 10, 2012   

  • Bank's Controller validates SCP marks, even though the marks were $512 million off the midpoints, were "aggressive," consistently favored the bank, and minimized SCP losses.
  • Bank files 10-Q form finalizing first quarter earnings and holds business update call. Mr. Dimon discloses:
    • SCP in much worse shape than disclosed a month earlier.
    • SCP lost $2 billion in second quarter. (Internally, losses reported as $2.8 billion.)
    • "[T]he synthetic credit portfolio was a strategy to hedge the Firm's overall credit exposure.... We're reducing that hedge." Calls SCP a hedge 8 times during call.
    • "In the first quarter, we implemented a new VAR model, which we now deemed inadequate. And we went back to the old one, which had been used for the prior several years, which we deemed to be more adequate." 10-Q filing does not clearly disclose that same information.

May 11, 2012   

  • Internally, bank reports SCP daily loss of $570 million, its largest; no public disclosure.

May 14, 2012   

  • Bank fires London CIO personnel: Achilles Macris, Javier Martin-Artajo, Bruno Iksil. Ina Drew, CIO head, retires from JPMorgan Chase.

June 2012   

  • Bank discloses SCP has lost $4.4 billion.

July 13, 2012   

  • Bank restates first quarter profits, disclosing additional SCP losses of $660 million.

Fourth quarter   

  • OCC issues six Supervisory Letters with 20 Matters Requiring Attention involving CIO.

Dec. 2012   

  • SCP losses for the year total $6.2 billion. SCP has been dismantled, with most credit derivatives transferred to JPMorgan Investment Bank.

Jan. 2013   

  • Bank releases management task force report on whale trades.
  • OCC issues Cease and Desist Order requiring JPMorgan Chase to take corrective actions.

Source: JPM Exhibits

 

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Fri, 03/15/2013 - 11:54 | 3332602 fuu
fuu's picture

June 2013 Jamie Dimon sits down to a meal of Braised Puppy with Mint Sauce and Filet de grand-mère over rice with an orphan blood reduction served under silver on a Chippendale dining  table.

Fri, 03/15/2013 - 12:01 | 3332630 McMolotov
McMolotov's picture

In order for people to understand all this more clearly, the timeline should start in 1913.

Fri, 03/15/2013 - 12:09 | 3332654 DJ Happy Ending
DJ Happy Ending's picture

The fluffing requirement for apprentice CIO traders is missing from the timeline.

Fri, 03/15/2013 - 12:12 | 3332660 WayBehind
WayBehind's picture

SCP losses for the year total $6.2 billion. 
Pocket change for gangster bankers. 

Fri, 03/15/2013 - 12:13 | 3332664 Manthong
Manthong's picture

“the timeline should start in 1913.”

Yes, in one respect, but here is how the party really got going..

 

http://www.pbs.org/wgbh/pages/frontline/warning/cron/

Fri, 03/15/2013 - 12:25 | 3332707 James_Cole
James_Cole's picture

 

Nov. 2011

  • SCP makes $1 billion credit derivatives bet for gain of $400 million

What I didn't find clear was at what point exactly did the CIO start mismarking their books against the investment bank? 

The whole odyssey made no Gawddamn sense... anyone who believes in rational markets has some explaining to do as far as JPM's well documented lunacy in this case. 

 

Fri, 03/15/2013 - 12:57 | 3332811 fuu
fuu's picture

 FTFTL:

 

Dec. 22, 2011

  • CIO traders propose reducing RWA, in part, by manipulating models. CIO quantitative head Pat Hagan develops CIO models that artificially lower SCP risk results.

Jan. 27, 2012   

  • CIO names SCP for the first time in a routine VaR report to OCC.
  • New VaR model  approval is rushed through and drops CIO's VaR overnight by 50%. Late Jan. 2012    SCP losses escalate. CIO traders begin mismarking SCP values to minimize losses.
Fri, 03/15/2013 - 13:10 | 3332851 James_Cole
James_Cole's picture

They were mis marking them well earlier than that. 

That evidence shows that the CIO had changed its valuation practices over time, began using more favorable marks than the midpoint prices in ways that consistently benefited the bank, and used those more favorable prices to avoid reporting hundreds of millions of dollars in losses over a three-month period.

It seemed to a large extent that they mismarked them the whole time (against their own investment bank!) to exaggerate profits and hide losses. 

These reviews failed to use the objective information at hand to expose the SCP’s mismarking, to condemn the CIO’s use of overly favorable derivative prices to minimize losses, and to prohibit other bank business lines from engaging in similar derivative valuation practices. Instead, the bank expressed support for the two internal reviews that upheld the CIO’s pricing practices. By failing to provide any criticism of those reviews, the bank has essentially signaled that its businesses can continue to game derivative prices, as long as they select prices from the daily bid-ask spread and disguise their motives.

Fri, 03/15/2013 - 16:27 | 3333437 Fish Gone Bad
Fish Gone Bad's picture

Everything will remain the same... until it doesn't. 

Fri, 03/15/2013 - 14:34 | 3333144 justinius1969
justinius1969's picture

Thanks for posting this. Financial crisis.. what financial crisis..banks are hoping everyone wil forget and move.

Fri, 03/15/2013 - 12:02 | 3332634 Inthemix96
Inthemix96's picture

Fuu,

I think you just described the Queen and her son Charles most favoured dish is.

Fri, 03/15/2013 - 11:55 | 3332603 azzhatter
azzhatter's picture

Blow by Blow- I thought it was a title for a movie about LIESman at a fed meeting

Fri, 03/15/2013 - 16:29 | 3333441 Fish Gone Bad
Fish Gone Bad's picture

I wonder if Liesman sleeps at night.

Fri, 03/15/2013 - 12:04 | 3332604 Dr. Engali
Dr. Engali's picture

March 2013 Jamie Dimon showers congress with Fiat and the whole mess mysteriously goes away..... Jamie helps write next set of regulations.

Fri, 03/15/2013 - 11:56 | 3332606 SmackDaddy
SmackDaddy's picture

So whose money did they lose and who did they lose it to? 

Sat, 03/16/2013 - 01:10 | 3334573 mkhs
mkhs's picture

Ultimately taxpayer money to crony counterparties.

Fri, 03/15/2013 - 11:55 | 3332607 Desert Irish
Desert Irish's picture

Deny, Deny, Deny and if all else fails deny some more.....

Fri, 03/15/2013 - 11:57 | 3332614 CaptainSpaulding
CaptainSpaulding's picture

Jeff Beck Bitchez

album-blow-by-blow.jpg

Fri, 03/15/2013 - 11:59 | 3332622 Jones79
Jones79's picture

oh i have to read this?  i was hoping it was all going to be pictures of an impaled whale.

Fri, 03/15/2013 - 12:00 | 3332631 MsCreant
MsCreant's picture

They should not have the power to do this. I don't need to understand every move to see this. No one "team" should have this much power. 

These are the cyber wars. Nothing in this is about the real value of a real thing. They are creating blackholes and event horizons to watch money swish and swash around the system, hoping to skim as the waves move their way. 

THERE IS NO VALUE HERE.

Fri, 03/15/2013 - 12:31 | 3332732 NoWayJose
NoWayJose's picture

They should have the power to do this. What they should NOT have is the ability to tap Free Fed money, a government guarantee backing them up, and the ability to raid funds from regular banking deposits.

Fri, 03/15/2013 - 12:02 | 3332632 MsCreant
MsCreant's picture

Fuckers.

Fri, 03/15/2013 - 12:03 | 3332640 eatthebanksters
eatthebanksters's picture

So....how fucking smart are you now, Jamie!?

Fri, 03/15/2013 - 15:07 | 3333240 trebuchet
trebuchet's picture

i dont give a f*k about that coz im richer than you

Fri, 03/15/2013 - 12:04 | 3332641 markettime
markettime's picture

And yet JPM stock price has soared the past year.

Fri, 03/15/2013 - 12:12 | 3332662 i_fly_me
i_fly_me's picture

Here is the layman's version:  http://www.youtube.com/watch?v=8Vmnq5dBF7Y

Fri, 03/15/2013 - 12:45 | 3332772 scrappy
scrappy's picture

Here is a modern "whale tale" for ya.

 

Bernake as Captain Ahab.

 

http://www.hoalantrangallery.com/Turnoutlights.htm

Fri, 03/15/2013 - 13:00 | 3332824 luckylogger
Fri, 03/15/2013 - 14:23 | 3333099 RougeUnderwriter
RougeUnderwriter's picture

If the model doesn't produce the results you want, change the variables. If changing the varibale does not produce the results you want, change the model. If changing the model doesn't work, mildly bend the truth. If mildly bending the truth fails, tell a kick ass outright lie. If that doesn't work, tell several kick ass lies until they believe something.  This is executive decision making at it's finest. Management books are written about this stuff. (Management by Objectives)

Fri, 03/15/2013 - 19:00 | 3333765 Ban KKiller
Ban KKiller's picture

This was all a simple spreadsheet error. No real money was lost as JP Morgan explained so fully. All is well. JP Morgan fired some folks so it is all done. Besides with JP Morgan owning Congress what is the problem? SMIRK is the face of JP Morgan. Get used to it. I always ask...is Greenwich fireproof?

Sat, 03/16/2013 - 00:05 | 3334494 holdbuysell
holdbuysell's picture

Look at what they were doing and the profits they were making in such short periods of time.

Hedging, my ass.

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