JPMorgan Changes VaR Calculation For Fourth Time In Past Year

Tyler Durden's picture

Earlier today, as part of our JPM earnings recap we observed that "VaR plunged from $106 to $62" and wondered if it was just just "another excel copy/paste error" which as we reported previously, is what JPM's internal audit attributed much of the confusion surrounding JPM's VaR calculation around the time the London Whale blow up nearly doubled the firm's VaR. Because it is always better to blame a clueless intern for botching Excel than to put the blame where it rightfully belongs.  It turns out that as frequently happens, there was a dose of financial surreality behind the humor. As Bloomberg reports, the reason for the nearly 50% collapse in the company's reported maximum value at risk was because of, drumroll, yet another change in the model. 'JPMorgan said today it employed a new formula to judge the risk of its credit derivatives position, at least the fourth such model it’s used since January 2012. The portfolio was built by Bruno Iksil, known as the London Whale because his bets were so big they moved markets."

From BBG:

The bank changed its measurement of value at risk, or VaR, for the credit derivatives book in the first quarter of this year “to achieve consistency with like products” within the corporate and investment bank, JPMorgan said today in a supplement. “This change had an insignificant impact” to average VaR for fixed income and the investment bank’s trading and credit portfolio, the New York-based bank said.


JPMorgan had previously changed the VaR model, which estimates the most amount of money a trading position can lose on 95 percent of the trading days, when the corporate and investment bank took over most of the credit book from the chief investment office last year. That change last year reduced JPMorgan’s estimated risk by 24 percent to $115 million in the third quarter.


JPMorgan’s switch of risk models in January of last year may have helped fuel the trading loss at the chief investment office, Chief Executive Officer Jamie Dimon told the Senate Banking Committee in June. Dimon said last May that the bank had reviewed the effectiveness of that VaR model, deemed it “inadequate” and decided to return to the previous version. Restoring the use of the earlier model meant the risk was twice what the bank had reported in April of 2012.

We can't wait for the event that will force the fifth consecutive change in the firm's VaR, this time doubling it, with or without yet another taxpayer funded bailout. We would be, however, more at peace if it wasn't JPM's customer deposits that were funding its risky operations, which apparently are so complicated that JPM itself has needed at least 4 attempts at getting its risk exposure right in the past year and so far still failing.

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ziggy59's picture

I miss White-out(tm) myself...

AssFire's picture

Tell me about it... I am still traumatized by the paste error that caused Janet Jackson's nipple exposure.

toys for tits's picture

"Company policy is created on the spot to fit the occasions." J. Dimon

FL_Conservative's picture


M = Made

A = As

I = Instructed

redpill's picture

More importantly, I just reloaded the page and I got two google ads, one for Ukranian Singles and one for Christian Dating and I swear they have the same blonde model in both!

mkhs's picture

Why can't there be christians in Ukraine?

Bicycle Repairman's picture

"Will somebody get that wonk, what's his name?  Radio Shack? Get 'Radio Shack' up here immediately.  His figures are wrong again."

"We can change the model again, but what about the auditors."

"I have a golf game with 'Stinky' on Friday.  Did I ever mention that I prepped with Stinky?"

mac768's picture

The "fortress" balance sheet is crumbling...

AldousHuxley's picture

divide by zero error's picture

Only Playboy changes models more often

eatthebanksters's picture

Yes, as long as they keep updating the model things will always look great...even when they're not...

Cognitive Dissonance's picture

If you don't like the weather JPMorgan's VaR calculation.........wait a minute and it will change.

trebuchet's picture

Thy can have my VAR model its got 3 lines of code:


IF ( depositor funds -> prop trading) then





    Lend funds not trade funds


End if




trebuchet's picture

it even creates non randomised nonlinear wealth effects so fed can say " look monetary policy transmission mechanism coming back on line " at 5% signifance level without checking for unit roots

G_T_A_44's picture

Let's just call a 'Spade' a 'Spade' with respect to the large Money Centers Books, as well as others, that being:

A good 'ole fashioned Texas Bar-B-Q.


The Enron 'Playbook' of yesteryear employed throughout, remains alive and lives on.

FieldingMellish's picture

const int VaR = 0;

there, fixed.

Mercury's picture

We can't wait for the event that will force the fifth consecutive change in the firm's VaR, this time doubling it, with or without yet another taxpayer funded bailout. We would be, however, more at peace if it wasn't JPM's customer deposits that were funding its risky operations, which apparently are so complicated that JPM itself has needed at least 4 attempts at getting its risk exposure right in the past year and so far still failing.

Captain Crony Capitalist and Regulatory Capture are eating our lunch at the Risk Metric Cafeteria.

Rainman's picture

I got their new model right here....VaR is another useless piece of bankster data made up as they go along.

Burr's 2nd Shot's picture

What is the point of VaR if the value of paper assets can only go up?

The Dancer's picture

Back in the ole' days of reality, we used to call this "cooking the books"!

Random_Robert's picture

Does the "V" in VaR  stand for "Variable"...?

Surely it can't stand for "value" , right?

 maybe we have found why it changes so frequently

We THOUGHT VaR  actually stood for:

"Value at Risk"

But we are slowly learning that it ACTUALLY stands for (and indicates)  is a:

"Variably adjustable-Random"  number

and that it varies with inverse correlation to the street's consensus view of risk weighting.

ergo:  when risk is HIGH, JPM must tweak  its "Variably adjustable-Random" risk factor down.

Simple, right? 



EclecticParrot's picture

While you're obviously the expert on randomness, I wonder if it could be even simpler:  "Values Are Random."

Random_Robert's picture


I guess the fact that JPM is all over the map with VaR would indicate that value is inherently random to THEM... But, out in the real world?

I would concur that values are "subjective" based on the tastes of the individual; and would therefore be variable as a result of this subjectivity.

However, does subjectivity (and its resulting variability) necessarily make something truly "random"... ?

Nope- I can't cross the bridge that spans that logic-chasm... too rickety.


EclecticParrot's picture

Ah, but what if no "individuals" are involved anymore, only computers ?  "Bytes in a blender" could be JPM's new corporate theme, coffee mugs handed out at annual picnics.  

In the end, to be honest -- I'm with you, I still think that humans are involved (computers aren't this idiotic), and their subjectivity is based largely on mismanagement (which requires changings of the guard, which naturally changes the subjective biases,  far too often).

adr's picture

Can I use a VaR to make the IRS give me back all my tax money?

No? It doesn't work for people that don't have enough money to become TBTF. That sucks.

JR's picture

Michael Welsh’s article on Global Research today, “Drastic Austerity Measures under Canada’s 2013 Budget. Bailing out the Banks, Confiscating the Savings of Canadians,” reveals once again, IMO, why Karl Marx wanted a central bank that could provide “a flexible [inflatable non-metallic] currency” for his proposed world government.

It was to manipulate the economic impoverishment of his greatest obstacle to communist power - the middle class (whose bank deposits are currently being appropriated by the Fed through ZIRP and Troika via bail-in) - in order to establish total economic control over the nations.

And that is exactly what is happening by central bank policies built around debt, deficits, inflation and obscure regulations in the hands of unelected banking elites who are finalizing the enslavement of the American and European peoples – through the legal plunder of their private property.

Welsh says today that Canada’s 2013 Budget document contains the following provision – as you can see, out of a sudden universal banker concern for the “taxpayers”:

The Government proposes to implement a bail-in regime for systemically important banks. This regime will be designed to ensure that, in the unlikely event that a systemically important bank depletes its capital, the bank can be recapitalized and returned to viability through the very rapid conversion of certain bank liabilities into regulatory capital. This will reduce risks for taxpayers. The Government will consult stakeholders on how best to implement a bail-in regime in Canada. Implementation timelines will allow for a smooth transition for affected institutions, investors and other market participants. -- Jobs, Growth and Long-Term Prosperity: Economic Action Plan 2013, p. 145

“According to Ellen Hodgson Brown, this provision sets the stage for the same expropriation of bank depositors’ funds as was pioneered in Cyprus.”

BTW, the current contributor’s article on breaking up the big banking conglomerates by Washington’s Blog is a moving headline today on Global Research.

buzzsaw99's picture

VaR is what JPM says it is. That is all.

ebworthen's picture

Mark to model, creative accounting, jiggering statistics and models to fit the desired result versus inputs; academia run amok.

Bicycle Repairman's picture

The much vaunted Basel accords allow just about anything on the balance sheet to be evaluated using an internal model.  And that will be true for Basel XXVIII.

The Dancer's picture

Well, I can only speak for myself. Thirty-five years ago I stood up to the Federal Government by my self all alone. If there were more men with any guts out there, the problem would have never gotten this bad....let me see, didn't there used to be a saying about when good men do! what men? where are they? very few real men out there today..jmho...just a bunch of talkers....

Downtoolong's picture

Not to worry. The Fed is also using JPM's VAR model to determine how much money to print every hour, just in case.


Atlantis Consigliore's picture

VaR, VAR? We dont need to tell you anything bout our VaR, risk, we dont need to tell you about our Risk, 

Loss, LOSS, we dont need to tell you anything bout a Loss.

Badges? regulators, we dont listen to no stinkin regulators.


Riddle me a Cypress next address?  

venturen's picture

just a tempest in a teapot

evernewecon's picture





In “The Verdict”

Mickey Morrissey (Jack Warden)

says “What is this, some kind of joke?”


(The “what are you nuts?” line was

in addition to “what is this, some kind of joke?”) 


I think we all take this as a joke, and, this being

the fourth version, seriously, since it looks like

we pay for all the mistaken value at risk.


Merrill’s been folded into Bank of America.


What about E.F. Hutton?   When  E.F. Hutton

talks, people listen.