The London Whale: JPMorgan Chase Trading Loss - Jamie Dimon Testimony (2012)

• published: 26 Oct 2014
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In April and May 2012, large trading losses occurred at JPMorgan's Chief Investment Office, based on transactions booked through its London branch. The unit was run by Chief Investment Officer Ina Drew, who has since stepped down. A series of derivative transactions involving credit default swaps (CDS) were entered, reportedly as part of the bank's "hedging" strategy. Trader Bruno Iksil, nicknamed the London Whale, accumulated outsized CDS positions in the market. An estimated trading loss of $2 billion was announced, with the actual loss expected to be substantially larger. These events gave rise to a number of investigations to examine the firm's risk management systems and internal controls. http://en.wikipedia.org/wiki/2012_JPMorgan_Chase_trading_loss A rogue trader is an employee authorized to make trades on behalf of their employer (subject to certain conditions) who makes unauthorized trades. It is most often applied to financial trading, when rogue professional traders make unapproved financial transactions.[1] This activity is often in the grey area between civil and criminal transgression, because the perpetrator is a legitimate employee of a company or institution, yet enters into transactions on behalf of their employer without permission. In several cases traders have initially made very large profits for their employers, and bonuses for themselves, from trades in breach of the rules, and it has widely been said that employers turned a blind eye to transgressions due to the profits involved.[2][3] One famous rogue trader is Nick Leeson, whose losses on unauthorized investments in index futures contracts were sufficient to bankrupt his employer Barings Bank in 1995. Through a combination of poor judgement on his part, increasingly large initial profits, lack of oversight by management, a naïve regulatory environment, and an unforeseen outside event, the Kobe earthquake, Leeson incurred a US$1.3 billion loss that bankrupted the centuries-old financial institution. The key factor determining the use of the term is lack of authorisation. There have been colossal financial losses and bankruptcies from what are considered to be catastrophically bad decisions by senior decision-makers in financial institutions, such as caused the bankruptcy of Lehman Brothers and necessitated the 2008 United Kingdom bank rescue package, but this is not described as rogue trading and not punishable. In the UK the term is also used to describe dishonest tradesmen such as double-glazing salesmen, second-hand car dealers, gas fitters, mechanics, roofers, plumbers and domestic rubbish collectors; a BBC Television programme exposing such practices was called Rogue Traders, later incorporated into Watchdog. http://en.wikipedia.org/wiki/Rogue_trader James "Jamie" Dimon (/ˈdaɪmən/; born March 13, 1956) is an American business executive. He is the current chairman, president and chief executive officer of JPMorgan Chase, one of the Big Four banks of the United States, and previously served as a Class A director of the Board of Directors of the New York Federal Reserve. Dimon was named to Time magazine's 2006, 2008, 2009, and 2011 lists of the world's 100 most influential people. He was also named to Institutional Investor's Best CEOs list in the All-America Executive Team Survey from 2008 through 2011. He was named the CEO of the Year in 2011. He received a $23 million pay package for fiscal year 2011, more than any other bank CEO in the United States. Dimon received $20 million in compensation for his work in fiscal year 2013. http://en.wikipedia.org/wiki/Jamie_Dimon Image By World Economic Forum (Flickr: The Global Financial Context: James Dimon) [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Wikimedia Commons