JPMorgan Chase: London whale swallows $2B

(MoneyWatch) A "flawed, complex, poorly reviewed, poorly executed and poorly monitored" derivatives trading strategy has cost JPMorgan Chase (JPM) $2 billion in the past six weeks and the bank could face an additional $1 billion of losses in the second-quarter, according to CEO Jamie Dimon. The bets were placed in the bank's Chief Investment Office, a London-based unit of the bank that manages risk for the firm.

Given the lessons of the financial crisis, many will wonder how this could happen. The answer is simple: JPMorgan Chase blew it. As a former derivatives trader, this looks like a simple case of bad risk management, followed by an inability to cut losses quickly.

The firm put on a complicated strategy that bet on the improving credit of selected companies. At the time, the trades were widely thought to be placed by a large firm backed with ample capital. The trader behind the strategy became known as "the London whale," though we now know that it was a French-born JPMorgan employee named Bruno Michel Iksil.

JPMorgan Chase acknowledges $2 billion trading loss

As the bet moved against the London Whale, Jamie Dimon brushed it off and even went so far as to say it was a "complete tempest in a teapot," during last quarter's earnings call. In off the record quotes, some JPM employees said the bank had run tests that showed that the strategy worked in any market conditions.

Huh?

This reminds me when a trader told me that Morgan Stanley's sub-prime bets were 100 percent hedged, except they weren't. Perhaps that's why Dimon called the mistake "egregious" and "self inflicted" and vowed to "learn from it ... fix it and move on."

Nobody should mistake this incident as a leftover from the financial crisis or an indication that Wall Street hasn't learned its lessons. In fact, this is the oldest story in the business, captured by the 1923 trader's bible, "Reminiscences of a Stock Operator" by Edwin Lefevre.

"Losing money is the least of my troubles. A loss never troubles me after I take it. I forget it overnight. But being wrong - not taking the loss - that is what does the damage to the pocket book and to the soul. The market does not beat them. They beat themselves"

[w_roos]

Isn't this predicted on the Book of Jonah?

[fedup12]

Just 4 short years later and they are at it again.

If the neo(fake)cons really think in todays world honor overtrumps greed in the banking and corporate world they are deluding themselves.

Probably need to force them to have honor. With regulations.

[credibility2]

...for the London branch of Chase to have had no oversight over trades this critical and staff involved that clearly didn't know what they were doing, shows total ineptitude...one would think that banks would not have tried anything like this anymore, given what happened a few years ago...I also don't believe more regulations would necessarily eliminate employee malfeasance, since no one has ever been able to totally eliminate a poor performing and grossly negligent and incompetent employee from any type of organization...private or public...

[jtdev1]

JP Morgan didn't lose anything.

The people who have their money with JP Morgan DID lose 2 Billion Dollars.


Stupid people...

[rainbowroosie]

Justice:

One whale misappropriates $2B = no charges

40,000,000 black men each steal $50 from a gas station totaling $2B. They get 400,000,000 years in prison total.....

[beachpaul100]

Amen.

[bobnjersey]

[Nobody should mistake this incident as a leftover from the financial crisis or an indication that Wall Street hasn't learned its lessons.]
---------------------------------------
you stated earlier in the article that it's a case of bad risk management ... which is a cornerstone of any investment strategy.

the 'left over' is that they don't think there are any lessons to learn ... and that the inappropriate risk of 'other peoples monies' is not a problem.

[Ericwvb]

Why should they change their behavior? They are just acting rationally. The more you bet, and the riskier the bet, the greater the reward.

If you lose at the casino, and you lose badly enough, the taxpayers will just bail you out. Either way, all the executives will reap millions in bonuses.

We need Glass-Steagal back, but we won't get that back since bribery (campaign contributions) lets Wall Street control Congress. Thanks to the Supreme Court, we won't get publicly funded elections or campaign contribution limits without an amendment to the Constitution, and why would legislators vote against their meal tickets?

This will not be fixed. It has to collapse completely.

[mentalist65]

Do I hear "You're fired!"

[baileycccc]

These bankers aren't stupid but they sure expect the public to be. Trust me they made hundreds of millions for themselves playing these loses.

[honest_pols]

WE ALL BETTER SET UP MORE COMMUNITY BANKS FOR OUR/PEOPLE'S DIRECT BENEFIT,

not out-of-control swindling, scheming, unproductive 'parasitic careers' for those BANKSTERS AND FINANCIERS, who only take and give very little or nothing back to country and community.

[rwsmith29456]

I'll take my credit union. Banks are wholly evil.