Correlation: the credit trader’s kryptonite

A lot of people think you can just throw a bunch of chaos into a situation and walk away. That is not the case. The most you’re going to get outta that is mayhem. Good disaster, like really muah [kisses fingers], should be catastrophic and that, my friends, takes preparation and patience.

In the case of the synthetic credit portfolio of JPMorgan’s CIO, they had a good three months to build positions that would subsequently cause billions of dollars of losses. Our previous post outlined how, according to the bank’s Task Force Report, the CIO was going to unwind profitable high yield shorts at the beginning of 2012. Instead, the unit ended up building those positions further, along with long positions in the Markit CDX.NA.IG.9 index that were meant to hedge and finance them. Read more

Positioning for credit losses, the JPMorgan way

If it’s alright by you, FT Alphaville has a confession to make. This whole London Whale thing, the billions that JPMorgan lost as a result of the actions of its Chief Investment Office primarily in the first quarter of 2012… we kinda made a cottage industry of trying to figure out what the trades were. Not that it was just us, mind you.

Naturally, we had been hoping that we’d finally get some answers when the Task Force Report came out last week. The report has revealed in painful detail how a large, well-respected bank can get so much wrong. There were bad risk management practices, model deficiencies, spreadsheet errors, complacent management and more. But trade details? That’s left for us to piece together from various scraps. Read more

Can haz spredshetz

Spreadsheet errors sure are a fun, but serious, topic. The last time FT Alphaville dove into JPMorgan’s Task Force Report on its losses in synthetic credit thanks to the bank’s Chief Investment Office, we took you through the blunders around their shiny new VaR model (that didn’t work). This time we want to introduce you to the spreadsheets with valuation errors. Read more

Footnote 74: FACEPALM

Oh, my, my, my. From JPMorgan’s Task Force Report into the London Whale with its billions of losses in synthetic credit, this footnote:

74 Late on April 6, [JPMorgan CFO] Mr. Braunstein also received an e-mail from Mr. Venkatakrishnan, via [JPMorgan CRO] Mr. Hogan, stating that Mr. Venkatakrishnan had noticed that the notional exposures at CIO were very large, totaling about $10 trillion in each direction.

 Read more

A tempest in a spreadsheet

The Task Force Report into the billions of dollars of losses racked up by JPMorgan’s Chief Investment Office has revealed a number of things, not least of which are some impressive spreadsheet errors.

Impressive enough, perhaps, to be worthy of inclusion in the European Spreadsheet Risks Interest Group’s list of Horror Stories.

(Yes, there is such a group and a massive H/T to reader Justin Cormack for informing us of it. Justin, we hope you don’t want to work for JPMorgan.) Read more

The CIO curve trade that never was

This one paragraph, describing the nature of the curve trade that JPMorgan’s Chief Investment Office had in the Markit CDX.NA.IG.9 index by the end of January, fills us with mixed emotions. There’s a bit of “oh, they did think they were doing that?” and a bit more of “‘but why?? WHY?”. Read more

The Whale and the P&L (and the RWAs)

JPMorgan’s Whale report just keeps on giving: from the blow by blow account of internal P&L swings after the first articles were published about the CIO’s trades, to discussion on how achieve the firm-wide goal of reducing risk-weighted assets.

Let’s start with the former, shall we? Read more

Did the CIO have a Kodak moment? Like, literally?

JPMorgan’s Chief Investment Office was given an edict to try to reduce risk-weighted assets, as part of a firm-wide initiative in the face of regulatory changes, and also to shift the synthetic credit portfolio to be more in keeping with the more bullish view of the economy that senior management held. All confirmed by the bank’s own Task Force Report out on Wednesday.

It appears there was a key moment, when the bank was caught off guard by the default of a “significant corporate issuer” in mid-January. Did it change the course that the portfolio otherwise would have taken? Read more

The London Whale, an oral history

It’s history, JPMorgan Task Force Report style. Or rather, it’s a mostly oral history, lacking in technical detail, and it’s not all independently verified. Oh, and heavily reliant on one guy. All of which is prominently outlined in this footnote… Read more

JPM task force stunningly arrives at same conclusion as JPM chairman and CEO

The Task Force’s views regarding Firm Chief Executive Officer Jamie Dimon are consistent with the conclusions he himself has reached…

 Read more