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2012 jpmorgan chase trading loss

The meaning of «2012 jpmorgan chase trading loss»

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 later stepped down. A series of derivative transactions involving credit default swaps (CDS) were entered, reportedly as part of the bank's "hedging" strategy.[1] Trader Bruno Iksil, nicknamed the London Whale, accumulated outsized CDS positions in the market. An estimated trading loss of $2 billion was announced. However, the loss amounted to more than $6 billion for JP Morgan Chase.[2][3]

These events gave rise to a number of investigations to examine the firm's risk management systems and internal controls. JPMorgan Chase agreed to pay $920 million in fines.[4][5][6] JPMorgan Chase cut chief executive Jamie Dimon's 2012 pay in half, to $11.5 million from $23 million, due to the $6 billion trading loss.[7][8][9]

In February 2012, hedge fund insiders such as Boaz Weinstein of Saba Capital Management[10][11] became aware that the market in credit default swaps was possibly being affected by aggressive trading activities. The source of the unusual activity turned out to be Bruno Iksil, a trader for JPMorgan Chase & Co. Market-moving trades by the bank's Chief Investment Office had first been uncovered in June 2011 by Dan Alderson, a reporter at trade journal Creditflux, which reported on anomalies in CDX HY index tranche pricing dynamics caused by Iksil's trading activity.[12] The same journal reported on further tranche trading activity by the JP Morgan unit two months later. By 2012, heavy opposing bets to his positions had been made by traders, including another branch of JPMorgan, who purchased the derivatives that JPMorgan was selling in high volume.[13][14] JPMorgan denied the first news reports, with Chairman and CEO Jamie Dimon calling it a "tempest in a teapot."[15][16] Major losses of $2 billion were reported by the firm in May 2012 in relation to these trades.

On July 13, 2012, the total loss was updated to $5.8 billion with the addition of a $4.4 billion loss in the second quarter and subsequent recalculation of a loss of $1.4 billion for the first quarter. A spokesman for the firm claimed that projected total losses could be more than $7 billion.[17] The disclosure, which resulted in headlines in the media, did not disclose the exact nature of the trading involved, which remained in progress as of May 16, 2012, as JPMorgan's losses mounted and other traders sought to profit or avoid losses resulting from JPMorgan's positions.[18][19] As of June 28, 2012, JPMorgan's positions were continuing to produce losses which could total as much as $9 billion under worst-case scenarios.[20] The trades were possibly related to CDX IG 9, a credit default swap index based on the default risk of major U.S. corporations[21][22] that has been described as a "derivative of a derivative".[23][24] On the company's emergency conference call, JPMorgan Chase Chairman and CEO Jamie Dimon said the strategy was "flawed, complex, poorly reviewed, poorly executed, and poorly monitored".[25] The episode is being investigated by the Federal Reserve, the SEC, and the FBI.[26]

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