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The details of JP Morgan’s disastrous $2 billion (and counting) trading loss from its Chief Investment Office (CIO) continue to come out through various reports.The Wall Street Journal’s Dan Fitzpatrick, Gregory Zuckerman, and Joann Lublin just published a massive report after interviewing “more than a dozen current and former members of the bank’s Chief Investment Office.”
And some of the revelations are quite eye-opening.
Apparently, huge losses were not that unusual in JP Morgan’s London CIO offices:
In 2010, another bad trade caught the attention of a senior finance executive who notified top J.P. Morgan executives. Joseph Bonocore, then chief financial officer of the CIO, became concerned when London-based traders lost about $300 million in a few days on a foreign exchange-options trade, without any offsetting gains to balance out the losses.
…Mr. Dimon recalls being told of the trades, a person close to him said.
The London office was ordered to scale back on its positions. However, shortly after, it was risk-on again.
Last year, several executives in the CIO’s New York office noticed that London again was taking large trading positions, this time in derivative indexes that were viewed as illiquid, or hard to trade in and out of. Peter Weiland, then the chief risk officer of the CIO, and some more junior executives became concerned that if J.P. Morgan chose to sell the positions, the bank might suffer deep losses, said people familiar with the matter.
During a CIO management meeting late last year that included Ms. Drew, Mr. Macris and Mr. Weiland, the group discussed the size of the credit positions. They agreed that the positions needed to be reduced over time.
Even though everyone in the meeting was in agreement on what to do, the London office put on new trades this year that appeared to be at odds with the strategy, said people close to the company. Mr. Weiland was among those who became aware this year that the plan hadn’t been followed, those people said.
The executives including risk officers began talking about putting on new trading restrictions and limits. But none were agreed to, reports the Journal
And that brings us to the $2 billion trading loss that everyone’s talking about.