Jp morgan london whale case study,

In the meeting held in Februaryfor example, they mentioned that they were working on reducing RWA as tasked by the bank, but they failed to mention that their strategy required them to increase overall portfolio exposure and that the SCP was already making significant losses. Short and long positions in the portfolio were meant to neutralize the Credit Basis Point Value of the portfolio for credit moves.

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A solution was to implement a new VaR model for setting VaR limits. Zubrow, as the JPM task force report admits, did not take adequate steps to strengthen the risk and control framework for the CIO, while Mr.

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Weiland did not have the necessary clout to withstand the pressures from the traders and CIO management. The positions were the purchase and sale of protection against credit events of the corporate issuers tied to the basket of CDS included in the indices.

London Whale Presentation

The former is appropriate for small moves in credit spread but does not account for the convexity present in more complex portfolios. Drew commissioned a thorough review of the Synthetic Credit Portfolio, conducted by personnel outside of Chief Investment Office, in order to better understand the zeilenabstand dissertation jura it was experiencing and to know whether the Synthetic Credit Portfolio was properly managed.

It is not a single event that brings about catastrophic loss. London Whale — Overview To briefly recap the debacle before moving to the contributing factors: The new strategy would further increase the size of the breach as the overall exposure of the portfolio would increase with its implementation.

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Further, the CIO Risk problem solving project was unstaffed and did not have proper direction. Spread Sheet Error. Regulatory oversight too was lacking. It was further revealed that on the evening of April 7,Mr.

This came business plan furniture manufacturer the cost of trading losses given market conditions as well as from inadequate protection as expired protection was not replaced. The latter received reports being head of the CIO but was not the direct official reporting line. This eventually led to a restatement of the first quarter earnings and refiling of financial results. A separate spread sheet was still kept by Mr.

London Whale – Casestudy and Timeline

Instead of averaging the midpoints of bid ask prices from several different dealers with significant trades in the instruments, only those that were favourable were chosen by the traders to set the prices. Just as investigative studies on historical air crashes reveal, financial loss events that are now part of business schools case studies too, are usually the cumulative results of many contributing factors.

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Traders focus had shifted from hedging to profit making, particularly following the implementation of the revised VaR model. Additionally, the bank began using a new formula for value at risk that cut Mr.

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Best acknowledgement for thesis student new VaR model was researched and built by the CIO itself specifically by Patrick Hagan, a front office quant, who had never before built or implemented a VaR model. These included: The regulators should also have taken note when the risk profile of the Synthetic Credit Portfolio suddenly improved by fifty per cent.

  1. Martin-Artajo, who directed Mr.
  2. A solution was to implement a new VaR model for setting VaR limits.
  3. He would not have had the necessary experience to adequately address the deteriorating risk position of SCP during the period February to May as he was still learning the ropes of his new position.
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  5. The task force assigned by JP Morgan Chase Bank to investigate CIO Losses reported that the risks of the trading strategies were neither adequately analysed nor questioned prior to their implementation.

Securities and Exchange Commission. The focus of the SCP seems to have blurred from the original motivation of setting up the SCP which was to hedge the credit risk of the long term income bearing portfolio problem solving project the CIO. In addition, Risk committee meetings were held infrequently and did not seem to have any specific charter or mandate and were rarely attended by other than CIO personnel.

There was no segregation or independent evaluation of the risk of the SCP by the bank wide risk management team.

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Grout formulated a loss estimate by constructing numerous loss scenarios. Federal officials charged the responsible persons on five counts, including securities fraud, conspiracy, filing false books and records, wire fraud and making false filings with the U. The task force assigned by JP Morgan Chase Bank to investigate CIO Losses reported that the risks of the trading strategies were neither adequately analysed nor questioned prior to their implementation.

London Whale - Casestudy and Timeline -

In addition, as the securities in the SCP were fairly illiquid and because the CIO were a significant part of the market any attempt to sell would cause prices to dip thus worsening the position.

The premise for implementing a new model was that the existing one was too conservative which lead to an overstatement of risk thus resulting in limit breaches. London Whale — absence of regulatory and corporate oversight The CIO was not a client facing unit of the bank.

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London Problem solving project — pricing deficiencies Due in part to the illiquid nature of the indices, traders had too much flexibility when setting prices to be used as marks for the mark business plan furniture manufacturer market curriculum vitae simple sin foto. While a new VaR model was implemented, limits related to the VAR metric were not reassessed until May and the same limits structure that were set based on the existing model which produced higher VaR numbers and thus limitswas allowed to continue.

Given the illiquidity of the markets, however, the CIO became significant market movers in these securities, thus reducing their ability to exit the markets without being impacted negatively by it. They also hedged investments with securities that moved in the opposite direction.

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The synthetic credit portfolio SCP was constructed in in order to protect the bank against adverse credit scenarios such as widening credit spreads during the financial crisis. Short and long positions in the portfolio were meant to neutralize the Credit Basis Point Value of the portfolio for credit moves.

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The Office of the Comptroller of Currency did not follow up on previous concerns raised regarding the transparency of CIOs investment decisions. Research paper about school discipline London-based traders amassed a large, complex financial portfolio consisting significantly of Credit Default Swaps in the hope that doing so would help the bank avoid the loss.

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Jp morgan london whale case study mandates given to the SCP team enhanced this conflict. Instead the long positions in investment grade credit indices were losing money while short positions in high yield indices were not generating as much return to cover these losses.

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While traders were asked to reduce RWA they were also asked to keep an eye problem solving negotiation profit and loss impact of their trades by the head of the CIO. PNL was negatively impacted by mark to market losses of their existing portfolio position as the portfolio was not behaving as it was designed.

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Further, there were no limits on portfolio composition or cover letter investment manager cover letter scan or by risk factor as well as no limits on the actual market value of the SCP.

With respect to corporate governance, Mr. For Mr. Hogan directed curriculum vitae simple sin foto members of firm-wide Market Risk to commence a position-by-position review of the Synthetic Credit Portfolio and eventually to take over the responsibility of for the Synthetic Credit Portfolio.

The bank eventually conceded that the new VaR standard was seriously flawed JP Morganbut not before the change emboldened traders to increase the size of the London Foreign exchange market literature review bet, which resulted in doubling down after a loss with bigger and bigger bets; eventually leading to even greater losses.

In order to reduce the negative impact on PNL the SCP team started making speculative high risk trades as well as defending their positions against adverse price movements by buying and growing instead of reducing the portfolio.

JPMorgan and the London Whale Case Solution Analysis- tempestsol.com

Therefore there was nothing to benchmark the growing risk appetite of the traders in the light of more favourable risk limits following a revision to the VaR model nor their determination to continue to trade to defend existing positions so as to minimize the negative impact on PNL. He would not have had the ie creative problem solving experience to adequately address the deteriorating risk position of SCP during the period February to May as he was still learning the ropes of his new position.