JPMorgan Chase & Co. trader Bruno Iksil, known as the London Whale because his bets this year were so large, has been a leviathan of a risk-taker since at least 2010, a person with knowledge of the matter said.
Iksil’s value-at-risk, a measure of how much a trader might lose in one day, was typically $30 million to $40 million even before this year’s buildup, said the person, who wasn’t authorized to discuss the trades. Sometimes the figure, known as VaR, could surpass $60 million, the person said. That’s about as high as the level for the firm’s entire investment bank, which employs 26,000 people.
His bosses may not have understood the complexity of his trades, said the person, who asked for anonymity because the information hasn’t been released publicly. Executives and risk managers in the chief investment office were aware of Iksil’s positions because they met every Thursday morning to discuss the unit’s trades, the person said.
The new formula showed average VaR for the chief investment office stood at $67 million, according to a regulatory filing on April 13, the day JPMorgan reported first-quarter results. When JPMorgan reverted to the old model, it showed the average VaR was $129 million, and that the figure ballooned to $186 million at the end of the period, a May filing showed.
“There’s a formal approval process for the adoption of a new model,” said Daniels Webster, who retired in 2005 and runs her own risk-management firm, Daniels Webster Capital Advisors, based in Naples, Florida. “Somebody has to sign off.”
Hogan, after being named chief risk officer in mid-January, didn’t announce his new management team -- including his own successor -- until Feb. 13, so he was doing both the new job and the old job for about a month, according to the person close to the bank. A chief risk officer signed off on the VaR change, which took effect in January, the person said. It couldn’t be determined whether Zubrow or Hogan signed off, and neither responded to phone calls seeking comment.
“My departure from JPMorgan was planned from the middle of last fall, and had nothing to do with the current news story,” Abrahams said in an interview. He said that while his official retirement date was in May, he wasn’t physically present after the end of 2011. Abrahams was succeeded by C.S. “Venkat” Venkatakrishnan, according to a Feb. 13 memo from Hogan.
Iksil’s bet won out, and the hedge funds faced losses of 25 percent, when American Airlines parent AMR Corp. filed for bankruptcy less than a month before the insurance-like swaps matured, the market participants said. The trades were made in so-called tranches of the index, which concentrates risks on the member companies.