JPMorgan And The London Whale Essay

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INS370

JPMorgan & the London
Whale

Photo: ALAMY

03/2014-6003
This case was written by Andrew Chen, INSEAD MBA July 2013, under the supervision of Claudia Zeisberger, Affiliate
Professor of Decision Sciences & Entrepreneurship and Academic Director of the Global Private Equity Initiative
(GPEI) at INSEAD. It is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.
Funding for this case study was provided by INSEAD’s Global Private Equity Initiative (GPEI).
Additional material about INSEAD case studies (e.g., videos, spreadsheets, links) can be accessed at cases.insead.edu. Copyright © 2014 INSEAD
COPIES MAY
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Towards the close of 2011, however, senior bank management mandated the CIO to reduce exposure in their portfolio. There were two reasons for this. The bank’s view on the economy and credit markets had turned cautiously bullish, so an outright short bias was no longer warranted. And in light of the impending Basel III framework, JPM needed to reduce its riskweighted asset (RWA) exposure across all business lines. The SCP was specifically targeted by senior management because derivatives were particularly expensive in terms of RWA calculations, and banks with higher amounts of RWA would require a higher ratio of equitybased capital.
Responsibility for the SCP fell to Mr Macris’s group, specifically Javier Martin-Artajo, head of European Equity and Credit, and his direct report Bruno Iksil, head of Relative Value
Strategic Trading.

Credit Indices: CDX and iTraxx
The SCP was primarily invested in the CDX and iTraxx credit indices. These indices are effectively large diversified baskets of single-name credit default swaps or CDS (100 to 125 individual companies), and offer a simple and relatively liquid way for investors to gain exposure to the broader credit market. The first CDX was created in 2003 and the first iTraxx in 2005. Both are administered by Markit Group, with the main difference being that CDX is
Copyright © 2014 INSEAD

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03/2014-6003

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