Bruno Iksil, the JPMorgan Chase & Co. (JPM) trader known as the London Whale, had an e-mail sent to about 20 colleagues last year estimating almost double the daily losses his book had shown thus far. Then the phone rang.
“Why did you do that?” his supervisor, Javier Martin- Artajo, said at the start of the March 20 call. The position was failing to recover, Iksil explained.
“Okay, Okay, listen you’ve done it,” Martin-Artajo said, according to a transcript. “You think that this is right. This is not what I would have done but you’ve done it so I’m okay with this.”
The exchange is among numerous snapshots of life inside JPMorgan as the London Whale trades unraveled, resulting in more than $6.2 billion in losses for the biggest U.S. bank. The conversations were revealed last week as the U.S. Senate Permanent Subcommittee on Investigations released a 301-page report on the botched derivatives bets, as well as almost 600 pages of e-mails, phone-call transcripts and other records.
While lawmakers used the documents to bolster their findings that the New York-based company and its executives misled investors and regulators, the tome also provides a rare look at how traders and their bosses grappled with stress and a growing sense that they wouldn’t be able to contain the damage.
“It doesn’t help us for the conversation for tomorrow,” Martin-Artajo responded to Iksil, referring to a meeting scheduled for March 21 with Ina Drew, 56, who was in charge of the bank’s chief investment office, and Achilles Macris, 51, who headed international CIO in Europe and Asia.
Joseph Evangelisti, a JPMorgan spokesman and Martin- Artajo’s attorney, Greg Campbell, declined to comment about the phone conversation. An attorney for Iksil didn’t respond to messages seeking comment.
The e-mail estimated a daily loss of $43 million in the synthetic credit portfolio, and a $600 million to $800 million “lag” -- the difference between the levels reported internally and actual mid-prices in the market.
“I know it’s embarrassing but--” Iksil said.
“Yea I don’t understand your logic, mate, I just don’t understand,” Martin-Artajo said. “Achilles, he told me that he didn’t want to show the loss until we know what we’re going to do tomorrow. But it doesn’t matter. I know that you have a problem, you want to be at peace with yourself, okay, it’s okay, Bruno.”
A spreadsheet detailing the bank’s comprehensive risk measure, or CRM, “just shows the problem,” Martin-Artajo told his trader. “It shows that that we have a book that has been reduced in terms a lot. It shows that these guys have been doing something with the model that is stupid, okay, because the CRM now, they just don’t know how to explain what we do, okay? They’re just stupid quants, really.”
The CIO’s job was to invest the bank’s idle cash while minimizing risk. Iksil agreed that his positions acted as a bullish credit bet, “but that’s why I tried sending this P&L,” he said, using industry shorthand for a profit-and-loss statement. “It’s lagging so much that actually we have to show loss, and I explained that that this is a lag that keeps going, that amounts to a potential of 800 bucks, right, that --”
“What are you saying, Bruno? What are you talking about?” Martin-Artajo said. “You’re losing your mind here, man.”
“This is just what we need to explain tomorrow, you don’t need to in the e-mail, man,” Martin-Artajo said. He expressed concern that Drew would stop them from expanding the bets, and that JPMorgan’s investment bank would get involved because employees in that unit took the opposing side on some of the trades, wagering that Iksil’s strategy would fail.
“That’s what you fear, right? That at some stage we are in a corner because no one wants to go on with this challenge with the IB, yes?” Iksil said, referring to the investment bank. “My logic is strange but in fact, I have to choose between one bad thing and one thing that I think was worse.”
“I’m not going to sugar coat things,” Martin-Artajo said, adding that he was trying to “get all the facts” for Macris and Drew. “It’s just that I um, [expletive], I wish, I don’t know, just explained this a little bit better,” Martin-Artajo said.
He had a call earlier that day with Daniel Pinto, co-head of the fixed-income unit in the investment bank, with whom he raised concerns later that week that the unit’s traders were marking positions unfairly against the CIO. The more losses Iksil had to recognize, he said, “the harder it is to settle with the IB at a better price, if that’s what’s going to happen.”
Later in the call Martin-Artajo asked, “Everything else okay? You tired, you okay, man? You tired, are you sleeping well?”
“The discussion with Achilles, you know he tried again the question I have, do I miss something? Did I miss something? And I did feel, you know, unsettled by his questions,” Iksil said. “I feel bad. If I do know that I know I’m not making your life any easier, and if --”
“No, no, no, you know I think that you’re an honest guy, you know, it’s just that I did not want you to do this way, but you know, you feel that the bid-offer spreads are giving you a headache,” Martin-Artajo said. “Let’s go and relax a little bit if you can, and let’s start tomorrow, and we’ll start again.”
“There’s not a lot we can do on the phone.”
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