Exhibits (JPMC HRG - March 15 2013)

199 Russell Senate Office Building, Washington, D.C.
20510
United States Senate
PERMANENT SUBCOMMITTEE ON INVESTIGATIONS
Committee on Homeland Security and Governmental Affairs
Carl Levin, Chairman
John McCain, Ranking Minority Member
E X H I B I T S
Hearing On
JPMorgan Chase Whale Trades:
A Case History of Derivatives
Risks & Abuses
March 15, 2013
.
United States Senate
PERMANENT SUBCOMMITTEE ON INVESTIGATIONS
Committee on Homeland Security and Governmental Affairs
Carl Levin, Chairman
John McCain, Ranking Minority Member
EXHIBIT LIST
Hearing On
JPMorgan Chase Whale Trades:
A Case History of Derivatives Risks & Abuses
March 15, 2013
1. a. Growth of Synthetic Credit Portfolio, chart prepared by the Permanent Subcommittee
on Investigations.
b. Synthetic Credit Portfolio Daily Profits and Losses, chart prepared by the Permanent
Subcommittee on Investigations.
c. Synthetic Credit Portfolio Aggregate Profits and Losses, chart prepared by the
Permanent Subcommittee on Investigations.
d. Synthetic Credit Portfolio Risk Limit Breaches, chart prepared by the Permanent
e. Value-at-Risk for the CIO (10Q VaR), chart prepared by the Permanent Subcommittee
on Investigations.
f. Inaccurate Public Statements on April 13, 2012, chart prepared by the Permanent
g. Synthetic Credit Portfolio Internal Profits and Loss Reports, January-May 2012, chart
prepared by the Permanent Subcommittee on Investigations.
h. 2011 CIO Compensation vs. Investment Bank Comparables, chart prepared by the
i. Timeline: Key Events in JPMorgan Chase Whale Trades, chart prepared by the
2. JPMorgan Chase presentation slides, Chief Investment Office - Organization, April 2012.
[JPM-CIO-PSI 0001875-876, 879-880, 885]
Documents Related to Increasing Risk:
3. Testimony of Jamie Dimon, Chairman & CEO of JPMorgan Chase & Co., before the
Senate Committee on Banking, Housing and Urban Affairs, June 13, 2012 (This strategy,
however, ended up creating a portfolio that was large and ultimately resulted in even more
complex and hard-to-manage risks. This portfolio morphed into something that, rather
than protect the Firm, created new and potentially larger risks.).
4. JPMorgan Chase/OCC internal email, dated July 2012, re: CIO: Response to Regulator
Requests on NBIA, Risk Tolerance and Follow-up VaR model questions, attaching Chief
Investment Office New Business Initiative Approval Executive Summary.
[OCC-SPI-00081611 and Excerpt of OCC-SPI-00081631]
-2-
5. JPMorgan Chase Audit Department Report, CIO Global Credit Trading (Chief Investment
Office (CIO) credit trading activities commenced in 2006 and are proprietary position
strategies executed on credit and asset backed indices.). [JPM-CIO-PSI-H 0006022-023]
6. JPMorgan Chase Summary of Positions (02/2011 - $4 billion; 01/2012 - $51 billion;
03/30/2012 - $157 billion). [JPM-CIO-PSI 0037609]
7. JPMorgan Chase internal email, dated January 2012, re: International Credit consolidated
P&L 09 Jan-2012 (Lets review the unwind plan to maximize p l. We may have a tad more
room on rwa. Pls schedule asap.). [JPM-CIO-PSI 0000075-078]
8. JPMorgan Chase internal email, dated January 2012, re: Meeting materials for 11am
meeting attaching J.P.Morgan Core Credit Book Highlights, January 2012. (As of COB
16 January 2012 the CIO calculated Core Credit Book RWA was USD20.9bln; This
th
compares to average USD40.3bln RWA for December 2011 provided by QR).
[JPM-CIO-PSI 0000098-101]
9. JPMorgan Chase internal email, dated January 2012, re: Credit book Decision Table -
Scenario clarification (The fourth scenario is our Target scenario and the one we are
hoping to implement again by midyear.). [JPM-CIO-PSI 0000105-106]
10. JPMorgan Chase internal email, dated January 2012, re: Credit book last version, attaching
J.P.Morgan Core Credit Book Highlights, January 2012. (The trade that makes sense.).
[JPM-CIO-PSI 0000159-173]
11. JPMorgan Chase internal email, dated January 2012, re: update on core credit book (the
only one I see is to stay as we are and let the book simply die. That we should take some
hits because the markets might create noise in the P&L is a certain reality. Yet, the control
of the drawdown now is generating issues that make the book only bigger than notional.).
[JPM-CIO-PSI 0001223]
12. JPMorgan Chase internal email, dated January 2012, re: update on core credit book
(...notionals become scary and upside is limited unless we have really unexpected
scenarios. In the meantime, we face larger and larger drawdown pressure versus the risk
due to notional increases. Please let me know the course of action I should take here.).
13. JPMorgan Chase internal email, dated January 2012, re: hello, quick update in core credit...
(...we can show that we are not at mids but on realistic level. ... I went I to ISMG and
advised that we set the book for long risk carry the time for us to see whether we really
need to fight in mars.). [JPM-CIO-PSI 0001229]
-3-
14. JPMorgan Chase internal email, dated January 2012, re: Core book p&l drawdown and
main exposures (The current strategy doesnt seem to work-out. ...the book doesnt behave
as intended.). [JPM-CIO-PSI 0000221-223]
15. JPMorgan Chase internal email, dated March 2012, re: priorities (If we [a]ctually reduce
the book, we will not be able to defend our positions.... We need to win on the methodology
and then the diversification.). [JPM-CIO-PSI 0001219]
16. a. JPMorgan Chase internal email, dated March 2012 re: CIO Core Credit P&L Predict
[20 Mar]: -$39,686k (dly) -$275,424k (ytd). (...the lag in P&L is material ($600-
800M).). [JPM-CIO-PSI 0016487-489]
b. JPMorgan Chase internal email, dated March 2012 re: International Credit
Consolidated P&L Predict 20-Mar-2012 (...the lag in P&L is material ($600-800M).).
[JPM-CIO-PSI 0019474-486]
17. JPMorgan Chase Transcript of Call, March 2012, between Martin-Artajo and Iksil, (...thats
why I tried sending this P&L I sent also the comments it came from Julien but I wrote it,
where I said okay you know we take this loss, we are maintaining long risk where we have
to be, the rally is on IG but guess what you know its lagging so much that actually we have
to show loss, and I explained that his is a lag that keeps going, that amounts to a potential
of 800 bucks....). [JPM-CIO-PSI-H 0006392-400]
18. JPMorgan Chase internal email, dated March 2012 re: CIO Core Credit P&L Predict [22
Mar]: +$82k (dly) -$276,990k (ytd). (Today to sold protection....).
[JPM-CIO-PSI 0016499-501]
19. JPMorgan Chase internal email, dated March 2012 re: CI would like to understand the
increase in positions in credit (Ina is freaking - really! Call me).
[JPM-CIO-PSI 0000410-412]
20. JPMorgan Chase transcript of instant message dated March 23, 2012 (Bruno Iksil: this
year for the first time, achilles started thinking i could be of use other than to make money
... just to protect the whole group but here is the loss and it become too large and this is
it....). [JPM-CIO-PSI 0001240-246]
21. JPMorgan Chase transcript of instant message dated March 23, 2012 (Bruno Iksil: ...I am
going to be hauled over the coals *** you dont lose 500M without consequences...).
[JPM-CIO-PSI-H 0006438, 450-464]
22. JPMorgan Chase internal email, dated March 2012 re: Tranche Plan (Now that we have the
new RWA increase, Ina would like to discuss the forward plan for reduction. She does not
want any trades executed until we all discuss it.). [JPM-CIO-PSI 0001267]
-4-
23. JPMorgan Chase internal email, dated March 2012, re: synthetic credit crisis action plan
(Clearly, we are in a crisis mode on this.). [JPM-CIO-PSI 0001220-222]
24. a. London Whale Rattles Debt Market, April 6, 2012, Wall Street Journal.
b. JPMorgan Traders Positions Said to Distort Credit Indexes, April 6, 2012,
Bloomberg.
25. JPMorgan Chase internal email, dated April 2012, re: Credit (A bit more than we thought).
[JPM-CIO-PSI-H 0002276]
26. JPMorgan Chase internal email, dated April 2012, re: Net positions vs. average trading
volumes (The below table shows that CDX.IG.9 net position for CIO is $82.2bio, which is
approximately 10-15 days of 100% of trading volume based on the 1m avg volume
published by JPMorgan Research. ITX.9 net position for CIO is $35bio, which is
approximately 8-12 days of 100% trading volume based on the 1m avg volume.).
[JPM-CIO-PSI 0001026-027]
27. OCC internal email, dated May 2012, re: CIO call with Mike Brosnan (They took up a
strategy to reduce their make believe voodoo magic Composite Hedge....).
[OCC-SPI-00021602-04]
Documents Related to Hiding Losses:
28. Grout Spreadsheet, March 12-16, 2012. [JPM-CIO-PSI-H 00002812]
29. JPMorgan Chase internal email, dated March 2012, re: update on Core PNL (The
divergence has increased to 300 now). [JPM-CIO 0003475]
30. JPMorgan Chase internal email, dated March 2012, re: Synthetic Book - URGENT
(Option B: we settle with the IB ... and will have an impact on P/L that could be as large as
- 350MM.). [JPM-CIO-PSI 0000416]
31. JPMorgan Chase internal email, dated April 2012, re: update (...if we exclude very adverse
marks to our book the potential loss due to market moves or any economic scenario ...
would not exceed ... - 200 MM USD....). [JPM-CIO-PSI 0001429]
32. a. JPMorgan Chase transcript of call between Julien Grout and Bruno Iksil, dated March
16, 2012 (I cant keep this going, we do a one-off at the end of the month to remain
calm. * * * I dont know where he wants to stop, but its getting idiotic.). [JPM-CIO-
PSI-H 0003820-822]
b. JPMorgan Chase transcript of instant message dated March 16, 2012 (it is now 1000 for
month end? ouch well that is the pace).
[JPM-CIO-PSI-H 0003815]
-5-
c. Transcript of Audio Recording Produced to the Permanent Subcommittee on
Investigations, call between Javier Martin-Artajo, Ina Drew, and Gina Serpico. undated
(likely April 2012) (Ms. Drew: Its absolutely fine to stay conservative, but it would be
helpful, if appropriate, to get, to start getting a little bit of that mark back.). [JPM-CIO-
PSI-A 0000076.wav]
d. JPMorgan Chase transcript of call between Javier Martin-Artajo and Alistair Webster,
dated May 8, 2012 (So then when, if we roll forward to March, if the front office marks
had migrated ... to the aggressive side, most of them, not all of them, to the aggressive
side, but theyve also migrated from either mid to somewhere close to being at the, you
know, the bounds of the bid or offer.). [JPM-CIO 0003631-636]
33. JPMorgan Chase internal email, dated April 2012, re: CIO Core Credit P&L (10 Apr]:
-$5,711k (dly) -$626,834k (ytd) (Daily P&L: -$5,710,991 *** (Daily P&L: -
$394,735,120). [JPM-CIO 0003570-576]
34. a. JPMorgan Chase internal email, dated April 2012, re: Credit Index and Tranche Book
(...CIO FO marked their book at the most advantageous levels....).
[JPM-CIO-PSI-H 0006636-639]
b. JPMorgan Chase internal email, dated April 2012, re: URGENT ::: Huge Difference for
Itraxx & CDX (The desk marked the book at the boundary of the bid/offer spread....).
[JPM-CIO 0003582-3587]
35. JPMorgan Chase internal email, dated April 2012, re: Collateral Disputes (This isnt a
good sign on our valuation process.... I am going to dig further.).
[JPM-CIO-PSI-H 0000108-109]
36. JPMorgan Chase internal memorandum, dated May 2012, re: Firms review of the
valuation of its CIO EMEA credit portfolio in light of the current market conditions and
dislocation that occurred in April 2012. [JPM-CIO-PSI-H 0006730-747]
Documents Related to Disregarding Limits:
Overview and Organization:
37. J.P. Morgan slide presentation, Market Risk Limits, March 2012. (Business Unit must take
immediate steps toward reducing its exposure to be within the limit, unless a One-off
Approval is granted by all Grantors and Grantees of limits.) [OCC-SPI-00117682]
38. Document prepared by Bruno Iksil, including excerpts of JPMorgan Chase internal emails
December 2011 - March 2012. [JPM-CIO-PSI 0021879-917]
39. JPMorgan Chase internal email, dated May 2012, re: information needed (...please find the
CIO excessions attached.). [JPM-CIO-PSI-H 0000627-636]
-6-
VaR Models and Limits:
40. JPMorgan Chase internal email, dated January 2012, re: JPMC Firmwide VaR - Daily
Update - COB 01/09/2012 (Pats model is in line with the 70 VAR and has a much better
explanation for these changes. Hopefully we get this approved as we speak.). [JPM-CIO-
PSI 0000093-097]
41. JPMorgan Chase internal email, dated January 2012, re: Breach of firm var (Below please
find details of the VaR limit breach. The VaR increase is driven by Core Credit (tranche)
in EMEA. The VaR has increased steadily since the end of December as positions in
CDX.HY on-the-run indices have been added to the portfolio to balance the book, which
has been taken longer risk....). [JPM-CIO-PSI 0000141-145]
42. JPMorgan Chase internal email, dated January 2012, re:CIO var (FYI. Dual plan ..... as
discussed keep the pressure no our friends in Model Validation and QR.). [JPM-CIO-PSI
0000151]
43. JPMorgan Chase internal email, dated January 2012, re: CIO VaR heads up and update
(Importantly, for the same COB 26 January, the new/full revaluation methodology* shows
VaR decreased ($1.3MM) from 70.8mm to 69.5mm. I estimate that this would make CIO
global VAR closer to $76MM vs. the currently reported number >$115. We anticipate
final approval on Monday and that the *new methodology should become the official firm
submission from Monday, for 27 Jan COB.* Limit issues should therefore cease beginning
from Monday.). [JPM-CIO-PSI 0000177-178]
44. JPMorgan Chase internal email, dated January 2012, re: draft of the MRG review of the
HVAR methodology for the CIO core credit books (Operational Risk - The VaR
computation is currently done off spreadsheets using a manual process. Thus it is error
prone, and not easily scalable. *** ACTION PLAN: CIO should re-examine the data
quality and explore alternative data sources. For days with large discrepancies between
dealer marks and IB marks, the integrity of the data used for HVAR calculation should be
verified. *** Please go ahead with the implementation of the new HVaR methodology for
the CIO credit books.). [JPM-CIO-PSI 0000187-191]
45. JPMorgan Chase internal email, dated April 2012, re: CIO VaR (FYI - we discovered an
issue related to the VAR market data used in the calculation which we need to discuss.
This means our reported standalone var for the five business days in the period 10-16th
April was understated by apprx $10mm.). [JPM-CIO-PSI 0001205]
RWA, CRM and Optimization:
46. JPMorgan Chase internal email, dated December 2011, re: RWA - Tranche Book (The
estimates of reductions will be: Model reduction QR CRM (ackno[w]ledged already) 5
[billion] Pat estimate); Model reduction QR VAR 0.5 [billion] (Pat estimate); Model
Reduction QR Stress 1.5 [billion] (Pat estimate)). [JPM-CIO-PSI 0000032-034]
-7-
47. JPMorgan Chase internal email, dated March 2012, re: CIO CRM results (We got some
CRM numbers and they look like garbage as far as I can tell, 2-3x what we saw before.).
[JPM-CIO-PSI 0000338-339]

48. JPMorgan Chase internal email, dated March 2012, re: New CRM numbers ... (With their
new model, QR is reporting that we have a stand alone CRM of roughly 6bn. This is
radically higher than the worst loss we see at the same confidence level; the loss we see is
far below 2bn.). [JPM-CIO-PSI 0036342-344]
49. JPMorgan Chase internal email, dated March 2012, re: CIO CRM results (Based on our
models, though, we believe that the $3bn increase in RWA is entirely explained by a $33bn
notional increase in short protection (long risk) in your portfolio between Jan and Feb. ***
The change in notional is not correct and the CRM is therefore too high.). [JPM-CIO-PSI
0000371-372 ]
50. JPMorgan Chase internal email, dated March 2012, re: Optimizing regulatory capital (To
optimize the firm-wide capital charge, I believe we should optimize the split between the
tranche and index books. *** I dont think we should treat this as regulatory arbitrage.
Instead we should treat the regulatory capital calculation as an exercise of automatically
finding the best results f an immensely arbitrary and complicated formula.).
[JPM-CIO-PSI 0011025-026]
51. a. Excerpt from transcript of audio recording produced to the Permanent Subcommittee on
Investigations, call between Anil Bangia and Patrick Hagan, dated March 21, 2012.
[JPM-CIO-PSI-A 0000089]
b. Excerpt from transcript of audio recording produced to the Permanent Subcommittee on
Investigations, call between Anil Bangia and Patrick Hagan, dated March 21, 2012.
c. Excerpt from transcript of audio recording produced to the Permanent Subcommittee on
Investigations, call between Peter Weiland and Patrick Hagan, dated March 21, 2012.
52. JPMorgan Chase internal email, dated April 2012 (We havent made the case of how this
book runs off and whether risk can be managed effectively ....).
Credit Spread Risk Metrics and Limits:
53. JPMorgan Chase internal email, dated January 2012, re: there is more loss coming in core
credit book (I reckon we have another 50M coming from CDX exposure. The guys have a
huge skew trade on and they will defend it as much as we do.). [JPM-CIO-PSI 0001225]
54. JPMorgan Chase internal email, dated February 2012, re: Csbpv limit - please read (We
have a global credit csbpv limit. It was set up at the initiation of the credit book.
Unfortunately we have been breaching for most of the year. *** I have no memory of this
limit. In any case it need to be recast with other limits.). [JPM-CIO-PSI-H 0002936]
-8-
55. JPMorgan Chase internal email, dated February 2012, re: CIO Global Credit spread BPV
limit breach-COB 02/09/2012 (Since mid-January CIO has been in breach of its global
csbpv limits, driven primarily by position changes in the tranche book.).
[JPM-CIO-PSI 0001823-825, 832]
56. JPMorgan Chase internal email, dated April 2012, re: CIO DAY 1 (CIOs 10% CSW by my
groups model estimate is long 245mm of risk; their own models (run by Weiland) quote
$145mm. I dont understand the difference in the models and dont know how good a
measure of risk 10% CSW is for their book. But I spoke to Ashley and we agree that 10%
CSW has been trending up for CIO, by either their model or ours.).
57. JPMorgan Chase internal email, dated May 2012, re: CSBPV History (Early in 1012 net
CSBPV increased dramatically as IG positions were added and offset between HY and IG
grew.). [JPM-CIO-PSI-H 0000810-811]
Documents Related to OCC Oversight:
58. OCC internal email, dated January 2012, re: CIO Quarterly Meeting (The MTM Book is
decreasing in size in 2012.). [OCC-SPI-00004695]
59. OCC internal email, dated April 2012, re: CIO deck ([H]ave you still been getting the CIO
deck? I dont recall seeing it lately.). [OCC-00004720]
60. JPMorgan Chase/OCC email, dated April 2012, re: materials for Fed/OCC/FDIC call at
noon today, attaching Synthetic Credit Book Review for Briefing by CIO to OCC.
[OCC-SPI-00009712-724]
61. JPMorgan Chase/OCC email, dated April 2012, re: CIO January 2012 valuation memo and
metrics (Apologies for not distributing the February valuation work. I just sent the
February and March reports.). [OCC-00004735-736]
62. JPMorgan Chase/OCC email, dated April 2012, re: Quick questions pp 4 and 5 of
yesterdays presentation (I believe there is modest long credit risk sensitivity to the
portfolio now.). [OCC-SPI-00023815]
63. OCC internal email, dated April 2012, re: JPM CIO / IG9 whale trade (JPMs CIO has
been using a synthetic credit (credit derivative) portfolio since 2007. It was initially set up
to provide income to mitigate other significant credit losses that would surface under a
broad credit stress scenario.). [OCC-000012521-523]
64. JPMorgan Chase/OCC email, dated April 2012, re: CIO EMR? (Does the CIO still produce
an EMR? It wasnt included in the January Treasury EMR, which is where I used to see it.
Im looking for the balance sheet information that was in it.).
[OCC-00004723]
-9-
65. JPMorgan Chase/OCC email, dated April 2012, re: Info on VaR, CSBPV, and stress status
and limits (We are working on a new set of limits for synthetic credit and the current CS01
will be replaced by something more sensible and granular.). [OCC-SPI-00022340-341]
66. OCC internal email, dated April 2012, re: Weekly Market Summary period ending 4/13
(The Whale issue is considered closed-email went out to Senior Management yesterday.).
[OCC-SPI-00023057-060]
67. OCC internal email, dated April 2012, re: Weekly Market Summary period ending 4/20
(For the second consecutive week, CIO is breaching its $1.0bn stress limit....).
[OCC-SPI-00023753-755]
68. OCC internal email, dated May 2012, re: CIO Synthetic Position (Doug Braunstein and
John Hogan called to provide an update on the CIO position. *** Current losses are
approximately $1.6 billion.). [OCC-SPI-00021853]
69. OCC internal email, dated May 2012, re: CIO information for Wednesday (However, I
asked James to first, put in a request for more granular daily P&L on the synthetic credit....
Bank will likely object to this....). [OCC-SPI-00013737]
70. OCC internal email, dated May 2012, re: My opinion on yesterdays meeting (I wasnt
satisfied with the comments made about valuation process and the thresholds yesterday,
and so we have some followup here. *** In addition to reserve, there were likely problems
with the thresholds themselves. *** Valuation was one of the things Hogan said they are
looking at.). [OCC-00005302-304]
71. OCC internal email, dated May 2012, re: J.P. Morgan Chase (We received a lot of
pushback from the bank, Ina Drew in particular, regarding our comments. In fact, Ina
called Crumlish when he was in London and sternly discussed our conclusions with him
for 45 minutes. Basically she said that investment decisions are made with the full
understanding of executive management including Jamie Dimon.). [OCC-00001746 ]
72. Morgan Chase/OCC email, dated May 2012, re: CIO P&L reporting (Wed like to get the
synthetic credit P&L for the past five weeks broken out on a least a weekly basis.). [OCC-
00004759]
73. OCC internal email, dated May 2012, (Does not add up. Collateral dispute of $700 mil.
versus a double digit reserves amount?). [OCC-SPI-00009335]
74. OCC internal email, dated May 2012, re: Not Getting CIO daily P&L after only one day (I
got one CIO daily P&L distribution and then didnt yesterday.). [OCC-00004540]
75. OCC handwritten notes, dated May 2012, re: SBC Staff Briefing (JPMC transactions at
issue involved an effort to hedge the banks credit risk. Hedging credit risk is not
uncommon, and if done properly, reflects sound management risk.). [PSI-OCC-10-000001]
-10-
76. OCC internal email, dated May 2012, re: CIO call with Mike Brosnan (I told Mike B that
the Joe Sabatini emails with selected position information were sent by the bank after
initial OCC and FRB enquiries. We concluded the information was pretty much useless, as
it did not tell us what was happening risk wise.). [OCC-SPI-00021628-631]
77. OCC internal email, dated May 2012, re: cio var change (Here are a few comments from
the days preceding the synthetic credit VaR model change that became effective 1/27/12.
Note the reduction of CIO VaR by 44% TO $57mm.). [OCC-SPI-00021932]
78. OCC internal email, dated June 2012, re: 2 Wilmer Call (I then followed with a question
nd
relating to what I described as mismarked books to which Hogan forcefully stated JPM
books were not mismarked; leaving both Elwyn and me left puzzled over how a collateral
dispute could be resolved by agreeing to the counterparties marks, without admitting your
own marks were incorrect.). [OCC-SPI-00071386]
Documents Related to Misinformation Investors, Regulators and the Public:
79. a. JPMorgan Chase internal email, dated January 2012, re: JPMC - COB 01/19/2012 (The
impact of the new VaR model based on Jan. 18 will be a reduction of CIO VaR by 44%
to $57mm.). [JPM-CIO-PSI 0002457]
b. JPMorgan Chase internal email, dated January 2012, re: JPMC 95% 10Q VaR - Limit
Excession Notification (COB 1/19/12) (...reduction of CIO VaR by 44% to $57mm.).
c. JPMorgan Chase internal email, dated January 2012, re: APPROVAL NEEDED: JPMC
95% 10Q VaR One-Off Limit Approval (...reduction of CIO VaR by 44% to $57mm.).
[JPM-CIO-PSI 0004660-661]
d. JPMorgan Chase internal email, dated January 2012, re: APPROVAL NEEDED: JPMC
95% 10Q VaR One-Off Limit Approval (Jamie Dimon: I approve.)
[JPM-CIO-PSI 0001337-338]
e. JPMorgan Chase internal email, dated January 2012, re: : JPMC Firmwide VaR - Daily
Update - COB 01/26/2012 (...reduction of CIO VaR by 44% to $57mm.). [JPM-CIO-PSI
0003346]
f. JPMorgan Chase internal email, dated January 2012, re: : JPMC Firmwide VaR - Daily
Update - COB 01/26/2012 (...reduction of CIO VaR by 44% to $57mm.). [JPM-CIO-PSI
0003715]
g. JPMorgan Chase internal email, dated January 2012, re: : JPMC Firmwide VaR - Daily
Update - COB 01/26/2012 (A CIO model change is planed to go in this week-end. New
VaR methodology approved (and now the same methodology as IB) reduces standalone
Credit VaR by approx $30 mio.). [JPM-CIO-PSI-H 0001675]
h. JPMorgan Chase internal email, dated January 2012, re: JPMC - COB 01/27/2012 (The
Firms 95% 10Q VaR as of cob 01/27/2012 is $108mm of the $125MM limit, a
decrease of $53mm from the prior days revised VaR, driven by CIO (implementation of
newly approved VaR model for synthetic credit).).
-11-
80. JPMorgan Chase internal email, dated February 2012, re: CIO Business Review Materials.
[JPM-CIO-PSI 0001940-942, 1949951, 1958-961, 1963]
81. J.P.Morgan Directors Risk Policy Committee - CIO 2012 Opportunities and Challenges,
March 2012. [JPM-CIO-PSI 0015015-018, 023]
82. JPMorgan Chase Audit Department Report, dated March 2012, Audit Rating: Needs
Improvement. [JPM-CIO-PSI 0009289-296]
83. JPMorgan Chase internal email, dated April 2012, re: Jamies fine with this (Here are some
revised points based on your comments.). [JPM-CIO-PSI 0000543-544]
84. a. JPMorgan Chase internal email, dated April 2012, re: CIO (Post December as the
macro scenario was upgraded and our investment activities turned pro risk, the book
was moved into a long position.). [JPM-CIO-PSI 0000539]
b. JPMorgan Chase internal email, dated May 2012, (WHAT HAPPENED?).
[JPM-CIO-PSI 0001212-214]
85. JPMorgan Chase internal email, dated April 2012, re: Synthetic Credit Summary (In Q4, we
decided to neutralize the risk profile of this book.). [JPM-CIO-PSI 0001588-589]
86. JPMorgan Chase internal email, dated April 2012, re: Deliverable for meeting tomorrow
(Doug had the question of why we just didnt reduce the HY position to reduce our risk
rather than going long the IG 9 (we discussed carry (ie associated p&l)....). [JPM-CIO-PSI
0001646-647]
87. JPMorgan Chase internal email, dated April 2011, re: Credit risk limits (This is the
governance used in the IB control what is currently going on in CIO. We (obviously) need
to implement this in CIO as soon as possible.). [JPM-CIO-PSI 0001086]
88. JPMorgan Chase internal email, dated April 2012, re: Single names CDS basis relative to
IG 9 CDS - URGENT update (the market is quiet today. To[o] early to tell but so far about
flat P/L. The tension has stopped now. The banks communications yesterday are starting
to work.). [JPM-CIO-PSI-H 0002340, 342]
89. JPMorgan Chase internal email, dated April 2012, re: April 2012, re: updated (We are
working on Jamies request for Correlation of the credit book against the portfolio....).
[JPM-CIO-PSI 0001077078]
90. JPMorgan Chase internal email, dated April 2012, re: synthetic credit information for April
13 earnings call, including SCP P&L scenarios. [JPM-CIO-PSI 0001701-709]
-12-
91. JPMorgan Chase internal email, dated April 2012, re: Synthetic Credit Materials (The way
that we at CIO have book-run the Core Book to balance the negative carry cost of High
yield Book overtime has been using Investment Grade strategies that gave us some carry or
buying optionality (or both)....). [JPM-CIO-PSI 0001100-106]
92. JPMorgan Chase internal email, dated April 2012, re: If asked about London / CIO and
Volcker (We do not believe that our activity in any way goes against the law as passed by
Congress, nor the spirit or proposed rule as written.). [JPM-CIO-PSI-H 0002418]
93. JPMorgan Chase internal email, dated April 2012, re: CIO (Doug and I asked that the first
day. Answer was it most efficient way to do it. I would say they just wanted to improve
the carry on the book by selling protection and taking in some premium.). [JPM-CIO-PSI
0001753-757]
94. Excerpt from April 13, 2012, JPM - Q12012 JPMorgan Chase & Co. Earnings Conference
Call [JPM-CIO-PSI 0001151-160]
95. JPMorgan Chase internal email, dated May 2012, re: 10-Q call - Buyside and sellside
comments (2) (Have a lot of contacts in Washington who said this is going to be a big deal
for Volcker; need to manage this in DC because the hit there is going to be a lot bigger
than the hit on earnings). [JPM-CIO-PSI 0017754-758]
96. JPMorgan Chase & Co. Business Update Call, 10-May-2012.
97. Correspondence from Douglas L. Braunstein, Vice Chairman, JPMorgan Chase & Co. to
the Permanent Subcommittee on Investigations, dated February 4, 2013 (...my statements
on April 13 regarding those hedging characteristics were references to the portfolios
design and historical performance as a hedge. I was not commenting on the hedging
effectiveness of the portfolio as of April 13.). [PSI-JPMC-35-000001]
98. Report of JPMorgan Chase & Co. Management Task Force Regarding 2012 CIO Losses,
January 16, 2013.
h h h
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Growth of Synthetic Credit Portfolio
(In Billions)
$42
$44
$51
$14
-$4
$157
Jan-3-2011 Mar-31-2011 Jun-30-2011 Sep-30-2011 Dec-30-2011 Mar-30-2012
Source: Subcommittee chart created from data provided by JPMorgan Chase, JPM-CIO-PSI 0037609.
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$50,000,000 ---------------------------------------_._ ..._._._-_.-...- ...
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Source: Subcommittee chart created from data provided by OCC spreadsheet, OCC-SPI-00000298; "Position Limit and Loss Advisory Summary
Report," OCC-SPI-00134902. Numbers do not reflect restated P&L figures.
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Synthetic Credit Portfolio Risk Limit Breaches
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2012 January February
* Tested Weekly. See 5/13/2012 "Discussion Materials," OCC-SPI-00000023, at 030.
Source: Subcommittee chart created from data provided by JPMorgan Chase, JPM-CIO-PSI 0000628.
March
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(1-13)

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Source: Subcommittee chart created from data provided by JPMorgan Chase, JPMC-SenatelLevin 000155-6,

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Inaccurate Public Statements on April 13, 2012
Risk Managers: "All of those positions are put on pursuant to the risk management
atthe firm-wide level."
Regulators: "[A]ll those positions are fully transparent to the regulators."
Long-Term Decisions: "All of those decisions are made on a very long-term
basis."
-Hedging: "[W]e also need to manage the stress loss associated with that portfolio
. .. so we have put on positions to manage for a significant stress event in Credit.
We have had that position on for many years .... "
Volcker Rule: "[W]e believe all of this is consistent with what we believe the
ultimate outcome will be related to VolCker.".
S'Ource: 4113/2012 "Edited Transcript JPM - Q 1 JPMorgan C h a S ~ -& Co. Earnings Conference Call," JPM-CIO-PSI 0001151. -
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Synthetic Credit Portfolio
Internal Profits and Loss Reports
January-May 2012
TradingT 1 T.-ading } .. Trading Trading Trading
Date - , DailyP&L YIDP&L Date DailyP&L YIDP&L Date DailyP&L YI'DP&L ;-.,. Date Dail yP&L YfDP&L '::;. Date I?ailyP&L I YfDP&L
II I _AA< I-Feb $tI,899,066 -$88,468,701 ;-;1': I-Mar $15,808,609 .$153,233,146 2-Apr S.I1,615,1l2 I-May .$2,132,563,367 -$88,468,701 ;-;1': I-Marl
:t:<::
-1153,233,146 ,,'," 2-Ap'
.SI54. 112;048 J-Apr
3'JBn
:': "I 2-F.bl -$2,476,2451 -$90,944, 946I}':Q 2-Mad , -$878,9021 3-Apd -$10,407,8441 , -$717,464,9251*8-1 2-Mayl -152,404,2481 -$2,184,%7,615 4-Jan
5Jan
6-Jan
9-Jan
IO-]ao
I I-Jan
12-]ao
l3-lan
16-Jan -$21,806,736
l7-Jan -$21,268,491
)S-Jan -$19,737,212
19-Jan -12,497,903 -$22,235,115

I 23.Jal'!.

2s..]ao
1 26-Jan
-$28,059,139
-$42,996,793
-161,660,174
-$67,009,776

-15,824,024
-$14,937,654
-$18,663,381
-$5,349,602
-SI,609,067
27-Jao -$3,637,880 .$72,256,723
30-Jao -S22,790,129 -$95,046,852
31-Jan -$5,320,915 0$100,367,767
-$90,944, 946 2-Marl
.$90,144,269
-',
5-Mar , .. - .$152,940,049 4-Apr :' 1 3-Febl 1800,6nl -190,144,2691<.-" 1 5-Motl 11,171,9991 -1152,940,0491\,: 1 4-Apd -SII,loo,1551 3-Mayl -191,590,5541 -$2,276,558,169
-$93,777,5% 6-Mar -1149,ns,654 ':; 5-Apc ,- I 6-Feb l -13,633,3271 6-Mad , 53,161,3951 -1149,ns,654I'", 1 5-APd -59,517,6651 ' .5738,082,7451'-'1 4-M.yl -5103,250,8541 -$2,379,809,023
-$94,527,581
_ .,.t.:.
.7-Mar ....... -1148,513,938 ' -" IO-Apr ' ", I 7-Febl -1749,9851 -$94,527,581IX: 1 ,7-Marl 11,264,7161 -1148,513,9381' 0: I IO-Aprl -$415,342,0491 7-Mayl -$58,065,8921 -$2,437,874,915
-$tl8,301,5;5 8Mar $147,359,734 II-Apr
-$15 1,925,431 -t; 12-Aprl
, -1152,763,837 ::' , I3-Aprl
0$152,819,162 ";./ "
. $156,474,000 17-Apr
]i:! IS-Apr:
-$161,068,940 .. I9-Apr
"'I ' 8-Feb l -123,m,9341 -1118,301,51511,-1 8-Mad SI,154,2041 -11 47,359,7341'<,' 1 II-Ap,1 -$6,301, 1981 -11, 159,725,9921": 1 8-M.y l -$195,248,051 1 -$2,633,122,966
-$122.416,486 9-Marl ,,>1 9-Febl -$4,114,911 1 -1122,416,4861-" '1 9-Mad -$4,565,6911 12-Apd -54,809,7551 -11, 164,535,7471'1:1:1 9-Mayl -1108,126,0951 -$2,741,249,061
-1121,372,216

12,Marl )','1 IO-Feb l $1,044,2701 -1121,372,2161'1' 1 12-Merl -1838,4061. -1152,763,8371::" 1 I3-Aprl -$50,629,7141 -11,215,165,4611":'; '1 IO-May l -$36,461,8051 -12,777,710,866
$126,402,034 13-Marl C,' 'I I3-Febl -$5,029,8181 -1126,402,034/ ''4/ I3-Mar/ -155,325/ ' I6-Apr/ -$37,415,502/ II-May / -1570, 159,849/ -13,347,870,715
-SI28,H8,569
';Ii
I4-Marl ' " I 14-Febl -11,756,5351 -1128,158,5691'-"'1 I4-Marl ' -$3,654,8381 -$156,474,0001" "',1 17-Aprl $9,948,6651 -11,242,632,2981 ""I I4-May l -$227,592,nsl -$3,575,463,490
-$131,468,930 15-Marl ::", ::" .1 15-Feb/ -13,310,3611 -1131,468,9301"":'1 15-Mad -1730,181 1 -1157,204,1811'1" 1 IS-Aprl -128,338,5531 -SI ,270,970,85J1!? 1 15-May l -$119,236,4671 -$3,694,699,957
-$128,681,208
).:,..
I 6-Marl )-., ';{I ;,," / I6-F.b/ $2,787,m/ -$128,681,208/'," : / I6-Mac/ -$3,864,759/ -1161,068,9401'<)' / I9-Apc/ -$29,239,630/ -SI,3oo,21O,481/ ' C
2'
$15 1,612 $128,529,596
"q;,
19-Mar!
":p:
2O-Feb 11,402 -1128,528, 194 20-Marl
,C'; 21-Feb -S3,647,248 .$\32,175,442 21-Mar'
22Feb -$5,258,735 -S137,434, 177 22-Marl
23-Feb -$1,144,086 SI38,578.,263

23Mar'
:t;,:: 24-Feb -S5,248,999 -SI43,827,262
h '
26-Mar
l
27-Feb -$7,575,866 -$151,403,128 27-Mar
,.,;
28-Fe1>1 -S2,894,309 $154,297,437 28-Mar'
:\'10<
,"-, 29-F.tc! -514,744,318 SI69,041,755 :J:" 29-Mar
Ii': 30-Marl
-S3,368,891
-$43,553,294
1701,825
-$1,786,282
-$12,555,383
-$32,426,419
-$44,740,604
-$50,685.464
-$49,996,238
-$319,192,503
-SI64,437,831 ::. ' 20-Apr
-$207,991,125 ',;, 23-Apr
-$207,289,300 ' ''' 24-Ap,
-$209,075,582 25-Apr:
-$221,630,965 g, 26-Apr
-$254,057,384 :';;.;.: 27-Apr
-$298,797,988 30-Aprl
. $349,483,452
-$399,479,690
-$718,672,
.$32,236,0221 .$1,332,446,5031': ";;"
-1161,148,0611 -11,493,594,5641:',:1"
-$81,602,9181 -11,575,191,4821',,"
-$187,629, 7661
-$162,235,2581 -11,925,062,506/ ".,1
$15,364,3251
-$222,070,2421
Source;' Subcommittee chart 'created from data provided by OCC spreadsheet, OCC-SPI-00000298, Numbers do not reflect restated P&L figures ,
$16
$14
$12
$10
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0
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$6

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1$10.1
IB
2011 CIO Compensation
vs.
Investment Bank Comparables
$12.
$10.5
$5.0
Ina IB Achilles
Macris
IB Javier IB
Drew
Martin-Artaj 0
o IB Comparables iii Actual Compensation
Bruno
Iksil
Source: Subcommittee chart created from data provided by JPMorgan Chase, 6/21/2012 CIO Compensation Presentation, JPM-CIO-PSI-H 0002746, at 754.
Timeline: Key Events in JPMorgan Chase Whale Trades
Nov. 2006 Bank authorizes Chief Investment Office (CIO) to trade credit derivatives.
2008 Synthetic Credit Portfolio (SCP) acquires its name.
2009 As financial crisis eases, SCP earns $1 billion.
.
2010 OCC examines CIO investment portfolios; SCP is not explicitly mentioned. OCC requires
of investment decisions; Ina Drew criticizes OCC intrusiveness.
2011 Over 2011, SCP's notional size increases tenfold from $4 billion to $51 billion.
Nov. 2011 SCP makes $1 billion credit derivatives bet for gain of$400 million.
Dec. 2011 Bank &CIO managers decide improving economy lessens need for credit protection.
Jamie Dimon instructs Ina Drew to reduce the CIO's Risk Weighted Assets (RWA).
Dec. 22, 2011 CIO traders propose reducing RWA, in part, by manipulating models. CIO quantitative
head Pat Hagan develops CIO models that artificially lower SCP risk results.
Jan. 6,2012 SCP trading breaches CSO 1 risk limit; breach continues and increases until CIO risk
metrics are overhauled in May.
Jan. 16-20,2012 SCP trading causes four-day breach in bankwide VaR; breach reported to Jamie Dimon.
Jan. 23,2012 Dimon and Chief Risk Officer John Hogan approve a temporary bankwide VaR limit
increase to end the breach; told a new CIO VaR model will reduce CIO's VaR by 44% .
.
Jan. 27, 2012 CIO names SCP for the first time in a routine VaR report to OCC.
New VaR model approval is rushed through and drops CIO's VaR overnight by 50% .
.
Late Jan. 2012 SCP losses escalate. CIO traders begin mismarking SCP values to minimize losses.
Mr. Dimon orders bank to stop giving daily CIO profiVloss data to OCC; OCC objects;
Chief Financial Officer Doug Braunstein restores data, angering Mr. Dimon.
Late Jan. 2012 CIO trader Bruno Iksil gives presentation showing SCP lost $100 million in January and
could lose $300 million more; proposes "trades that make sense" -- buying more longs to
offset losses and reduce RW A .
. OCC holds standard quarterly meeting with CIO; told SCP would be reduced.
Feb. 2012 Over February, SCP loses another $69 million.
Mar. 2, 2012 Comprehensive Risk Measure (CRM) used to calculate RWA indicates SCP could lose up
to $6.3 billion in 2012, in worst case scenario. CIO risk manager calls result "garbage."
Mid-Mar. 2012 Julien Grout, SCP trader, keeps 5-day spreadsheet showing reported SCP values deviated
from midpoint prices by over $400 million. Trader Bruno Iksil calls SCP's booked values
"idiotic" and calls SCP book "more and more monstrous."
Over two weeks, CIO traders acquire $40 billion more in multiple long credit derivatives,
in what OCC called "doubling down" on an already losing trading strategy.
Mar. 20, 2012 Traders Iksil and Grout report internally $40 million loss, largest SCP loss to date, and a
$600-800 million "lag" in SCP book, but Ina Drew says she did not read the email.
Permanent Subcommittee on Investigations
EXHmIT#li
Timeline: Key Events in JPMorgan Chase Whale Trades
Mar. 23, 2012 Ms. Drew orders "phones down" and stops SCP trading.
SCP trading breaches CSW1 0% limit; it continues until risk metrics overhauled in May.
Mar. 29, 2012 SCP trading breaches CIO Stress Loss limit, which is.tested weekly, through April.
Mar. 31 , 2012 At quarter end, SCP's notional size triples from $51 billion to $157 billion, and SCP flips
from net short to net long. Total quarterly losses reported internally as nearly $719 million.
CIO London office head Achilles Macris says he's "lost confidence" in his tearn, SCP has '
moved into "crisis mode."
Apr. 5,2012 After media inquiries, bank prepares talking points that SCP is a "hedge" and regulators
were "fully" informed of trades, but then drops both words from talking points.
Apr. 6, 2012 Bloomberg and Wall Street Journal report whale trades by JPM CIO office in London.
Apr. 9, 2012 Senate confirms new Comptroller of the Currency, Thomas Curry.
Regulators have first meeting with JPM on whale trades; bank downp1ays any problem.
Apr. 10,2012 CIO traders report internal SCP daily loss of $6 million, then 90 minutes later, different
credit derivative values leading to a loss of $400 million.
Apr. 11,2012 --Bank' s chief spokesman, Joe Evangelisti, quoted saying whale trades were a "hedge" of
bank's overall risk."
--To prepare for earnings call, bank executives receive SCP presentation showing, in a
financial crisis, SCP would not offset bank losses, but lose $250 million. SCP also lost
money in 3 negative credit scenarios, showing it wasn't hedging bank's credit risks.
Apr. 13,2012 Bank executives learn SCP positions are huge & hard to exit; SCP reports $1.2 billion loss.
Bank files 8-K form previewing first quarter earnings and holds earnings call.
--Bank CEO Jamie Dimon calls whale trade stories "a complete tempest in a teapot."
--With respect to SCP, Chief Financial Officer Doug Braunstein says:
--"All of those positions are put on pursuant to risk management at the firm-wide level."
--"[Alll those positions are fully transparent to the regulators" who get "information on
those positions on a regular and recurring basis as part of our normalized reporting."
-- "All ofthose decisions are made on a very long-term basis."
--"[W]e also need to manage the stress loss associated with that portfolio . . . so
we have put on positions to manage for a significant stress event in Credit."
--"[W]e believe all of this is consistent with what we believe the ultimate outcome will
be related to Volcker."
8-K filing discloses CIO' s VaR results, but not the January change in CIO'.$ VaR model.
Apr. 19,2012 OCC inquires for first time about CIO breaches, including CS01 breach of over 1,000% for
. 71 days. CIO Chief Market Risk Officer, Peter Weiland, tells OCC that risk limit will be
replaced with something more "sensible" in the futUre.
2
Timeline: Key Events in JPMorgau Chase Whale Trades
Apr. 27, 2012 Bank's Chief Risk Officer John Hogan dispatches Ashley Bacon, his deputy, to. London
CIO office to analyze SCPo
May 4, 2012 Bank calls OCC Examiner-in-Charge Scott Waterhouse to disclose SCP loss of$1.6
billion; internally, losses were reported to be $2.3 billion.
May 9, 2012 Bank meets with OCC; Chief Risk Officer John Hogan denies SCP books were mismarked,
despite collateral valuation disputes.
May 10,2012 Bank's Controller validates SCP marks, even though the marks were $512 minion off the
midpoints, were "aggressive," consistently favored the bank, and minimized SCP losses.
Bank files 10-Q form fmalizing first quarter earnings and holds business update call. Mr.
Dimon discloses:
--SCP in much worse shape thim disclosed a month earlier.
--SCP lost $2 billion in second quarter. (Internally, losses reported as $2.8 billion.)
synthetic credit portfolio was a strategy to hedge the Firm;s overall credit
exposure .... We're reducing that hedge." Calls SCP a hedge 8 times during call.
--"In the first quarter, we implemented a new V AR model, which we now deemed
inadequate. And we went back to the old one, which had been used for the prior
several years, which we deemed to be more adequate." lO-Q filing does not
clearly disclose that same information.
May 11,2012 Internally, bank reports SCP daily loss of$570 million, its largest;no public disclosure.
May 14,2012 Bank fires London CIO personnel: Achilles Macris, Javier Martin-Artajo, Bruno Iksi!.
Ina Drew, CIO head, retires from JPMorgan Chase . .
June 2012 Bank discloses SCP has lost $4.4 billion.
July 13, 2012 Bank restates first quarter profits, disclosing additional SCP losses of $660 million.
Fourth quarter OCC issues six Supervisory Letters with 20 Matters Requiring Attention involving CIO.
Dec. 2.012 SCP losses for the year total $6.2 billion. SCP has been dismantled, with most credit
derivatives transferred to JPMorgan Investment Bank .
Jan. 2013 Bank releases management task force report on whale trades.
OCC issues Cease and Desist Order requiring JPMorgan Chase to take corrective actions.
Prepared by U.S. Senate Permanent Subcommittee on Investigations, March 2012.
3
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EXCERPT
CHIEF - ORGANIZATION - - - - --
.- - -
ApriL 2012
CONFIDENTIAL TREATMENT REQUESTED BY J.P: MORGAN CHASE & CO.
EXHIBIT #2
JPM-CIO-PSI0001875
Chief Investment Office - Direct Reports
Ina Drew
Chief I nvestment Officer
[
Gina Serpico
1
(
Doug
Executive Assistant
Braunstein
I
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Norma Richard Achilles
IreneTse
Corio Sabo Macris John Wilmot
CIO NAt
CIO Special CIO IntlCIO
MSR
Investment Retirement Europe and
GlobalCFO
Hedging
Group Plan Asia
\.
"
\. \.
"
CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO.
"
-
I
Phil Lewis
COO
( John Hogan J
---.,
'\ '\
Irv Goldman,
Chief Risk
Officer
JPM-CIO-PSI0001876
International CIO
I
Javier Martin:-Artajo
Head of Europe and
Credit and Equity
I
George Polychronopoulos
Head of Europe Rates
"Reports to Phil Lewis - CIO Global COO
-Reports to John Wilmot- CIO Global CFO
Achilles Macris
International Chief Investment Officer
I
I
Chris Chan Paul Bates
Head of Asia International COO
I
Rayson Chung
Head of Asia Rates
Phillipa Adam
I
Alison Giovannetti
International CFO
JPMCIOPSI0001879
,International Chief Investment Office
Equity and Credit
Javier Martin-Artajo
r--
Elan Rowe
Head of Europe and, Credit & Equity
Laura Dent
I
I' I I I I
Bruno Iksil
Tolga Uzuner
Anthony Brown Pat Hagan Andy Berner
RVTacticaV
RV - Strategic
Cross Markets
Structured Trades Quantatative Research Single Name Trades
Enc de Sangues
AdeAdetayo Francois Brochard Samir Patel
Julien Grout
Alexandre Borione Swen Nicolaus Ed Hill
Luis Buraya Vladimir Aleksic Andrew Perryman
Paul Southern
Eric Lu
James Gaillard
Ashish Goyal
Takashi Makita
CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI0001880
c-

"-
CIO RISK MANAGEMENT TEAM

I
Peter Weiland
MD
I
Samantha Tocchio
ED
Winston Pun
VP
Azzi Agarunov
Assoc
Jon Forman
Analyst
TBD
Treas ED/VP
IrvGoldman
Chief Risk Officer
MD
.
t Martha Rios r
I-- Executive Assistant
'---------'

I
Evan Kalirr'ltgis
MD
Tony Paquette
MD

Keith ::;'ph;""'l
TBD
Global Credit
I t......::-___ ---'

George Man
Rates ED
Matt J Dawson
VP
Janet Lee
VP
Karrie D'Costa
Assoc
Patricia Yew
ED
Mark Chan
Assoc
MandyChui
Analyst
r-
-
I--
'--
Samy Ben-Harira
ED
AdeAdetayo
JennyZheng
VP
-
MD
Bo Xiong
Greg Borovykh
r-
Assoc.
Assoc
ChetZhang
Sameer Chandna '--
VP
VP
Administrative Assistants
-Jeanette Gonzalez Pete Weiland 8. Team
. -Elan Rowe - London Risk Team
Testimony of Jamie Dimon
Chairman &. CEO, JPMorgan Chase & Co.
Before the U.S. Senate Committee on Banking, Housing and Urban Affairs
Washington; D.C.
June 13, 2012
Chairman Johnson, Ranking Member Shelby, and Members of the Committee, I am appearing today to
discuss recent losses in a portfolio held by JPMorgan Chase's Chief Investment Office (CIO). These losses
. have generated considerable attention, and while we are still reviewing the facts, I wili explain .
everything I can to the extent possible.
JPMorgan Chase's six lines of business provide a broad array of financial products and services to
individuals,small and large businesses, governments and non-profits. These include deposit accounts,
loans, credit cards, mortgages, capital markets advice, mutual funds and other investments.
What does the Chief Investment Office do?
Like many banks, we have more deposits than loans - at quarter end, we held approximately $1.1
trillion in deposits and $700 billion in loans. ClO,along with our Treasury unit, invests excess cash in a
portfolio that includes Treasuries, agencies, mortgage-backed securities, high quality securities,
corporate debt and other domestic and overseas assets. This portfolio serves as an important source of
liqUidity and maintains an average rating of AA+. It also serves as an important vehicle for managing the
assets and liabilities of the consolidated company. In short, the bulk of ClO's responsibility is to manage
an approximately $350 billion portfolio in a conservative manner.
While ClO's primary purpose is to invest excess liabilities and manage long-term interest rate and
currency exposure, it also maintains a smaller synthetic credit portfolio whose original intent was to
protect - or "hedge" - the company against a systemic event, like the financial crisis or I:urozone
situation. Among the largest risks we have as a bank are the potential credit losses we could incur from
the loans we make. The recent problems in CIO occurred in this separate area of ClO's responsibility:
the synthetic credit portfolio. This portfolio was designed to generate modest returns in a benign credit
environment and more substantial returns in a stressed environment. And as the financial crisis
unfolded, the portfolio performed as expected, producing income and gains to offset some ofthe credit
losses we were experiencing.
What Happened?
In December 2011, as part of a firmwide effort in anticipation of new Basel capital requirements, we
instructed ClO to reduce risk-weighted assets and associated risk. To achieve this in the synthetic credit
portfolio, the CIO could hqve simply reduced its existing positions; instead, starting in mid-January, it
embarked on a complex strategy that entailed adding positions that it believed would offset the existing
1
EXHIBIT #3
ones. This strategy, however, ended up creating a portfolio that was larger and ultimately resulted in
even more complex and hard-to-manage risks.
This portfolio morphed into something that, rather than protect the Firm, created new and potentially
larger risks. As a result, we have let a lot of people down, and we are sorry for it.
What Went Wrong?
. We believe now that a series of events led to the difficulties in the synthetic credit portfolio. Among
them:
Cia's strategy for reducing the synthetic credit portfolio was poorly conceived and vetted. The
strategy was not carefully analyzed or subjected to rigorous stress testing within cia and was riot
reviewed outside cia.
In hindsight, Cia's traders did not have the requisite understanding of the risks they tooK. When the
positions began to experience losses in March and early April, they incorrectly concluded that those
losses were the result of anomalous and temporary market movements, and therefore were likely to
reverse themselves.
The risk limits for the synthetic credit portfolio should have been specific to the portfolio and much
more granular, i.e., only allowing lower limits on each specific risk being taken.
Personnel in key control roles in cia were in transition and risk control functions were generally
ineffective in challenging the judgment of Cia's trading personnel. Ris.kcommittee structures and
processes inDO were not as formal or robust as they should have been.
Cia, particularly the synthetic credit portfolio, should have gotten more scrutiny from both senior
management and the firmwide risk control function.
Steps Taken
In response to this inCident, we have taken a number of important actions to guard against any
recurrence.
We have appointed new leadership for Cia, including Matt Zames, a world class risk manager, as the
Head of cia. We have also installed a new ClOChief Risk Officer, Chief Financial Officer, Global
Controller and head of Europe. This new team has already revamped cia risk governance, instituted
more granular limits across CIO and ensured that appropriate risk parameters are in place.
Importantly, Qurteam has made real progress in aggressively analyzing, managing and reducing our
risk going forward. While this does not reduce the losses already incurred and does not preclude
future losses,.it does reduce the .probability and magnitude of future losses.
We also have established a new risk committee structure for Cia and our corporate sector.
We are also conducting an extensive review of this incident, led by Mike Cavanagh, who served as
the company's Chief Financial Officer during the financial crisis and is currently CEO of our Treasury
2
& Securities Services business. The review, which is being assisted by our Legal Department and
outside counsel, also includes the heads of our Risk, Finance, Human Resources and Audit groups.
Our Board of Directors is independently overseeing' and guiding these efforts, including any
additional corrective actions.'.
When we make mistakes, we take them seriously and often are our own toughest critic. In the
normal course of business, we apply lessons learned to the entire Firm. While we can never say we
won't make mistakes - in fact, we know we will"""' we do believe this to be an isolated event.
Perspective
We will not make light of these losses, but they should be put into perspective. We will lose some of our
shareholders' money - and for that, we feel terrible - but no client, customer or taxpayer money was
impacted by this incident.
Our fortress balance sheet remains intact: as of quarter end, we held $190 billion in equity and well
over $30 billion in loan loss reserves. We maintain extremely strong capital ratios which remain far in
excess of regulatory capital standards. As of March 31, 2012, our Basel I Tier 1 common ratio was
10.4%; our estimated Basel III Tier 1 common ratio is at 8.2% - both among the highest levels in the
banking sector.l We expect both of these numbers to be higher by the endofthe year.
All of our lines of business remain profitable and continue to serve consumers and businesses. While
there are still two weeks left in our second quarter, we expect our quarter to be solidly profitable.
In short, our strong capital position and diversified business model did what they were supposed to do:
cushion us against an unexpected loss in one area of our business.
While this incident is embarrassing, it should not and will not detract our employees from our main
mission: to serve clients - consumers and corhpanies- and communities around the globe.
In just the first quarter of this year, we prOVided $62 billion of credit to consumers.
Over the same period we provided $116 billion of credit to mid-sized companies that are the engine
of growth for our economy, up 16% year on year.
For' America's largest companies, we raised or lent $368 billion of capital in the first quarter to help
them build and expand around the world.
We are one of the largest small business lenders and the leading Small Business Administration
lender in America, providing $17 billion in credit to small businesses in 2011, up 70% year on year. In
the first quarter, we provided over $4 billion of credit to small businesses, up 35% year on year.
Even in this difficult economy, we have hired thousands ofnew employees across the country-over
61,000 since January 2008. We also have hired nearly 4,000 veterans over the past two years, in .
1 On June in, the Federal Reserve Board issued proposed Basel III rules, and we will be reviewing these ratios u'nder the proposal.
3
addition to the thousands of veterans who already worked at our Firm. We founded the 1/100,000
Jobs Mission" - a partnership with 45 other companies to hire 100,000 veterans by the year 2020.
Recently, we launched a groundbreaking and consumer-friendly reloadable card - Chase Liquid-
that offers customers financial control and flexibility.
And over the past three years, in the face of significant economic headwinds, we made the decision
not to retrench - but to step up - as we did with markets in turmoil when we were the only bank
willing to commit to lend $4 billion to the state bf California, $2 billion to the state of New Jersey
and $1 billion to the state of Illinois.
All of these activities come with risk. And just as we have remained focused on serving our clients, we
have also remained focused on managing the risks of our business, particularly given today's
considerable global economic and financial volatility.
Last, I would like to say that in the face of these recent losses, we have come together as a Firm,
acknowledged our mistakes, and committed ourselves to fixing them. We will learn from this incident
and my conviction is that we will emerge from this moment a stronger, smarter, better company.
Thank you, and I'd welcome any questions you might have.
4
From: Mclnemey, James A
To: [email protected]; WatertlOuse, Scott; Waterhouse (Regulator), Scott X; Sullivan, Michael;
Crumlish, Fred; [email protected]; [email protected]; Arya(Regulator), am; [email protected] .
CC: Genova, Diane M.; Gunselman, Gregg B; Hill, Erin .
Sent: 7/24/20128:08:37 PM
Subject:
Attachments:
Cia: Response to Regulat or Request s on NBIA, Risk Tolerance and Followcup VaR model questions
Cia Risk Appetite 2010 FINAL.PDF; CDS amendment CDS Residential MBS-doc.zip; Credit &
Equity-pdf.zip; NBIAAmendmenUTRAXX:"CMBX-doc.zip; NBIA.-am_Sov_CDS -doc.zip
CONFIDENTIAL
As nequested, please see our response to. your questions on NBI A, Risk Tolerance and the VaR Model:
1) NBIA: A t t a ~ h e d is the NBIA for the cia relating io Credit and Equity Capability iri NAand EMEA. The approval
document lists the Initiative Sponsors, the Key Contacts and the Working Group members. There are em ails attached
to the document evidencing the individual approvals. Also attached are t he approvals for additional activities within
cia: . Sovereign CDS Trading, Credit Defautt Swaps referencing Residential Mortgage Backed Securities ar1d Credit
Default Swaps referencing Markit CMBX index.
2) Risk Tolerance: Attached is the presentation made to the Risk Working Group on September 16, 2010.
3) -Follow up to VaR model questions: Patrick Hagan will attend a meeting wi th you tomorrow and is prepared to. give
eral answers to. your questiens relating the VaR model.
Kind regards,
]irnMcInerney
Vice President & Assistant General Counsel
]PMorgan Chase Bank, N.A.
Mortgage Banking Legal Department
237 ParkAvenue
. New York, New York 10017
Direct (212) 622-0560
james a mcinernev@jpmcbase com
BANK PROPRIETARY AND/OR TRADE !NFl
EXHIBIT #4
OCC-SPI-00081611
OS/22/2008 15:32 21283465SE,

Name ofJnitiative
PortfoIio(s)lRel!ioriCs)
[nililltive SIJOIlSor
Initiative Apl>rover
Brief Inililltive Description
EconoMic Rational for
Proceeding

Key Changes From CurrC)lt
Activity

ChlUlges to Operational
ProceSses
EXCERPT
PAGE 01/30
ChieC Investment Offi"e
New Bnsiness InitiativeApproval
, Executive Summary
Credit and Equity Capability
NAiEMEA
Achilles Maoris Andy
CIOn.ods broad prodoot to d)'ll";"caUy allocate
capita! and invest across asset classes, as well as to effectively manage
residual expo,ure, created by the Firm's op=ting busibeSSes. , The key
"",as where CIO needs to initially onild out its product capability arc in
Credit & Equities.
.
Credit:

The Finn has large cyclical exPosure to whlth the single
largest risk concentration from the operating businesses.

C",djt e><POSureand capital are increasingly fungi."l. (Baselll).

CIO to add credit capabilities to matllIge macro overlay progralils
similar to interest rates, mortgages, and foreign exchange.
Equity: ,
"rovidcs CIa with capability to opportunistically allocate capital to
equities to:

Refine and target existing macro views.

COlI1Plement CIO's existiog product capability 'in cons1rueting
macro hedges over the economic cycle.
Credit:
ClO currently bas v.ry limited credit caPability, mainly being confined to
yield <nhaneoment This initiative,will provide the platfOIm to
build CIa's c.p.lril.ity in order to allow CIO to manage ro:tporate credit
expO!1l!tS and diversify its asset cJa..<;scs.
Equity:
-
Redacted by
00 will rely on the Equity Derivative>; Grouv (EDen model This '
:
,
BANK PROPRIETARY AND/OR TRADE INFORMATION
OCC-SPI-00081631
OS/22/2008 15: 32 2128346550
eIO PAGE 02/30

will be d<amined and governed by.; &.Mce Level Agtt:ement CIO will
retain own<mlrip of balance sheet sub<:\an!i.tjon.
Key Risk Issues
CIO wm be reliant upon the EDG middle office processing and
confirmation activity. This wiD be addressed via SLA bctwccn cm and
ElJG support
Risk R.ating (1, 1 or 3)
2 Medium
New products and systems to CIO, but not to the Firm
Priority Ratine (Ao. B or C) A-Hieh
Other Sigtrifitaot
Toreet LaD1.cb Date
Date Authorized t. Proceed witb
Development
Guidance:
Initiative Approver: authorizes initiativo developmem, agrees me initiative launch and prioriti2es initiatives for
. development The iliitiative apptOver should he a direct report of ill. CIO.
Initi.tjve Sponsor: a,e SponSor should typically he a Portfolio Manager.
ll.ating i, on incrementol risk .nd materiality of risk cbange:
1-IDgh RIsk - significanl incremental risk - acw business for the a(ea, signi=t rcsidU-'l risk after risk management,
manually intensive environment, considerable legal expOsute. eroS!' border iBsucs, sigoificantcfforl I.br Regnlator
approval, infrastructure under smo.<:s, major investment of signicaot balance shect implication
- 1Vi.edium Risk - maderate mcrom""tal risk - multiple risk oontrol areas are affected r.cquiring cross discussion about
the risk$. and operational consideratiQIl'.
3 - Low JO,k little incremental risk - implernentttion of a vanilla initiative Tequjring the involv<:mcn! of several risk
control areas V.11C1"C only minor concerns are anticipated .
OCC-SPI-OOOS1631
I
05/22/2008 15:32 2128346550
eID

JPMorganChase 0
Chief Investment Office
New Business Initiative Approval
Proposal
Credit & Equity Capability
Sponsor
Contact
Aliscrn Oioevannetti, ~
Btti'Jdon'Kon;gsbert.
Bonilie1Gndler
PAGE 03/30
OCC-SPI-00081631
OS/22/2008 15:32 2128345550 eID
. Table of Contents
1. Proposal Summary
2. Working Group & Appto'lter Ust
Initiative Overview
4. Trade & Legal Entity Flow
5. Market RisklVCG/Credit rusk
6. Finance Accounting
7. - Regulatory Capital
8; Finance Controls
9. T&O - Tecbnology
10. T&O - Operations
. 11. Tax

12. Legal
13. Compliance
14. Funding
15. Audit
Appendix 1: CFTC Speculative Position Ljmits
Appendix 2; NOll-Statistical Limits
Appendix 3: System Architectnre
Appendix 4: Sector Indeli: Futures
PAGE 04/30
OCCSPI-00081631
OS/22/2008 15:32 2128346550 eIO PAGE 05/30
1. Proposal Snmmary

Name oUniti.tlve Credit .and Equity Capability
'Portfolio(s)iRegions(s) NAJEMEA
lnitiotive.SpOJ1$Or Acbilles Macris, AIdy Pam:urcs
."ili.tive Approver
Brief Initiotive Des<liption
CIO needs broad product capability/oxpertis. Ie dynamically allocate
capital and invest aeross asset classes, as weU as to effectively mau.ge
residual exposures created by the Finn's operating businesses. The key
areas where CIO no.ds to bnild out its product capability are in Credit 8r.
Equities, .
Economic rationale for pree ding
Credit

.The Finn has large cyclical ,",!,osure: to credit, wbich is the !cingle
largest risk conce:O!mtiori. from the operating businesses . .

Credit ClCpOSUIe and capiW aTe increasingly fimgibJe (BastllI).

CIO to add credit capabilities to """"'go macro o"aJay programs
similar to interest rote., mortgages, ."d r"",jgn exchange.
Equity:
Provides CIO with capability to opportunistically aJlocare capital to

equities to:

Refine and taTgtt 6cisting macro views.

Complemrnt ClO', existing product o.p.bililjr in constructiug
macro hedges over the economic ~ l e .
Key changes from curre,,! activity
Credit
CIG currently has v.rylimitcd credit capability, mainly being confined
to yidd cnbaJioement strategies. This initiative will provide the platfonn
to bw1d CIO', capability in oJ;d"" to al10w CIO to manage corporate
. properties and diversify its asset cl""e,.
Equity:
Redacted by tbe
.

~ y rusk issues
CIG will be rtlian! upo" the EDG middle office proc;essing and
confirmation BOtivity. This will be addressed via SLA between CIO.and
OCC-SPI-00081631
B5/22/2008 15: 32 2128346550 eID
PAGE
EDG SlIpport.

:Risk Rating: (1, 2 or 3)
2-Medlum
..
New products and sYS1l:mS to CIO, but no! to the Finn.
Priority Rating (A, B or C) A-High
ProceSsing Location
Main sYstems impacted STS, PYRAMID
Other LOB's Gr Legal Entities B311k and Whiteli:iars Inc.
Impacted
Operational impact Anticipated
(include anticipated vol1lll1es lUld key
MOnlJ,yVols
capacity ",etri c:s )
Credit furli.es: jTraoa, COX c:tc.
80
. Crer;ljt default swaps 40
, ,
Redacted By
I
I

Otlier' information
Regulatory approvals required No
usage
Oth er Policies imI!acted
AdditiGnaJ HeadeGlrnt Required 4 traders - 2 in EMEA , 2 in Now York
2 ITE cost allocation from Equity Dcrlvative, group.
2 CIO Middle Office Fro , I in EMBA ,lin New Y mk
Date authOriZed to procetd witb
development
Target Launch Date Late April
Key Contnct for question, Roger Kibblc-White;A1ison Giovannetti, Brandon Konigsberg, BoImie
Kindler, Jason Hughes
Person responsible r<>r Post
hnnlementatlon Review

OCC-SPI-00081631
05/22/2008 15:32 2128346558 eID PAGE 87/30

2. Working Group and Approvers
SbikEholdtr AftJ
Working ;:'P
Si2n.sr;ture Agreed Date Approved
Comnle.tio13 Date
Business SnGlIsorshln
,
Global Ilud In> J)n,w
Global CFO JM Bonocore
Partfoiio Mnnager (Initi.nive Sponsor) Acl1inC$ Andy
failZurt:!
RegIonal em Br!f!don Kcmigsberg,.
Rose:- lCl"bble-White)

T'&:O Manager Alison Phi1
Lewi,
Risk Control Areas
Ri$k. Crcdlt Risk & veo Bab RuoD. FiomslonRTJ1llir
Finance ... Accounting M:trlc Allen, Alliatt:r .
!cffrcv. David Alexander
RellU13trnv Canital Kcitll EnftelcllMork Weber
- Controls: $1Hot Honeyfield, Noney
Denn""
. kle Colman Nick Wood
TkO - AJI.!Ion Olcv1D'lnettl, Bonnle
Kifldlet. Tom.Mn.uro
Tax M;rkPlWiani
1,0 1 . CMol Monroe-KoD1z
ComcliZ11ce Calm HamS{lT1 aob Cole
Fundtnl1 frederic Mouchel
Audit Bill MoM",.,., S..Jly
R=cll

Other- 8.\i annTDrrriatc
Senior CountrY Officer
!..coW Entitv CFO/SFO Allister Jcffrcv
*Sit;n..Qffs Me in :I sepSr:1tc file distribctoo wtth this

BANK. PROPRIETARY AND/OR TRADE INFORMATION
OCC-SPI-00081631
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eID PAGE 08/30
3 .

Initiative Overview
i. Im'tlM/v:. eccnotmcjtalg,CIJ:'/'OTf. strntegicfit, growtfljortcast. CXPrp:let/ VDIIlme, capacity limits
II. BusinEsR Ration.a1e .vu:ltldillg morW opportunilies and risb
Please see Executive SUmmary.
Proposed initial product list:.
Credit!
Credit Indices: iTraxx, CDX etc. - see below for indlce$
Credit default swaps (not on corporate nnme$) - see below for indices
- . Options on Credit Indices- see below for indices. . . .
Equity:
For EMEA., Optkms on a'edit indic", dr. depende'l! upon th. build out of credit products WithiN
Pyramid Equities, scheduled for May/June 2006, and should not be traded unfi'Z thiS
impieinemation iii complete.
Jndi ... ,
Europe: IlraXl>. USA: CDX, Japan: 1=
CQmponents:
Xaver 5.yr
!ilvo15 yr
M:tinIG 5 yr
- Main lG IOyr
FiJlanc;al Sub Index 5 yr .
Financial Sub Index lQ yr
Options on: .
Xaver 5 yr
Hivol S y1:
MalulG ,yr
r' . Redacted by the
Subcommittee 011
BANK PROPRIETARY AND/OR. TRADE INFORMATION
OCC-SPI-00081631

05/22/20.08 15: 32
. ,
I
,
21283465.50
4. Trade & Legal Entity Flow
CID .
t. include QII end 10 eld prodrlt!tflol't inauding n:.rovf'Cd utili:cd
Pyramid
"IL ___ ST_S _ _ -,
- Client fating trade captured in Pyramid
- Trade settled through STS .
- Confumation generatedthmugh XDG a subset of srs
PAGE 09/30
.\ . General Ledger
- P.)'l'miid auto gen<rttes a back to back trade b.twcin 1he Bank and JP.Morg.m Wbitefu= Inc. .
- Pyramid auto fecdsJPMCB and JP Morgan Wbitcfriars Inc General Le(!ger
- Client risk r=dcd in JMPcB
Trade risk ree<Jrdcd in JP MQrgan Wbitefriar.lnc
n', List legall!liIttfES il!rpacred
I
Street
\- 1 ___ B_ank __ ----'f----.l. \ Whitefriars Inc
- London Branch (trades backte-back through the branch)
- NY Btanch' (trades back' tob.ck tlm:rugh the branch)
- lP Morgan Whitcfriars Inc. (ulmnatc repository oftbe risk)

OCCSPI00081631
15:32 2128345550 eID PAGE 10/30
5_
'.
.'

Market.Risk/Va)nation Control/Credit Risk
Market J/isk
The initial product sian:: ;,:
Credit ($5imn VaR limit):
- Credit Indic;., '
Credit default swaps
Options on credit inmCC8
Eqllity($1 Dmm VaR limi,..;'t).: ______________ -,
I n -' .. '_-' L _ _ .... , , I
. . , ...... t;UiIl";:U;::U uy \
Permanent Subcommittee on Investigations I
The Business has, to date, .operated llPdE:r a. regional limits ;nfrastroctu:re: therefore it my be:: necessary to
realign !he hierarchy to be more reflective of a global os}; framework by .soct c1.", This will require
developmental work from t],e V AR.S MO and the risk re,Porting teams,
Equities
Redacted by the
Credit trading:
, Credit trading is ... ""ti.lly a new business o.nd thetefor requires a new limits ini'rastructore compriSing
,botb V"R and non-statistical moa..<1.lIeS as 10% credit spread widerting, csbpv or default exposure.
Ideally CIO should clone the Credit Hybrids verSion of Pyramid and utilize thc "Trevor" database to =:
(il index exposures are fed on a decomposed li.me-by-n.rne b .. is for morc .ccurato VaR COIDpl,l\ation and
to feed the Single Name l'osition Rj,kmonitoring proces.,
(il) options can be appropriately handled (the Equities version dotS not .upport credit options) ,
CIO will also need to clone the .. parate PCM feed from Trevor for reg\ll.tory capit!l purposes '
It i. understood that owing to systems con,m.ints the Credit Hybrids function.lity within l'ynmlid wilt not
be available for USc by CID mtil MaylJune 2\>06; CIO should therefore refrain from nndertuking
credit options trading' unbl this time, Since tile Equities v=ion of Pyramid i. the only platfonn avaI1.bl.
then there will be a nwnber of short-commgs, namely;
aJ no decolnpOsed index feed, '
b) "0 SNPR eM
oj reliance 'on lhe Py)amid model for computing VaR, (in credit data iB understood to be dubious)
CIO wiJ1 need to additiOnally clOne the PCM feed fonegulatory capital purposes and should eD,SIIT<> !'hal the
relevant credit products are set up accordingly, '
BANK PROPRIETARY ANDIOR TRADE lNFORMATION
OCC-SPI-00081631
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eIO
PAGE 11/30

Given the deficiencies of the Pyramid Equities version for the credit tr>.ding activity, MV AR would iDsist
that in the event the required systems development docs nOt occur by end,ofHI '06' new activities
and the CIO Risk Committee must CVlIluate how 10 proceed. '
Valuation ContrDI
CIO is not a marlctt maker and use, the ' Investment Bank's risk and valuation '}'Stema to transact its
products. AI, such em is price tlIker using prices and ""Ination inputs controlled and deteIJ11ined by the
market making of the bank. CIO'. Vahiation Control GToup coordinator will ensore that whore
pricing adjustments arc identified from the month end price test process for market malcin8 gronps in the
InveStment that where qo hold the same positions the adjustments are also discuss.,ct with/applied to
CIO.
Credit trading:
The only candidates for rcsO!\'csare credit spread optio";; wmch' may qualify for Unobservable Parameter
Resorves depending on the oi .. and type efpo.itious held. Index CDSs tend not to incur reselves, hOW1'ver,
:if the business were to venture into single" name space theses podtion$ would quelify for Piice DiSCQvery,
Recovery Rate and/or Concentration reserves.
6, Finance- Accounting
i fJe&cribe treatment to be. Il1ili:zed
The ins'f:ruIxl.,.."'!rts in the initial product sla.te arc derivatjves. imd as. such must be These
items will be treated as trading instruments. RTF' s wiJl also be treated as trading instnmJenls-
tL Polley t1l'1a regulat0T?' impllcatfons
Reg\llatory oonsiderations are considered in Section 8 below.
iiL B'ill tile new pmducls 1M puformc4 PW1IrJ.olly 01" will it bt! auromated;
The accounting will be'automated using the ACE accounting engine to generate entries .
. 7, Finance - Regulatory Capital
JP Morgan Wnitclriaro, Inc. has no st:mdatone regulatory capital requirements. Positions in JP Morgan
Whitefri= Inc. will bC,subject to the Firm', regulatory capital requirements:
i, Has prDdw::t. beE:1'Il't'1'lt.'Wed by .1'CgIl/ntQry reporting (US (lml lIon- tiS). to en$un: t11(tf it wiD reported ill Qccorrlanr:e with
regulatory re:porlfng List lllty rcgl.ll(l!ory 1't!pornng (US mId non-US) ia rnlatron 10 tho r.C\'\'
produd and pnnidea dcscriptloft of mry l't!ifUiTY!1Tlr:ntt tluf( differ from GAAP.
This product boen reviewed by regulatory reporting (US and non-US) to ensore that it will be reported
in accordance wj1lJ regulatory reporting requirements. '
ii. . For Rbk.btm:d PUrpfJ$"t:!t. 1ill 1M3 pl'odJl.r::.t be under trodif!g Ill' btmking baDk m/a and lin: . Jegrtl ami
r"l!gIllat01"}l reporti": revic'tl'Cd the lrt!atmall .
Fo! Ri"'"based capital PUlJ"'ses, this product will be booked tmdcr trading book rules and legal and
regulatory reporting re,;cwed the Proposed treatment.
,BANK PROPRlETARY AND/OR TRADE INfORMATION
OCC-SPI-00081631
I
I

OS/22/2008 15:32 2128346550
eID PAGE 12/30

iii. Will lhis PrOdllcJ feed iJW) rcppropriale markd. coumcrpm'O' crsdU tJtld specific ri.k 6}'stp,m.I ((."0, pit!tUt dtserib. tilt: JeJ.U1
nnmer, intcnfJ/ madeJ, nnd bookirzg .sy.rlun.t. and trpproprimt! contacts in lhnofogy and mIddle ol/it:l!)' If flC#I.., /Jaw:
proc.edU1'eS and CDlirftlls bun ptd in pinel!! to report it will be tht: persDnfor mamUI!
.: ..
The follow:ing approaches WJ11 be uscd to reed the Finn's specific ri,ksystems:
Credit: ero will leyeras. the Equity Derivatives Group's PYRAMID infustruc1Im:. eIO will usc
the infrastructure to feed the Firm's PCM model which will b. """d to calculate specific risk on the '
credit products with the excaption' of Crodit Options which will b. caJculared using the following
role:-
For OptiOll positions, lOllg or short, the risk weighte,,. amount is the =kervalue of the effective
nononal amount of ill. underlying in'UuInent or index nrultipJied by the option's delta, These are
reguired to be reported on lJJ3llllOl template. F6r credit options which are NOT price b ed, we '
may not be abJe use a option della aPi>roacb (we rnay need to use a notional J( 8% approach).
Equity: ,
Redacted by the
,Permanent Subcommittee on Investigations',
",
iv. the natllrt oj any cotlarcral held in rt!la.uoh to this prodUct
No specific collateral will be beld against, the proposed products, however dcriYative MTM'
, ceDa_lis.tion vAll b. subjectto no"",,1 firm collateral group process.
v. J)r:,C$ Ihll product Impact tkposiU (foo. if SQ, hM this commullicaroo 10 regulnlor:t rq,artittclo,. oJatlodntirrg
approprinJe reserva .
This product doe, not impaet dopesits.
OCC-SPI-00081631
05/22/2008 15:32
2128346550
eID
PAGE 13/30

8.
'Ii. Has.111)' fmpact to risk wdghlr:l been identtfte:J, l!Va/JfOIM ami tD rcporliag_ Are tilt
appropriate rIsk asset limits In place am1 bet.n reviewed by the aO?
Giv"" lb. use of approved models as detailed above, the impact to risk weiglrtod assets is notdeemed
to be m.terial and can be accommodated withln CIO', existing limi!o.
vii. Ho: for calculating risk wtigJited for VAR (lfld spcctftc rUk been t:Dnmnmicaled and qpprvvcd by
rcp01"!fl'lg &. Risk Mo"'ae,l!rI'T.em? [$ any I1PprovaJ or sper:.ijl.r: mode1l#yelopmetrl rtqUirctffor
l'lU pmductl .
The methodology for calC')latiJlg risk weighted assets for V AR and specific risk been colllIll\lll;cated
and approved by regulatory reporting. The models have been approved by the regul:rtors and hence no
specific regulatory approval or specific risk model development is required for this prod1.1ct.
viiL prod,(c/. m]Uires rLtk gt!JICf(J./., 3pf!.CifW llnd cOlm;.crpt:rty) has thl1.prMuct been Sllhmitted to
rep()rting to upda.te. thi! risk inV1ltory lin'?
Thcproduct slate)s part of the bank's existiJlg prodllcts.
Finance - Controls
;, Consider changet to the cOntrol environm!?ff indudlng prvCl'.SS, conlt"C11 procedr.lT"C$ and review
It Sfl .. OJ;lty impliw#ons: ownership of new proces$lempiaJet, testing
The Credit and Equity lru.incss ",ill ultimatoly reside in JP Morgan Whitefria .. Inc. A newoperation31
controls template wm be created for SOX PurPoses specific to the Credit & Equity business and will
address all key controls. Also, additional control steps will be added to the "elO eFO" SOX template
covering this new acti'lt-ity.
Discreet cOSt ceniers. SPN's and booles arc heing C8tablished for elO Europe and New York 10 SuppOtt
and .segregate the .cti"lity. . .
9. T&O - Technology
. BANK PROPRIETARY AND/OR TRADE INFORMATION
OCC-SPI-00081631
OS/22/2008 . 15: 32 2128346550
GID
PAGE 19/30
eIO New Bllsilless Initiative A.pproval Policy "

Post-IJnplementation Review
Section 1 : to be completed at the time of approvnl
N.me ofInitiati1l8:
Line of Business:
Post Implementation:Key
Contact:
Launell Approval Date.:
First Transaction ))ale!
" Brier description of tbe approved initiative:
"I (copy from initiative summary)
Lisi Dny conditions a,soci.ted with the approval, comment on open items and the timeframe fOT cQmpl<lion.
rusk Review "Group Condition ..... is.d dtlrine sien off Comments

Section 2 - to b. completed within 6 months of the activity going live
AddTess the
Is the initiative as described in the prop.osal when it was approve<l?
Is the within the volumes and limits agreed whim approval was gJ:3lJIed?
Have there been any operationale= as a result of illtroducing this initiative?
What <conomie value has been received l\Ild how does that value compare In the initial projections?
Have there been IIJlIterial operAtional changes that were or should be documented?
Otber. pointS of note
" Post implementalion ,..view completed by I []::oseIt name)
Oat. I (!mort da\" completed) 1
Send completed copy to LOB ORM, Regional Expedilnr and Aodit

OCC-SPI-00081631
I I
OS/22/2008 15:32 2128345550 cra PAGE 21/30

C r . ~ ; t
10% Credit Spread Widening $2rnm (Total)
$2mm (By SubInde" e,g. itraltlt main, itta."CX hlvol)
CSBPV
$;!mm (Total)
e'
Vega
$Zmm (By Sub-Index)
tho: (Total- expressed in O.! bP hie terms)
BANK PROPRIETARY ANDIOR TRADE INFORMATION OCCSPI00081631
85/22/2008 15:32 2128346550 era PAGE 25/30

CIO & GFLM
credit & EquitYNBIA sign-off.txt
Ali son C Gi ovannetti
20/04/2006 '12,: 44
TO: Jason LON Hughes/JPMCHASE@J?MCHASE'" Roger X
Kibble-White/JPMcHAsE@JPMCHASE
cc;
subject: Re: , credit & Equity' NBIA - sign off
This document contains a file attachment with a file size of 198.2 KB.
signed off
Regards,
Al, son
A 1; son G; ovannetti
GOP : 8 325 8025 '
' EXternal ; (020)_
_ ... Redacted by the Permanent
Subcommittee on Investigations
corporate, Reporting Business Advisory - Tel 212-8,4-9425 Cell
Kei th Enfield
20/04/2006 14;51
TO: Jason LON Hughes/J?MCHASE@J'PMCHASE
cc: Roger X
subject: Re : credit & Equity NBIA
I approve but ,I think you should make a note that non-vanilla equity
products ' (if you ever have any) and credit swaptions (which you are
planning on trading and are not currently approved for PCM) will need to
be reported via the manual templatE!!. ..
phil Lewis
21/04/2006 13: 57
,To: Jas,on LON Hughes/JPMCHASE@JPMCHASE
cc : Al ison C Giovannetti/JPMCHASE@JPMCHASE,
, j . [email protected]@.JPMCHASE
Subject: , Roe: credit & Equity , NBIA '
Jason - ok to ,sign-off.
AS 'stated in the document. next step is to fi na 1 i se the SLAs and SOPS
rega.rds
ph,l
David M Alexander
25/04/2006 14; 11
TO: Jason LON Hughes/JPMCHASE@)PMCHASE
CC: Roger X Kibble-White/JPMCHASE
subject : Re: credit & Equity NBIA
, page 1
, BANK PROPRIETARY AND/OR TRADElNFORMATION
OCC-SPI-00081631
95/22/2008 15: 32 2128346550 era

Credit & Equity NBIA Sigrt-off.txt
lason -
You have my approva1. I traded with Roger - of these
wi 11 be mtm ina tradi ng book. pl ease revert back to me if any other 'types ,
of positions are held beyond what is included in the NBIA that might
warrant different acctg , I.e. Loans or non-marketable equity secur1ties.
, Thanks.
Nancy E. oennery Chief Investment office - Tel (212) 834 - 9485
Nancy E Oennery
25/04/2006 13:09
To: ' Jason LDN ' Hughes/)PMCHASE@JPMCHASE '
cc: Roger X
subject : Re: Fw: credit & Equity NBIA
document contains a file attachment with a file size This of 198.2 KB.
Y"s, I have revi"ewed and sign off for the controls section.
Treasury - Tel +44 20 7777 0034
Frederic Mouchel
03/05/2006 09:56
TO: Jason . LON. Hughes@jpmol1gan. COm@JPMCHASE
cc
This
Subject:, Re: credit & Equity NBIA
document contains a file attachment with a file
Fi ne with me .
Rgds
F
Investment Bank ' - Technology
Nicholas JS wood
03/05/2006 17:50
TO: , Jason LDN Hughes/lPMCHASE
tc: joseph 9 coleman
size of 198.2 KB.
This
Subject: Re: Credit & Equit N6IA
document contains a file attachment wnh a fil,e size of 199.4 KB .
Jason - this looks fine from my point of view. off the top of my head the
areas that we 'need to include in the plan are: '
' my ' review of any tols that Joe may.be (you allude to these but
don't specify what ,they do or how blg they Wlll be - bottom of P13)
create appropriate id admin workflows for the existing apps (pyramid, STS,
etc) for the ao staff - unless we will use thre same approversas for EOG
and E&H" '
PAGE 26/30
update the BC plans for CIO as these new systems wi ll need to be included. '
regards,
Ni ck wood,

Robert J. cole compliance - Tel 212/270- 1554 Fax 212/270-3450
Robert J Cole ,
page 2,
OCC-SPI-00081631'
0S/22/2B08 lS:32
212834"S50 eID
. 05/0S/2006 20 ;19
credit & Equity NBIA sign- off.txt

, TO: Jason LDN
, , CC: Roger X Kibble-white/JPMCHAS'E@JPMCHASE; Brandon
Koni gsberg/J'PMCHASE@jPMCHASE. Carolyn Monroe-Koatz/) PMCHASE@)PMCHASE,
colin R Harrison/JPMCHASE@JPMCKASE ' '
'Subject: Re: NBIA - compliance section
Jason- see my comments ,below (in red and strikethrough), which includes
new languaQe regarding compliance approval required 'before tradin<;l in
'cred-it/equ1ty indices with less than 20 names as we discussed. With these
changes. we, are ok from, us compliance persp'ective " .
Feel free to call me with any questions.
- Tel (201) 595-5696 Fax (201) 595-6776
Arthur Ki rshenbaum, ' . .
04/05(2006 15:48
TO; Jason LDN Hughes(JPMCHASE@JPMCHASE
cc: Roger x Kibble-white/JPMCHASE@)pMCHASE '
subject: ' , Re' Fw: credit & EquityNBIA
Jason,
I have no further comments or questions and approve.
IS e- mail sufficient or do you have a more formal process?
Arthur
Fred; ani
27/04/2006' 15:25
TO: Jason LOll Hughes/JPMCHASE@JPMCHASE, '
cc: Roger X Kibble-white/JPMCHASE@JPMCHASE
This
subject; Re: , Fw: credit & Equity IIBIA
document contains a fi1e attachment with 'a file size of 778.5 KB.
Jason,
I don't have any issues. please accept this e-Iliail as my sign-off.
Regards,
Mark ,
Robert R RUPP ,
28/04/2006 20:49
TO: Achilles 0 Macris/JPMCHASE@JPMCHASE, Andrew
panzures/1PMCHASE@JPMCHASE .
cc: Ina Drew/JPMCHASE@JPMCHASE, Enr; co oa" a , '
VecchiajJPMCHASE@JPMCHASE, Joseph ,S. Bonocore/JPMCHASE@JPMCHASE, Roger X
Ki bbl e- whi te/J PMCHASE@JPMCHASE, Brandon Konigsberg/JPMCHASE@JPMCHASE,
Jason LON Hughes(JPMCHASE@JPMCKASE, Fiona J . Longmuir/JPMCHASE@JPMCHASE
Subject:
PAGE 27/30
Enrico, Fiona and I met to review the credit and equity' NBIA and we agreed'
'to sign"off, for purposes of '[he new product :,approval process. . '

Fiona prepared a summary of our discussion which includes a list of
follow-up issues (see the bottom of the attachment). More detailed '
,information is included,inthe ' NBIA document. Most of the issues are
page 3
BANK PROPRIETARY AND/OR TRADE lNFORMATION
OCC-SPI-00081631
OS/22/2008 15:32 2128345550

credit & Equity NBIA sign-off. tXt
feeds and reports that Roger/Fiona/Jason and ethers have
werking .on. In addition t.o those issues, are two items I want to
note here: . . . .
1. we assembled an appreach to limits that parallels the methed used in
the IS for, these products. While we .on VAR limits; we need to
work.writh you to 1111 the ether propesed limits Ceg de ta, vega.
cred,t events) eutllned. In attachment. '
2. pls nate the systems issues araund credit epticns which need to be
reselved before proceeding with that product. ' .
Any questions/issues, l ets discuss early week. thanks
Bob
CIa / GFLM Technolegy - Tel 212-622-6136
Joseph G'Coleman .
25/04/2006 13:03
To: Jasen LON Hughes/JPMCHASE@JPMCHASE .
cc: Alison C Giovannetti/JPMCHASE@JPMCHASE
. Subj ect: .Re: credi t & Equ; ty NStA
confi rmed - I , si gn off
Elliot M Heneyfield
20/04/2006 10:39
Te.: Jason LON Hughes!J PMCHASE@JPMCHASE
cc: Roger X Kibble-White/JPMCHASE@JPMCHASE'
subject: Re: credit & Equity NBIA
This document contains a file attachment with a fi1e size of 198.2' KB.
Happy to si gn off, .j ust not; ced a few grammar err.ors that I will advi se of
regards
Elliot
LONDON BRANCH LEA LEGAL ENTITY CONTROLLERS - Tel 44 207 777 2275 Fax 44
207 777 2010
Mark S. Allen
09/05/2006 18:50
Te: Jason LDNHughes/JPMCHASE@JPMCHASE ..
CC: Andrew Marcovitch!JPMCHASE@JPMCHASE, Arthur
Kirshenbaum/JPMCHASE@JPMCHASE, Dermot M Walsh/JPMCHASE@JPMCHASE, Rachei E
Leigh/JPMCHASE@JPM(HASE, Madhura shah/JPMCHASE@JPMCHASE
subject: . Re: Fw: credit /I, Equity NBIA
This decument contains a file attachment with a file size of 778.5 KB.
Jasen,
My' si!l'n-off is .obviously dependant on Rachel Leigh's approval to use the
Equi tl es infrast.ructure .otherw; se no fu rther quest; ons. .
Regards,
page 4
PAGE 28/30
OCC SPI 00081631
OS/22/2008 15:32 2128345550 CID

credit: & Equity NBIA sign-off. txt
Mark
Roger X Kibble-White
10/05/2006 12:10
To; Jason LDN Hughes/JPMCHASE@JPMCHASE
cc:
subject: Fw: credit & Equity NBIA'
Jason
. 5i gned-off.
Thanks
Roger
chief Investment Office Finance and Business Management: - Tel
(B52)2800-7091 or GOP280-7091 Fax (852)2810-6709 .
Calvi S Lea
. 10/05/2006 14: 52
To: Jason LON Hughes/JPMCHASE@JPMCHA5E
cc: charles K.C. Mong/JPMCHASE@JPMCHASE. Roger x
Kibble-White/JPMCHA5E@JPMCHASE
subject: Re: equity and credit initiatives
Hi Jason,
. .
There is no issue from Asia CIO CFO perspective . The market riSk limits
grant:ed are 0" a global basis. we are in the process ofcoordinat:ing a
separate NBI sign-off fc>r Asia and will refer to the global Hmits in our
assessment . Pls take this as my signoff.
Thanks,
colvis .
Chfef Invest:ment: office CFO/COO
Joseph S. Bonocore
10/05/2006 16:09
10: Jason LON Hughes/JPMCHASE@JPMCHASE. .
. CC: Roger X Kibble-White/JPMCHASE@JPMCHASE, Ina
. Drew/J PMCHASE@JPMCHA5E
subj ect: credi't/Equiti es NBlA
Approved .
Joe

.chi ef Investment Offi ce
Ina Drew
10/05/2006 16:19
page 5
PAGE 29/3B
OCC-SPI-00081631
85/22/2008 15: 32 21283455513 eIO , PAGE 30/30 ,
e
.'

credit & Equity sign-off.txt
To: , Jason LDN
, cc: ' Roger X Kibb1e-white/JPMCHASE@JPMCHASE, Joseph 5:
Bonocore/JP,MCHASE@JPMCHASE ' '
subject: , AN: Credit/Equities NBIA
Approved,
lna Drew
carolyn L. Monroe-Kaatz Managing Director & ASSOC. General Counsel
carolyn M9n'roe- Koatz
15(05/200614:59
To: Roger X Kibble-white(JPMCHASE@JPMCHASE
cc; ,
subject: credit and Equity capability NBIA
Roger - can't find the mail asking' me to sign off. I am signed off, but I '
am going to send you later today a revised NBIA. My assistant is
inputting more mater;al into ,the Legal section right ntlw-. CMK
page 6
OCC-SPl-OOOS1631
Audit Department Report
Report Number:
Audit Rating:
Report Date:
AuditType:
No Prior Report Explanation:
Business Overview and Context
CIO Global Credit Trading
G-07/005
Satisfactory
November 29, 2007
Audit
First Time Review of New Business, Product or Service
Chief Investment Office (CIO) credit trading activities commenced in 2006 and are proprietary position
strategies executed on credit and asset backed indices. Trades are executed in London and New York.
CIO has its own dedicated Middle Office, Market Risk and Valuation Control Groups (VCG), but utilizes
the IB Equities Pyramid/STS suite of applications and IB Operations groups to process, confirm and settle
the trades.
Audit Scope
Audit reviewed the following global risk and control processes operating in London and New York:
Trade capture processes & controls (including cancel, amends & late trades)
Daily P&L and market risk calculation, sign off & reporting processes and controls
Monthly VCG valuation & reserves
Middle Office reconciliation break item clearance & oversight
Key Findings
Based on the results of our evaluation and sample testing, the control environment is rated "Satisfactory".
However, addressing the following matters will further enhance the effectiveness of control procedures:
We noted an aged item of $500,000 (debit balance) in a suspense account. While this was identified
by Middle Office, month-end reconciliations did not highlight the item on a timely basis. Management
is currently determining proper disposition of the item and is strenghtening reconciliation procedures.
While not material to the overall year-ta-date CIO P&L, we noted some calculation errors in the VCG
price testing for September month-end. We identified 6 errors, resulting in net under-reserving of
$386,000. Management is currently in the process of adjusting the entries and implementing
additional controls over the review of calculation results.
Status
Management has agreed with the audit findings and is implementing corrective actions. No further
response is necessary.
Business Details
Levell:
Business Executive:
Level 2:
Business Executive:
Ina Drew
CIO
Achilles 0 Macris, Joseph S. Bonocore
EXHIBIT #5
CONFIDENTIAL TREATMENT REQUESTED BY J JPM-CIO-PSI-H 0006022
Location:
Business Executive:
Audit Details
Management Team Member:
Audit Manager:
Auditor In Charge:
Issue: Suspense Item
New York, New York, US
Javier X Martin-Artajo, Phil Lewis, Roger X Kibble-White
Hatzopoulos, Alexander X
William K McManus
Sally Russell
Detailed Findings and Management Action Plans
The September month end balance on a reserve account (with a debit balance of $24.9 million) included a $ SOOk
debit which appears to have been outstanding since April 2007. This had been identified at August month end by CIO
and is under investigation by Finance and Middle Office to determine disposition, including write-off if necessary. This
item arose when an unrelated brokerage adjustment item posted in May was erroneously matched as a reversal of
the April month end P&L adjustment for late trades executed after end of day. The month end reconciliation process
had failed to identify the error.
Management should continue their investigation and strengthen their reconciliation procedures over this account
Action Plan
CIO agrees with the point raised and the accompanying recommendation As stated, CIO was aware of the issue and
we have already acted to strengthen our processes around this reconciliation. Specifically, pricing adjustments and
trade related adjustments (for example late trades) are now recorded in separate PYRAMID books and reconciled
discretely. Pricing reserves are also specifically substantiated against Pricing Testing results.
Target Date: 12131/07
.. .. .....wmJ"J,w"J .....
Issue: VCG Calculation Errors
While not material to the overall year-to-date CIO P&L, we noted some calculation errors in the VCG price testing
calculation for September month end. We identified 6 errors, resulting in net under-reserving of $386k. Details have
been provided to Management While controls over reviewing more material differences are operating effectively,
VCG should enhance their current procedures for validating final price testing calculations.
Action Plan
By nature VCG process for Credit Price testing is a manual operation pulling together large amounts of
information from multiple sources. Whie the errors recorded were small the size of positions in certain
strategies multiplies the effect. To avoid similar mistakes going forward CIO has instigated extra controls,
including separately recording all prices received in "soft copy" from brokers, dealers etc, a review of the
calculations and prices used by other members ofthe group and CIO has moved to running the process
weekly to provide on-going feedback and identify potential issues prior to month end.
CIO has also identified new sources of prices for a number of strategies where there had previously been
difficulty in sourcing information.
Target Date:
Issue Owner:
12131/2007
Phil Lewis
Not to be distributed without prior permission from Audit.
- End Report -
CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0006023
of posltlons P" "'''qj!
lotlonal USD Factore . Date
ypa .... , <" 2011-01'03 :'.;:, ' ':' :1.201.1.-03-31 . 1.2011:;06.'30 12011-09-30 12011-12-30 2012-03-30 12012-06-29
:DS_INDEX' . 14,212,090,532 1 '18,981,099,123 i 44,978,685,306 ! 17,869,281,012 17 ,803,320,690 99,809,214,335 1- 15,922,982,448
:DS_SINGLE_NAME
4,820,952,2521-
1
,
835,252,534
i
3,021,344,4041 57,269,099,;90 I :DS TRANCHE 10,212,156,745 ,- 26,371,449,362 33,263,389,737 54,604,244,782
irand Total
3999,933,787 ! 14,160,146,87Q i 41,957,340,902 ! 44,240,730,375 51,086,710,428 157,078,313,725.1 39,516,514,867
iummaryof PosItions by Type and SerIes
.otlonal USD Factored
rvpe
;DS_INDEX
CDS INDEX Total
SINGLE NAME
CDS SINGLE_NAME Total

CDS_TRANCHE Total
Grand Total
I Ifj
:3

=
..
= ....

CIJ
=

Ed
:3

..

..
0
=It: =
>-<
0'1
=
<
..
;.

....
0'
=
I
'"
-
Product SerIes
CDX.NA.HY
CDX.NA.lG
CDX.NA.lG.HVOL
CDX.NAXO
ITRAXX.EURFINSEN
ITRAXX.EUR.FINSUB
ITRAXX.EURHIVOL
ITRAXX.EURMAIN
ITRAXX.EURSOVXWE
ITRAXX.EUR.xOVER
LCDX,NA
T
CDX.NAHY
CDX.NA.lG
ITRAXX.EUR.MAlN
LCDX,NA
Date
2011-01-03 12011-03-31 12011-06-30 i2011-09-30 12011-12-30 12012-03-30 i2012-06-29
15,872,894,000 i- 1,014,951,500111,932,826,5001 3,114,116,500 4,246,185,000 j- 2:U)47,733,OOO j- 29,913,674,000
17,589,506,395 j- 12,051,602,3951- 14,121,147,995 I- 29,177,517,995 9,947,825,995 j 62,123,218,005j 14,169,226,005
o 0 iiI .. i
- , I I ! - I
01- 70,952,480 j" 155,864,191 j 26,866,987 0 I 73,240,757 j"
613,097,189 j- 1,197,677,867 j- 1,861,670,893 !- 1,488,431,075 2,328,273,666 j- 2,114,660,403 j_
. 0 I 0 I I _ i_I
j j, I I
24,385,425,805! 37,478,656,786! 51,872,468,2961 48,309,323,652 40,740,245,0261 71,774,454,424 1
i - j - 1 ! 46,665,000 I
19,905,753! 73,790,579 j- 1,421,626,410,- 1,682,545,056 5,215,875,674 i- .8,880,974,448 -
4,502,113,000 I- 4,236,164,000 I- 1,266,300,000 I- . 1,232,532,000 1,198,764,000 i- 1,164,996,000 -
14,212,090,5321 18,981-,099,12!1 _ _ 17,803,320,690 I 99,809,214,335 j-
9,367,799,720
10,810,447,157
8,354,776;253
3,300,027,930
10,212,156,745 i-
3,999,933,787 I
8,118,656,644
19,648,039,614
3,325,954,275
3,382,476,443
4,820,952,252
14,160,146,870
10,394,268,290
13,545,590,864
3,111,788,697
3,241,766,867
3,021,344,404
41,957,340,902
---------=---1
13,177,165,794
5,911,554,006 ,-
12,369,757,169 14,308,175,5671'
5,380,701,943 7,356,130,485 -
15,957,364,778
3,148,472,796
23,239,155,826 47,355,169,732 i
3,055,178,686 2,961,884,575 '
26,371,449,362 33,283,389,737 i 57,269,099,390 i
44,240,730,375 51,086,710,428 I 157,078,313,725 i
o
3,102,705,254
10,428,139,571
6,338,972,770
1,164,996,000
15,922,982,448
835,252,534
835,252,534
15,204,533,082
9,000,333,231
45,438,160,356
2,961,884,575
54,604,244,782
39,516,514,867
JPM-CIO-PSI 0037609
From:
Sent:
Drew, Ina <[email protected]>
Tue, 10 Jan 201217:05:41 GMT
To: Javier X <[email protected]>.
CC: Macris, Achilles 0 <[email protected]>
Subject: Re: International Credit Consolidated P&L 09-Jan-2012
Let's review the unwind plan to maximize p I. We may have a tad. more room on rwa. PIs schedule asap.
From: Martin-Artajo, Javier X
To: Drew, Ina
Cc: Macris, Achilles 0
Sent: Tue Jan 1012:01:012012
SUbject: RE: International Crerlit Consolidated P&L D9-Jan-2012
Total reserve i5.30 MM. I do not think that we will have a release forsometime unless we get an opportunity.
Bruno has been unwiding some ofthese postions opportunisticly . The other side of the P/L is that it has been
somewhat costly to unwind too $0 net net have actually lost a little bit of money to unwind.
From: Drew, Ina
Sent: 10 January 2012 16:17
To: Martin-Artajo, Javier X
Cc: Mactis, Achilles 0
Subject: RE: mternational Credit Consolidated P&L 09-Jan-2012
OK, thanks. Can you forward the schedule for releases, ie: what is the release planned given the budgeted
reduction.
From: Martin-Artajo, Javier' X
Sent: Tuesday, January 10, 2012 11:05 AM
To: Drew, Ina
Cc: Macris, Achiiles 0
Subject: RE: International Credit Consolidated P&L 09-Jan-2012
Management line is the release of P /L that comes from unwinding off the run positions. This is an adjustment
that was made in 2009 for iliquidity of the credit derivatives book. In a way it is a reserve release for iliquid
indexes.
From: Drew, Ina
Cc: Macrfs, Achilles 0
Subject: FVII: International Credit Consolidated P&L 09-Jan-2012
.. ................................. _ ...................................... , .... , ....................................... _ ...... ___ ... _ ...... _ .......................... _ .. ..
From: Munjayi, Tendai
Confidential Treatment Requested by J.P .. ___ E.XH_.ffi_I.T_#.7 ___ .... JPM-CIO-PSI 0000075
Sent: Monday, January 09, 20123:58 PM
To: EOD Credit estimate
Cc: 00 Pal Team
Subject: Intemational Credit Consolidated P&L 09-Jan-2012
MTM Credit P&L as at . 09/01/2012
Daily Est
Strategic
Redacted By
USD 000':
MTD
Tactical
Total Core
Investments .
Total Investments
Management
Totallntemational Credit:
Strategic
Core Tacti.cal -1,824 -3,306
Tactical 2 0 31
Credit Single Names 35 161
-4,329 -30,811
Redacted By
-4,068
TRR Credit P&L as at 09/01/2012
Daily Est.
Redacted By
-7,740
USOOOO'l
MTD
Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI 0000076
Tactical
Total Core
Investments
Total Investments
Management
Tota.llnternational Credit:
CREDIT MARKET COMMENTARY
Synthetic Credit
Redacted By
Tactical 1
Tactical 2
Credit Single Names
Redacted By
-1,824
o
35
-4,329
-3,306
31
161
-30,811
o 20,772
-4,068 -7,140
Another day with very little realized volatility, and a bit more weakness, coming from European bank equities
(Italian banks such as Unicredito), pushing single names, then FINSEN then ITraxx.Main index wider. Overall
levels of spreads remain very high, relatively to the recent move in convexity instruments - credit volatility was
once more very much for sale, especially in Europe (-3pt in ITraxx. Main ATM March), and longer date mezzanine
tranches are decently tighter too. us credit was wider '- consolidating a bit after the recent outperformance
given the good numbers for the US economy. Our ITraxx positions are getting hurt mostly due to the long
overlay, andthe compression between ITraxx.Main and ITraXx.xover. In CDX.lG super senior tranches are
catching a bid - causing mezzanine tranches to tighten, hurting our pOSitioning in this complex. In CDX.HY short
.dated off the run index are decently outperforming today, causing HY curves to steepen - we are also benefiting
from higher mezzanine tranches across the board.
Redacted By
Confidential Treatment Requested by J.P. Morgan &Co. JPM-CIO-PSI 0000077
Many Thanks and Kind Regards
Tendai,
Tendai Munjayi
3P Morgan Chase &. Co.
100 Wood St. London EC2V 7 AN
Tel1il +44 (0) 207 777 9424
[email protected]
From: Iksil, Bruno M <[email protected]>
"ent: Wed, 18 Jan 2012 15:58:26 GMT
J: Grout, Julien G <[email protected]>
Subject: FW: Meeting materials for Ham meeting
Importance: High
From: Perryman, Andrew X
To: Serpico, Gina
Cc: Iksil, Bruno M; Martin-Artajo, Javier X; Macris, Achilles 0; Hagan, Patrick S
Subject: Meeting materials for 1lam meeting
Importance: High
Hi Gina,
Please find attached a copy of the meeting materials for Ina's 3pm meeting with Javier, Achilles and Bruno. Any questions
please do not hesitate to give me a call.
Kind regards,
Andy
Andrew P e ~ I Chief Investment Office i 100 Wood Street, 6th Floor, London, EC2V 7AN : fir Olrect:+44 207777 1070 : Q).
Blackberry: __ : i8I [email protected]
_ = Redacted by the Permanent
Confidential Treatment Requested by J.I ......... E.XH I.B.I .. T .. #.8 .......
JPM-CIO-PSI 0000098
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Core Credit Book - Current RWA Summary
w The table below is the CIO International desk model's Core Credit Book RWA summary (Strategic + Tactical)
r ~ As of COB 16
th
January 2012 the CIO calculated Core Credit Book RWA was USD20.9bln
1m This compares to average USD40.3bln RWA for December 2011 provided by QR
HistVar I 86,566,113 I 273,746,085 3,421,826,066 5,431,270,000
. StressVar 189,476,958 599,178,751 7,489,734,393 17,557,570,000
CRM 802,991,095 802,991,095 10,037,388,685 18,274,000,000*
Total 1,675,915,931 20,948,949,143 41,262,840,000
"Average CRM for Q4 provided
HistVar 69,252,890
StressVar 166,360,769
J.P.Morgan
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Credit book highlights
3 blocks of forward spread exposure
\lI Main ITraxx S9: 20% book RWA - gross notional: USD90bln - estimated carry: USD100mm
m COX IG9: 35% book RWA - gross noti<?nal: USD278bln - estimated carry: USD200mm
l!li COX HY10 and 11: 45% book RWA - gross notional: USD115bln - estimated carry: USD10mm
Main P&L components
II 35% reduction cost USD590mm (not a worst case but based on today's market depth)
III -USD130mm Main
BI -USD250mm COX IG
III -USD210mm COX HY
lI Expected carry over the year with regular reduction: USD300mm - 500mm
II Remaining optionality: USD200-300mm on defaults-
II Potential drawdown: USD100-200mm in US HY
Expiration schedule:
II Main ITraxx 59": June 2013 (50% position)
1M COX IG9: Dec 2012 (40% position)
m COX HY10 and 11: Jun 2012 and Dec 2012: (30% position)
1
J.P.Morgan
From:
Sent:
Martin-Artajo, Javier X <[email protected]>
Thu, 19 Jan 201214:01:52 GMT
To:
cc:
Drew, Ina <[email protected]>; Wilmot, John <[email protected]>
Macris, Achilles 0 <[email protected]>; Weiland, Peter
<peter. [email protected]>
Subject: Credit book Decision Table - Scenario clarification
. __ .. _ ... - ........... , ........ _._---_.-... _._.-.. _ ...... _ .. __ ... -_ .. _._ ......... _ ... - .... -.. __ ..... __ ._. __ ... -... - .. ---_ .. ---
Ina I
as a follow up from yesterdays conversation regarding the tranche book I would like to further clarify the
different scenarios and assumptions for each of them.
The first scenario is the one discussed when you were in London an is a scenario that we reduce our book to the
agreed target at year end 2012 of 20.5 Bin but the current model used by QR remains. This would need the path
. of reduction to be to reduce the RWA using a strategy that postions the book for maximum carry and would
have high trading costs and a higher risk profile so that we could have also a large drawdown .
The second scenario or Central Scenario discussed with you and John Wilmot is a scenario that we meet the year
end target by opportunistically reducing the necessary legs and optimization is used following the current QR
model. gUidelines and assumes that we get a reduction on the cost of capital using the new VAR.
The third scenario is posib!e if we get the new mode! but we do not get diversification and we would reconsider.
The fourth scenario is our Target scenario and the one we are hoping to implement again by midyear.
Let me know if you want to further discuss.
Best regards
Javier
EXHIBIT #9
Confidential Treatment Requested by J.I .. ____ .... _______ ..
JPM-CIO-PSI 0000105
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Credit book Decision Table in "no diversification" assumption
Model
Scenarios and perceived feasibility
as of today ,
odel applied and diversification
Data?
Reduction In RWA
RWA target EOY (undiversified)
Estimated Diversified RWA
Risk management
radlng cost
Carry
Optfonalfty
P&'L range
Drawdown needed
QR model previlils
REDUCTION
(as discussed at 7th December
2011 meeting London and follow
upon Xmas)
QR Model no diversification
No detailed data
RWA reduced from USD 43 BIn to
USD 2Q BIn
USD 20 BIn
USD 20 BIn
Systematic reduction of the
largest legs across the book
Unwind of eXisting trades across
the board
USD 590mm
USD 400-5001'111'11
USD 0-50mm
USD -150mm to USD -50mm
USD 300mm'
CIO model preva lis
Possible if approved by QR
CIO Model no diversification
Dala available
RW A reduced from USD Z1Bln
USD 15 BIn
USD15 Bin
USD 15 BIn
Active risk reduction of the
critical legs with regards to RWA
marglnals
Buying protection on IG9 10yr,
MAIN 59, BY10 7yr
U5D 100mm
USD 200mm
USD 0-501'111'11
USD 50mm to USD 150mm
USD 150mm

,-
Sent: Thu, 26 Jan 2012 09:11:17 GMT
): Grout, Julien G <[email protected]>
Subject: FW: credit book last version
From: Iksil, Bruno M.
To: Perryman, Andrew X
Subject: credit book last version
latest version for ismg .. for ur record
EXHIBIT #10
Confidential Treatment Requested by J . .. ___________ ....
JPM-CIO-PSI 0000159
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Credit book executive summary
1-The credit book has a YTD P&L -100MUSD and conveys a further 300M USD drawdown
1m Where the YTO loss coming from?
Ill! Short risk HY exposure ( -50M USO) + off the run vs on the run basis ( -200MUSO)
II What would generate the drawdown ?
m Further distorsion on forward spreads: -200M USO
~ Rally in US HY and defaults at the same time ( as Eastman Kodak this year) : -200M USD
, .,
lEi Which trades were done so far this year?: sold protection in ltraxx main-xover and COX IG ( no US HY)
1m Offsetting gains to the loss: new trades (+11 OMUSD) and carry (+40MUSD)'
2- the trades that make sense
n The trade that makes sense: sell the forward spread and buy protection on the tightening move
il1I Use indices and add to eXisting position ,
Ell Go long risk on some belly tranches especially where defaults may realize
lilt Buy protection on HY,and Xover in rallies and turn the position over to monetize volatility
Il\'l Start with a Iorig risk bias and use the equity tranches on tighter spreads to optimize upside on stress.
3- Profile of the book and main scenario considered:
m The book is long vega short gamma ( like tactical but 15-20 time larger) : daily carry +2M
1M Main scenario is spread tighteninQ : we add gamma via flatteners and sell protection
Ii 'The plan ,: buy protection on the way to tighter spreads
1 ,
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Credit book Risk Profile
1-The credit book conveys l:Ipside on defaults in IG and a decompression trade HY vs IG
m We are both long risk on forward spreads and carry Jump to default upside In itraxx Main S9 and CDX IG9
Dl The long risk overlay in series 9 is mostly hedging short risk in US HY and Itraxx Xover
III We also carry a "spread basis" risk between series 9 In IG versus' on the runs IG Indices
2- The main P&L drivers
iii The forward spreads in series 9 IG,in particular in Equity tranches ;
w 1 OM$ per 8p in Main itraxx S9
B';l' 20M$ per Bp in COX IG9
fiJI The Hy1 0-HY11 2yr into 2yr forward spread (via equity tranche) versus the HY14 5yr ( 3yr) : 1-2M$ per Bp
III A compression trade: US HYvs US IG (3.5M$ per BP), itraxx Xover vs itraxxMain (1.25M$ per BP)
3- The current strategy:
!Ill We receive forward spreads in IG series 9 and HY series 10-11 versus on the run spreads
GI We hedge the downside in HY defaults with an overlay short risk in HY on the runs
llil We position for cheap upside on Jump to default in high grade space within a RWA reduction plan
2
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Credit book P&L story Q4 2011 till today
1Where does the loss and potential drawdown come from?
I:U The book started the year short risk long vega: spreads tightened 20% across the board (IG-25Bp HY-12SBps)
m Estimated loss on pure spread tightening & HY to IG compression = SOM USD*
Jru S911G9 forward spread vs on the run = 1 OOM* USD ( 5bp)*
UJl HY off the run lagging on the runs ( EK) == 100M USD* ( 6Sbps)*
fill Which is current loss I which is further drawdown
fill Current loss shows the spread rally mitigated by new trades: -100M USD
fiI Most of the drawdown will come from basis risk from Off the runs series where we have longs versus on the run
series where we have shorts
2 What triggered this loss: position unwinds and book rebalancing?
mIl In 04 2011 : we sold out some of the biggest exposure to reduce RWA.
ml Sold HY8 to Hy11 indices to reduce longs: 10 bin ( 60% of the long)
1m Bought back 0-3 5x10 in ig9 and s9: total400m (10-15% of the position)
r.l!I Sold protection on super-senior IG and sold risk in HY on the runs to cover hy11 3yr expiry
l\lI . Markets were in high stress level and we had to keep P&L in check, thus stay short risk long vega
3- What was done this year so far? :
~ Sold protection across the board: 10Bln main, 10bln IG versus short risk 7Bln US HY
ml Added flatteners: 5bln S9, 10bln Ig9 to maintain the upside on defaults,
3
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Credit book trades that makes sense,.. .
1-SeU protection across the IGboard - buy protection in HY
m Stress levels in Europe should recede similarly to 03-04 2008 between Bear stearns and Lehman
em The L TRO plus potential coming collateral criteria changes will help stabilization
III Unlcredit "successful" recap provides a temporary "floor" to bank tangible equity
;g Market players were deeply shaken and started the year very defensively
Ell IG creditspreads have been plagued by financial stress
fi.ll the memory of 2008 has triggered a deep rooted sell off in financials
m Yet US banks and some european banks have made genuine efforts to clean their exposure
2- add flatteners In IG and HY on a large credit rally
1:11 The deleveraging process wi!! not stop;
m Rates are very low but credit spreads are explosive
iii Banks will tier out the weak lenders in a low potential growth environment
Ell HY and Xover names are the most vulnerable if growth does not pick up while rates stay low
ttl The long risk exposure and the flatteners provide a low level of RWA versus the upside on credit events
. 3- Use belly tranches on wide spreads and equity tranches on tight spreads
Ell Go long risk belly tranches when spreads are wide and about to collapse
Ii Go long risk equity tranches when spreads are tight. stable and' about to become volatile
4
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II' Spreads tighten another 50%, curve barely moves
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Ii) The book will step into positive gamma- long risk profile
I:il The upside on default will be. reduced due to the long risk but remains elevated thanks to the flatteners
iii The carry will be maintained on a constant spread basis but will diminish with spreads tightening
. 111 Larger shorts will remain in Xaver and HY names
3- Adverse scenarios and possible drawdowns
Il'! Defaults show in series where we are long risk ( HY1 O-HY11) and not in others: this can cost 200m upfront
m The curves steepen and spreads do not tighten: fhis can cost another 300M,
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Compression effect
CDX HY,S17 05Y '," ,
Relatlle Compression Bp Value
"';', :,' .2713.5M USD
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IG'S17 05V' ' .. ,:, "'(:, firf tit' value
ITRAXXXO,S160S,Y ,'-130 ' " " " ell,25M USD
ITRAXXMN 516 05Y " -25
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ICDX,IG,S,)7,O;;Y ',I ,
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COX IG'S09,5X5 ' ',,: i '",', :::,.' 6 20M USD
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ITRAXXMN 515 05Y' :" '-26 BPValue
ITRAXX MN 509 5X5 -27' '.'\ ",:,':1110M USD
CDXtly',SP-05j': c' '-134 BP Value
COXHYS,105X7', ,," .":' ,'S4I1M USD
Fwd E\Olut.ion (I Trenches)
rrRAxxMl'f 509 (l5Y OO,..Q3f:O.44
l-mAlOCfI(IN 509, lOY 00..03 ,,' ,1,26,: :1.70
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SKEW 5YR ( as of 25/01 close) Skew as of Dec30,11 CLOSE
ITRAXX.IG -7.0 ITRAXX.IG -9.3
ITRAXX.XO -14.7 ITRAXX.XO -5.3
ITRAXX.HV -11.2 ITRAXX.HV -7.2
ITRAXX.FINSNR -5.9 ITRAXX.FINSN R -11.0
ITRAXX. FINSUB -17.2 ITRAX.X.FINSUB -21.6
ITRAXX.SOVX. WE -11.1 ITRAXX.SOVX. WE -3.2
CDX.lG -8.1 CDX.IG -9.8
. CDX,HY 1.6 CDX.HY 0.2

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Carry 10,0 20,oT 10,0
New Trades PnL 70.3 110.4 I -46,1
Direction<llily' -13,S 26.6
RV Compression 7.6 -93.
Forward Underperformance -13.9 -125.4 I -G4.0
Europe USA
Tolal 60,5 -161.8
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Core Credit Book .,- Current RWA Summary
liti The table below is the cia International desk model's Core Credit Book RWA summary (Strategic + Tactical)
As of COB 16
th
January 2012 the cia calculated Core Credit Book RWA was USD20.9bln
!l1\l This compares to average USD43bln RWA for December 2011 provided by QR
HistVar 86,566,113
CRM 802,991,095
Total
'Average CRM for Q4 provided
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273,746,085 3,421,826,066 5,431,270,000
599,178,751 7,489,734,393 17,557,570,000
802,991,095 10,037,388,685 18,274,000,000*
1,675,915,931 20,948,949,143 , 41,262,840,000
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Credit book highlights
3 blocks of forward spread exposure
1m Main ITraxx 59: 20% book RWA - gross notional: US090bln - estimated carry: US0100mm
mI COX IG9: 35% book RWA - gross notional: US0278bln -estimated carry: US0200mm
mJ COX HY10 and 11: 45% book RWA - gross notional: US0115bln - estimated carry: US010mm
Main P&L components
m 35% crude reduction costUS0590mm (in case we get no detail from QR computation)
mI-US0130mm Main
EM -US0250mm COX IG
nil -USD210mm COX HY
if carryover the yearwith regular reduction: US0300mm - 500mm
1m Remaining optionality: US0200-300mm on defaults
m Potential drawdown: US0100-200mm in US HY
Expiration schedule:
1m Main ITraxx 59: June 2013 (50% position)
COX IG9: Dec2012 (40% position)
wCOX HY10 and 11: Jun 2012 and Dec 2012: (30% position)
10
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Credit book possible paths.
OR method prev,ails : target RWA 20Bln
Il.'I Path 1 : OR provides regular and detailed data about CRM-stress var and.var scenarios:
1m Active and opportunistic reduction necessary: trading cost estimated to be 250M USD
m Estimated carry accrued over the year200MUSD
Ell Potential gains from remaining convexity: 50-150M USD
ml P&L range: -50MUSD to +100M USD
Ei1 Path2: OR does not update (2011 scenario) : Central scenario so far
iii Systematic reduction necessary: estimated reduction cost 590M USD
!fA Estimated carry accrued over the year 400-500M USD
!l.\l Potential gains from remaining convexity: 50M USD
m P&L range: -150MUSD to -50M USD
m Path 3: OR grants diversification in VARSTRESS VAR_CRM
Em P&L range to be defined
m NO DATA or any Hint for now
m Optimisation possible
Trading costs 100-200M USD depending on scale target
- Carry flat
- Optionality 200300M USD
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Credit book possible paths 2
CIO method prevails: target RWA 20Bln
III Path.1: 15Bln RWA target no optionality targeted: the books expires naturally
Iil!i Risk management and trading costs: 100M USD
1m Estimated carry accrued over the year 200MUSD
f! Potentia.l gains from remaining convexity: 0-50M USD .
iii P&L range: 100M-150M USD
iI Path2: 20 Bin RWA Jump optionality : the book is actively managed
III Risk management and trading cost 100M USD
w Estimated carry accrued over the year 50M USD
III Potential gains from convexity: 0-250M USD
ali P&L range: -50MUSD to 200MUSD
EiII Path 3: Diversification granted
m P&L range to be defined'
II NO DATA or any Hint for now-
lim Optimisation possible
- Trading costs 100-200M USD depending on scale target
Carry flat
- Optionality 300-500M USD
12
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Credit book possible paths 3
Possible risk management options as the book options for upside on Jump-to-default expire:
Path 1 : the risks are neutralized and the book accrues the remaining carry
/ia We buy protection on long term tenors where we have long risk exposures
ml Ideal scenario if forward credit spreads compress
!la The will be very low on abull market.
eli! Target positions IG9 10yr, Main Itraxx 10yr, HY10 7yr, HY11 7yr
Path2: The upside on jump to default events is maintained the book is not reduced
We roll over the jump upside by adding flatteners on low spreads
.!!ll We lock a good positive carry by selling the forward credit spreads on wJde spreads
I!l\1 The cost can be limited but this requires some increase in notionals
Il\:I Target trades: flatteners on mezzanine tranches, flatteners on indices, directional trading on
the-run indices
Il\l Path 3: Diversification granted
I!iI With data: the book can scaled according to stress scenarios
ill NO DATA or any Hint for now
m Optimisation possible
- Trading costs 100-200M USD depending on scale target
Carry flat
Optionality-300-500M USD or more .. '
13
J.P.Morgan
Sent: Mon, 30 Jan 201218:07:48 GMT
To: Martin-Artajo, Javier X <[email protected]>
Subject: RE: update on core credit book
yes. Are you available now?
. Sent: 3() January 2()12 18:05
To: Iksil, Bruno M
Subject: Re: update on core credit book
Let's discuss when you have a second. Can you call me on my mobile?
From: Iksif, Bruno M
Sent Monday; January 30,2012 ()4:41 PM
To.: Martin-Artajo, Javier X
. Cc: Grout, Julien G
Subject: update on core credit book
We have to report a loss in the widening today, much less because the book has a long risk bias.
Comes month end andwe cannot really prevent the forward spreads from moving up.
We get closer but each day the dealers report unreliable runs, wider bid-ask quotes and this cost us.
To trade them is costly and leads to increase in notionals.
We have some evidence that our counterparties need to frame the prices to our disadvantage but here the book
is really balanced, ie there is this foward spread exposure that has nice features but this is not a profile where
we can control the P&L unless we just let it roll off.
We need to discuss at this stage I guess:
the book is how set to carry positively and get some extra gains depending on where defaults show up. A no
default scenario is now also a good outcome. Yet, the final result is unknown. Alii see is that liquidity is so poor
that we just add notionals with the street. So that improves the outright final P&L number but this increases the
issues with the risks and the size, as well as our sensitivity to price moves and trading costs.
Because the views in the book are much more benign than in the past, the mean reverting pattern of the P&L is
stronger ( ie we face an ever lower risk to be wronged), Yet, to avoid this accumulation we need to let go on one
way: the only one I see is to stay as we are and let the book simply die. That we should take some hits be<;ause
the markets might create noise in the P&L is a certain reality. Yet, the control of the drawdown now is
generating issues that make the book only bigger in notionals.
As a paradoxical result, I have to take directional views on the market direction, in order to pre-empt the moves
that the dealers will do against us. And I see that the trading I run is doser and close to dealers' with a
directional bias. This is a problem we had many times but only when we had views going counter to consensus.
At the current stage, we still have the long risk in forwaed spreads but the notionals becoine scary and upside is
limited unless we have really unexpected scenarios. In the meantime, we face larger and larger drawdown
pressure versus the risk due to notional increases.
Please let me know the course of action I should take here.
EXHIBIT #11
Confidential Treatment Requested by .. ------__ I111111___ .. JPM-CIO-PSI 0001223
From:
Sent:
To:
Iksil, Bruno M <[email protected]>
Man, 30 Jan 2012 17:28:21 GMT
Buraya, Luis C <[email protected]>; De Sangues, Eric
,<[email protected]>
Subject: FW: update on core credit book
From: Iksil, Bruno M
Sent:,30 January 2012 16:42
Cc: Grout, Julien G
Subject: update on core credit book
We have to report a loss in the widening today, much less because the book has along risk bias.
Comes month end and we cannot really prevent the forward spreads from moving up.
We get closer but each day the dealers report unreliable runs, wider bid-ask quotes and this cost us.
To trade them is costly and leads to increase in notiona Is.
We have some evidence that our counterparties need to frame the prices to our disadvantage but here the book is really
balanced, ie there is this foward spread exposure that has nice features but this is not a profile where we can control the P&L
unless we just let it roll off. '
, We need to discuss at this stage I guess:
the book is now set to carry positively and get some extra gains depending an where defaults show up. A no default scenario
- \s now also a good outcome. Yet; the final result is unknown. Alii see is that liquidity is so poor that we just add,notionals with
the street. So that improves the outright final P&L number butthis increases the issues with the risks andthe size, as well as
our sensitivity to price moves and trading costs.
Because the views in the book are much more benign than in the past, the mean reverting pattern of the P&L is stronger ( ie
we face an ever lower risk to be wronged). Yet, to avoid this accumulation we need to let go on one way: the only one I see is
to stay !'Is we are and let the book simply die. That we should take some hits because the markets might create noise in the
P&L is a certain reality. Yet, the control of the drawdown now is generating issues that make the book only bigger in
notionals.
As a paradoxical result, I have to take directional views on the market direction, in order to pre-empt the moves that the
dealers will do against us. And I see that the trading I run is closer and close to dealers' with a directional bias. This is a
problem we had many times but only when we had views going counter t6 consensus. At the current stage, we still have the
long risk inforwaed spreads but the notionals become scary and upside is limited unless we have really unexpected scenarios .
. In the meantime, we face larger and larger drawdown pressure versus the risk due to notional increases.
Please let me know the course of action I should take here.
Best regards
Bruno IK51L
Confidential Treatment Requested b ~ ____ .E.XH_.ffi_.IT_#.1.2 ___ ..
JPM-CIO-PSI 0001766
Sent: Tue, 31 Jan 2012 12:36:28 GMT
Subject: hello, quick update in core credit...
ok they keep playing games in itraxx now. I will show up for small in the hope we can limit the pain.
as to IG9, things look much better. not that we are imune but we can show that we are not at mids but on realistic level.
I wait for Hy and will keep you in the loop when I have a final number.
I went I to ISMG and advised that we set the book for long risk carry the time for us to see whether we really need to fight in
mars.
It will be time then: I just reminded the episode of 09 when I feared the drawdown and I ended up with the right position but
not the right timing.
I hope I did right.
Let me know your thoughts.
Regards
Bruno
EXHIBIT #13
Confidential Treatment Requested by J.I .. ____________ ..
JPM-CIO-PSI 0001229
From: . Macris, 0 <[email protected]>
Sent: Tue,31 Jan 201213:42:51 GMT
To: Drew, Ina <[email protected]>
Subject: Core book p&ldrawdown and main exposures
FYI - further to our discussion, please see my comments to Javier below:
-----Original Message--
To: macris@ Macris, Achilles 0
Subject: Re: Core book p&J drawdown and main exposures
Achilles,
The meetings so far are positive with respect to V AR , good for Stress Var and not clear. for CRM . Been
working on the presentation for today this morning . .I am in a meeting with Risk now and with QR in 45
minutes. Then Ina .and Hogan briefly. The process here in NY is complicated because Market Risk
needs to coordinate with the guys that talk to the regulators on a very regular basis .
. So we are going to see a further reduction of the Var of at least l5%in the next 3-4 weeks. Now I am
working on the CRM with QR. Then to see Adam Gilbert on theregulatory side. .
-------------------------------------------
--Original Message-
- = Redacted by the Permanent
. --Subcommittee on Investigations
From: macris@ .
Sent: Tuesday, January 31, 2012 07:58 AM
Cc: Iksil, Bruno M; Stephan, Keith; Kalimtgis, Evan
Subject: FW: Core book p&l drawdown .and main exposures
Hi Javier,
How is it going in NY?
Are you dialling into ISMG?
We need to discuss the synthetic book.
The current strategy doesn't seem to work-out.
The intention was to be more bullish, butthe book doesn't behave as .
intended.' .
Taking into account the conservative year-end marks and the January positive
carry, the financial
Performance is worrisome.
I think that we need to urgently revaluate the core position in bearish
steepeners and the associated maximum drawdown's. .
The "timing" issues on the older series are somewhat predictable, and the
EXHIBIT #14
Confidential Treatment by J .. ____________ ...
JPM-CIO-PSI 0000221
second order p&l discrepancies should be viewed differently from the core
position.
Thanks,
A
--Original Message ---
From: Iksil Bruno [mailto
Sent: Tuesday, January 31,201206:28 AM
- - Redacted by the Permanent
To: Iksil, Bruno M
Subject: Core book p&l drawdown and main exposures
The book c1Jrrently conveys a short risk exposure in us hy and a long risk
exposure in ig indices series 9 (both CDx and itraxx). This exposure
balances the jump to default risk of the book: we would lose money now on a
default in us hyand make money if the default occurs in ig world. One can
summarize the net exposure as : the book has a bullish flatteners in ig and
a bearish steepeners in us hy. .
Since the start of the year, the book loses money on the short in hy and
makes money overall in ig as expected. Now, the loss in hy is higher than
expected because of equity tranches moves ( linked to Kodak default). The
gain in ig is lower than expected due to the in series forward spreads.
The drawdown in p&l is large because the nationals are large and the trade
on forward spreads involve many legs all ofwhich incurs a loss. The
drawdown is sudden because the spreads have squeezed but capital has not
come back to the markets yet. The skews and the basis remain large while tlle
spreads have tightened 20% ytd. .
Why does it impact the book?
The book used the forward spreads ( a net long risk exposure) to buy
protection on defaults short tenn and buy some upside on large spread.
widening. This worked very well I ast year.
Now January is very bullish and the street owns the protection we sold on
the forwards. Towards month end the spread on series 9 remains sticky and
tends to widen more than the rest especially ilie on-ilie-run indices where
the book still has short risk overlay. So the book is squeezed on boili ends
and we saw this pattern from ilie first days of the year. It did not really
correct since then. This explains why the ig part ofilie book does not
perform as expected.
The book is also hurt on the hy ieg and this is linked to the unwinds from
Jast year: I sold out some longs in hy8-9-10-11 series. The street was
caught long risk in ilie on the run indices ie hy14-15-16-17 when AMR filed
: they entered flatteners by selling what I was selling in order to limit
the losses. In this rally, with Kodak filing for chapter 1 ], they have
sponsored their own position at the expense of the book. No one can tell
what will happen after Kodak is removed rom the indices because ilie recovery
is quite low already.( 73%}. The on ilie runs indices have rallied a lot
Confidential Treatment Requested by J.P. Morgan & Co. . 0000222
since December catching up with the equity market. The book has lagged the
rally on its longs via equity tranches but would catch up if there isn't any
default in us hy over the next 3-6 months ( in hy 10-11 s e r i e s ) ~
Yesterday and today most likely, no matter what the market will do, the
series 9 forwards will underperfonn and for hy I expect some framing too.
Yet here this is broad based. I tried to fight it in the last sessions and
it was unsUccessful.
If you have time I will send,you a memo that describes the technicals of the
market positioning in ig world. Let me know if you care to read it.
Best regards
Bruno Iksil
Confidential Treatment Requested by J.P. Morgan & Co. ",PM-CIO'-PSI 0000223
I I
From: Achilles Macris <macris@
Thu, 01 Mar 201211:10:42 GMT
_ = Redacted bv the Permanent
Subcommittee on investigations
Sent:
To: 'Martin-ArtajO, Javier X' <javier.x.martin-artajo@jpmorgan. com>
Subject: priorities
Hey Javier,
Here' are some thoughts:
Focus on the metrics and P+L of the synthetic book. I am worried that the $20b RWA committed be year-end, is too
aggressive. If we need to
Actually reduce the book;we wil l not be able to defend our positions .... We need to wi n on the methodology and then t he
diversification. Hogan, doesn't not understand the book and it should be explained through Ashley etc. Let's meet Ashley
soonest.
As this would be driving all things important to us, it would be important to focus on the P+L and the post methodology
. RWA,should be what it takes to achive the P+L .....
We need to find a low RWA spread trade for size. Somethi ng between George and Tolga. Maybe Austria or EU, and buy
$15b spread with low RWA ..... .
OR, step-in 'and buy the RMBS at new tights if you think that would generate issuance .. ..
In Credit, to focus on some MtM low hangin'g fruit ...... to assist the B/E for Bruno etc
Thanks,
Achilles
EXHIBIT #15
Confidential Treatment Requested by .. ___ iiiiiiiiiiiiiiiiiiiiio ______
JPM-CICi-PSI0001219
From: Grout, Julien G <[email protected]>
Sent: Tue, 20 Mar 2012 19:52:02 GMT
To: eIO ESTIMATED P&L <cra _CREDIT ]&[email protected]>
cc: era P&L Team <ClO ]&L _ [email protected]>
Snbject: era Core Cremt P&LPredict [20 Mar]: -$39,686k(dlYJ -$275,424k (ytd)
Daily P&L: -$39,685,995
Y1D P&L: -$275,424,307
Daily P&L($) Y1D P&L($)
Redacted By
. Europe High Grade -21,802,054 32,664,651
c--'-- - - - - - ~ - - - --. ---- .
Redacted By
Redacted By
US High Grade -20,314,624 458,833)37
Redacted By
Permanent Subcommittee oli Investigations
USHY & LCDX 11,562,342 -404,083,807
-------- - - ~ - - ---" ---
Redacted By
. . .
CONFIDENTIAL TREATMENT REQUEST
J.P. MORGAN CHASE & CO.
EXHIBIT #16a
..
JPM-CIO-PSI 0016487
Redacted By .
US ABX/TABX -155 -20,081
Redacted By
New Investments -10,802,807 -392,038,020
Redacted By
. Dead Books (Core) -85 1,377
---- -------'-- -------- ------
. Redacted By
WashbooklCosts 0 0
-'----- --" ------ - ----
Explanatory P&L (in $1000s):
Name Total Dirctl)1 Tranche Carry IR Nrr Adiust FX
Redacted By
90seCOD
Redacted By
CONFIDENTIAL TREATMENT REQUESTED BY
. I D .. nQr-AN C":HA!>E & CO.
Redacted by t h ~ p.
Subco' ermanent
. n:tmlttee on Invt.Sfigations
-
JPM-CIOPSI0016488
SOVXO
CDX IG 83.5 ."1.5
CDX HY 100 -0.063
LCDX102
The roll period creates distortions in prices that impact us. The hit'comes mostly from the rally in credit market
where the series 9 bQth ltraxx.Main and CDX.IG lag. 'The book does not have enough CS01 to balance this lag:
as .the breakdown shows the book loses a lot ofinoney on directional ($10SM) while it is long risk in CDXIG
credit and short fisk in CDX.HY and iTraxxXover credit. Yet, we estimate the gain on decompression as $30M
in.Europe and $30M in the US while the series 9 lag versus the market is of 1-2bps or $100M. The net result is
a loss of $40M and we must expect more to come until investors opt to profit from the ongoing lag in those
. series 9.' .
As of today, reConstructing the CDXIG9 lOyr performance 'from the on the run indices and the 4 widest names
in CDXIG9 (Radian, MBIA, Istar,Sprint), the underperformiulce of the CDX.IG9 curVes is between 6bps to 13
bps, which amount approximately to $4S0-S00M for the sale CPXIG9 series. iTraxx.Main S9 is also lagging
by 3-4 bps or another $ 6 0 ~ 8 0 M . Added to this the CDXHY loss of $10011 for Kodak and Rescap, plus the lag
. ofthe CDXHYlO-CDX.HY11 series versus the on-the-runs that is also $1 00-200M, the lag in P&L is material
($600-800M). As to the potentialoutperformance, it is much more a function of whether some names default
and which One will default. We estimate the carry daily to be $lM while it may not show as it is stored in the
ability of the forward spreads to 'roll down" the curve. So far they did but at a much'lower pace than the on the
run indices-rally : both in CDXIG, iTraxx.Main and CDXHY. curves: in 10 space, the long term forward
rolled down slower than the market d.e. short t= spreads outperformed) while in CDX.HY, it is the opposite,
i.e. long term spreads oUtperform short term spreads. This can be explained by the recovery in CDX.IG space
while RES CAP and KODAK failed in CDXHY space. .
The CDX.iIY bucket is now protected against any default and the cost of buying the protection is covered with '
selling protection in CDX.IG on the run indices. We sold more protection today in CDXIG and iTraxx.Mliin in
order to improve the carry and the recovery of the book looking forward. .
Again, a lot of prices are still being framed and we are' providing our best estimate.
J.P. MORGAN CHASE& co. JPM-CIO-PSI0016489
From:
Sent:
To: .
cc:
Oaikhiena. lsi <[email protected]>
Tue, 20 Mar 2012 20:40:57 GMT
EOD Credit estimate <EOn [email protected]>
CIO P&L Team <eIO ]&L
Subject: International Credit P&L 20-Mar-2012
trategic
actical
Total Core
. Investments
.MTM Credit P&L as at
Europe High Grade
US High Gr.ade
US High Yield
US ABX and T ABX
Europe Sub Fin
' lR Hedges
New Investments
Total Strategic
Core Tactical
Tactica12
Credit Single Names
MTMCLO
MTMABS
Investment Equity
ABSCDS
20/03/2012
usc OOO's
Daily Est. MTD aTD YTD
Redacted By
-41,621 -275.425
Redacted By
-41,814 -35,852 -222,885
Redacted By
JPM-CIO-PSI0019484
EXHIBIT #16b
Total Investments
anagement
otj1llntemational Credit:
trategic
Tactical
otalCore .
InveStments
. TRR Credit P&L as at
Europe High Grade
US High Grade
US High Yield
US ABX and T ABX .
Europe Sub Fin
IR Hedges
New 1 nvestme nts
.Total Strategic
Tactical 1
Tactical 2
Credit Single Names
MTMCLO
MTMABS
Investment Equny
ABS CDS
AFS ABS (TRR)
AFS CLO (TRR)
J.P, MORGAN CHASE & CO,
Redacted By
Permanent Snbcommittee on Investigations
-41,595 -21.584 -86,205 -86.20
20/03/2012
USD oOO' s
D.aily Est. MTD QlO YTO
Redacted By
Per manent Subcommittee on Investigations
39,686 -41,621 275,425 . 2 7 5 , 4 2 ~
Redacted By
. Permanent Subcommittee on Investigations
! ..
-41,814 35,652 222,665
Redacted By
JPMCIOPSI001.9485
Redacted By
Total Investments
Management
otallntemational Credit: -41,595 -21,584 -86,205 -86,205
CREDIT MARKET COMMENTARY
Synthetic Credit
The roll period creates distortions in prices that impact us. The hit comes mostly from the rally in credit market where the se(ies 9 both Itraxx.Main and COX.IG
lag. The book does not !lave enough CSOl to balance this lag: as the breakdown shows the loses -a lot of money on directional ($10SM) while it is long risk
in COX.lG credit and short risk in COX.HY and iTraxx.Xover credit Yet, we estimate the gain on decompression as $30M in Europe.and $30M in the US while the
series 9 lag versus the market Is of 1-2bps or $l00M. The net result is a loss of $40M and we must expect more to come until investors opt to profit from the
ongoing lag in. those series 9 ..
. As of today, reconstructing the COX.IG9 lOyr performance from the on the run indices and the 4 widest names in CDX.IG9 (Radian, MBIA, Istar, Sprint),
of the CDX.IG9 curves is between 6bps to 13 bps, which amount approximately to $4S0-500M for the sole COX.IG9 series. 59 is _
also lagging by 3-4 bps or another $60-80M. Added to thi:; the CDX.HY of $10DM for Kodak and Rescap, plus the lag of the series versus
the on-the-runs that is also $lOO-200M, the lag in P&L is material {$600-800M).As to the potential outperformance, it is much more a function of whether some
nar:nes default which one wi ll default. We estimate the carrY daily to be $lM while it may not show as it is stored in the ability of the forward spreads to "roll
down" the curve. 50 far they did butat a much .lower pace than the on the run indices rally: both in CDX.IG, iTraxx.Main and CDX,HY curves: in IG space, the
long term forward rolled down slower than the market (i.e. short term spreads outperformed) while in CDX.HY, it is the opposite, i.e. long term spreads
. outperform short term spreads. This can be explained by the recovery in COX.IG space while RESCAP and KODAK failed in COX.HY space.
The CDX.HY bucket is now protected against any default and the cost of buying the protection is covered with selling protection in CDX.IG on the f\ln indices. We
sold more protection today in CDX.IG and iTraxx.Main in.order to improve the carry and the recovery of the book looking forward.
Again, a lot of prices are still being framed and we are providing our best estimate.
Secured Credit
The market continues to trade well with mezzanine paper closing in on their. peak levels from mid-20ll and a continued shortage of senior vanilla ABS/MBS
continuing to put pressure on spreads. We continue to receive healthy amortisations across the assetdasses .
. CONFIDENTIALTREATMENT REQUESTED BY
J.P. MORGAN CHASE & CO. JPMCIOPSI0019486
March 20, 2012
Date:
mh\fT Transcript of Call # JPM-CIO-A 00000055
March 20,.2012
Time: 16:09:36 -16:31:56
Participants: Martin-Artajo and Iksil
Iksil Hello.
Martin-Artajo Hi Bruno.
Iksil Yea. Hi Javier.
Martin-Artajo Hello man.
Iksil Yea so, yea we sent an estimate down 40 million today.
Martin-Artajo Yea. Why did you do that?
Iksil Because you know, it was, we actually did not recover what we)e gaining on
decompression we are making like 50, 60 million on decompression and we
losing [inaudible] in this lag and--
Martin-Artajo Okay, okay, I just don't want you to do this, I don't know why you've done it
anyway you've done it, so that's it. I don't know why, anyway, you should have
told me this because it doesn't help us for the conversation for tomorrow
Iksil Yea but I thought that because you have discussed already, you know, I thought
should actually you know, not do like minus, minus 5 every day but just say
boom you know there is, there is something happening, it's the roll date
(overlapping voices) --
Martin-Artajo Okay, okay listen you've done it. 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. I've already said what
the problem is, so okay they know they're not going to be surprised we have a.
meeting tomorrow it's just that um--
Iksil I know it's embarrassing but--

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March 20, 2012
Martin-Artajo
I Iksil
Martin -Artajo
Iksil
Martin-Artaj.o
Iksil
Martin-Artajo
Iksil
Martin -Artajo
Yea I don't understand your logic mate, I just don't understand. I told Achilles,
told me that he didn't want to show the loss until we know what we)e going to
tomorrow. But it doesn't matter I know that you have a problem you want to be
peace with yourself, okay its okay Bruno. I've, it's alright I know that you're in
hard position here, because, you know
I can tell you howl got there. You know, I work with Julien that's why we are
there and, you know, what we've' tried to do is to say okay you know for month's
end, we want to fight, where are we you know, so and you know really, really, if
we want to just be realistic as to what we can expect to do, I wanted to show like
upfront, precisely before what we discuss, you know, what it's going to look like
that you know if we expect potentially to lose 100, 200 million it's because from
where we are today, right, we will fail to bring back one basis point here, a
crossover point in high yield there. It's just that, you see, just
No, no, no, it's okay, it's everywhere I know. I've sent you, I've sent you a
there to illustrate what the problem is. I don't know if you've read it, but it just
highlights the whole conversation we've had. Okay--
Yea, okay.
Urn, it basically says the following, it basically says that we've reduced
enormously the volatility of the book, the VaR and the stress VaR and the CRM,
okay? Now the problem that we have is that we've increased IRC because
the extra long lets say okay
Yes, yes [ inaudible], right?
Yes.
Yes, I saw it yes.
So the problem that we have ffem..with this, ok, is that, the problem that we have
from this is that really it just shows the problem, this spreadsheet just shows the
problem. It shows 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 okay? The only guy that has
been able to understand a little bit is the new guy, this Venkat guy. He ",..,i",."tg",,j<,,
what the problem is okay. He knows that this book, we need to keep doing what

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Aew,.ug 98677Cl46'.<.:>
PRODUc;E,DATJCM:c:'i) 0.0034138,
March 20, 2012
we're doing. It's just that we need to get rid of the CRM by externalizing the
which is what the investment bank needs to do and then at some point we need
time the extra long, okay, which means that, you know, we can keep the long
it gets very, very tight or, or you do what the investment bank does is that
IG and you go long high yield and then you get the benefit of that because
to be the problem that the CRM has, okay. It happens to be capital for free.
that's what the, that's what the investment bank has done if you think about it
The investment bank has the short as the overlay okay, let's put it the hedges,
So our hedges are kind of !Llong according to the model that these guys use
You follow me?
lksil No, no. I know, I know you see but that's why I tried sending this P&L I sent
the comments it came from Julien but I wrote it, where I said okay you know we
take this loss, we are mountaining maintaining long risk where we have to be,
rally is on IG but guess what you know it's lagging so much that actually we
to show loss, and I explained that this is a lag that keeps goinrS' that amounts to a
potential of 800 bucks, right, that. that --
Martin-Artajo What are you saying Bruno? What are you talking about? What is, you're
your mind here, man, why did, you're sending an email that you would get, what
this 800 bucks?
Iksil It's just the lag that we have in IG, H-in high yield, in rnain that is all over the
book that makes that this book is just bleeding m-the money but it's just the lag,
that's just the lag.
Martin -Artajo Okay but this is jtIst what we need to explain tomorrow you don't need to
in the email man.
Iksil Yea but I had to put the comment on this big move, I thought, I thought that was,
that was a way to, to, to show what's happening on a day like --
Martin-Artajo Yea but why do you do it today when we are going to explain it tomorrow.
Anyway, listen you've done it okay I don't know man, I've been, I don't know
you didn't tell me when I was there I don't know why, why.
Iksil Because, because, because that's, that's what we saw today, you know we've
everything, we've run though all the runs, all the prices, all the way we should--
Martin-Artajo I know Bruno but listen mate, listen the problem that, okay it's fme you've done
carmot really tell you, you know, not to do this, you've done it because you feel

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OFTRANSCRIPT 00G:l482. -JPM..CI0lXlO348!l
March 20, 2012
you have to do it, that's okay. What I don't understand at all is why are you
explaining this, this way on the email? Why don't you explain it tomorrow when
Ina is there and we have, because this only, this onl): creates, it just creates more
tension you understand? It's not going to help me here as much, right? Because
then tomorrow I'm going to say look you know this is. What happens if she tells
me that we cannot keep going long? J just don't, no it's not a big deal,
okay 40 million, to be honest is not a big deal, it's not a problem, okay so
don't, okay, I don't know, I'm just, I'm just tired, man, I I don't know what
You know we are really getting into something that the
okay, and you know they just do. They just have it because they have the oPTJOsite
position here because they have optimized their modeL right?'-so they've
optimized this model and now we're going to have to challenge them not only in
the market but on the model side, because otherwise, you know, otherwise, we're
going to have to trade at some point you know, and that's what I, that's what 1--
Iksil Jt.:& That's what you fear.
Martin-Artajo Sorry?
Iksil That's w.s..what you fear, right? That at some stage we are in a corner because
one wants to go on with this challenge with the IB, yes?
Martin-Artajo No, I don't know Bruno, you're logic sometimes, let's talk tomorrow because
have all morning to prepare for this okay? I, listen man, I, I don't know, I know
that you're doing your job, you're trying your best, okay, so, ):ou know, I don't
think you mean, you know, I just sometimes don't connect with you, I don't
I just don't know how to explain this.
Iksil Yea it's difficult because you know the thing is we're on the desk and we're
looking at it you know and everything and I said you know it's like there were 4
basis points missing on IG 9 or 4 basis points missing on [iBliUdible] S9 so we try
to you know--
Martin-Artajo Okay, okay, oGkay man, this is, this is okay, I wish I had, sorry about I didn't
your call. I urn- .
Iksil No, I tried, I waited, I waited. I sent you an SMS because I thought you would
know receive it on you blackberry before everything, but you know and we kept
looking for it, and I tried and tried, and I'm not fooled by that you know it's just
that, I have to, I don't know I thought, I thought that was, that was not realistic

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March 20, 2012
know what we were doing, and urn, and I said probably I was wrong you know,
thought that it was this estimate before tomorrow, you know, was the way to,
because I know Ina is going to read the comments, so maybe it will leave some
time, and she will have different questions, or I don't know, because usually
we discuss you know we're really short and squeezed and I wanted to say these
things before we actually, I actually have to explain the whole thing, but in
summary that's what we, we discussed today right, that it's just a mark to market
noise, that's um. So that, I don't know, probably I the mistake
but that, it's one mistake for:ffee another here, because if I don't--
Martin-Artajo No, no, no, man, no man.
Iksil I think I do a worst one, you know so. It's sort of my logic is strange
fact I have to choose between one bad thing and one thing that I think was mn.rOPL "
Martin-Artajo Yea no I, listen I'm not going to, I'm not going to sugar coat things, you know. I
don't know if you're thinking that you, you know I'm just trying to do this the
possible way, man, okay so, I'm trying to get all the facts in front of Achilles and
Ina, the fact that we show a loss here it's okay it's not, it is a problem, you know
I've already told her that there's a problem, so, you know, I've already told her,
you know we're going to sit down tomorrow and talk about the CRM and
going to talk about the problems. You know I've sent you an email on what she
wants to discuss tomorrow she wants'to see the changes in the book okay so you
need to make sure Julien does that.
Iksil It, I was working on it.
Martin-Artajo Okay. Thank you for thatman, I am, I know, I've been, I'm working on this
deal that I need to get done for the OOek-for the book, for the secured credit
It's just that I um, shit, I wish, I don't know, just explained this a little bit better
because what happens is that you know, I think that, it's nor here nor there,
highlights that there are problems in the book. You know in that sense I
what you're saying. The problem tllitt-I have is that I wish that um, because I
think that what+_happens-here, what's happening here it'ss just the investment
bank that we have in front of us is doing things I mean, this, the call that I had
today you know when Anil Pinto 1.ilcalled I know that they have a problem
okay. So the more we recognize that we have a problem okay. &rtIhe more we
you recognize that Vie have Ii problem okery', it's, the more you reeognize the
it is to settle with the JB at a better price if that what's going to happen. You
understand what I'm saying?

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March 20, 2012
Iksil Yea, yea because we settle the P &L at a level where we acknowledge more and
more and more, which means that it's more and more acceptable, and therefore
more and more [inaudible] iS9Uesdifficult to refuse. That's the way I understand
that, yes.
I Martin-Artajo Yes, so in a way, what happens is that, imagine
they say we need to settle with the IB, okay. If there is a chance, I'm saying I
it's a, I don't know, a 15 percent, 25 percent chance because we are over the
here, okay. Listen to me tomorrow we '11 go through this, but I don't know you
probably are tired now. But 25 percent chance, why? Because we are over the
capital right and we have a loss here that is, it's not a dramatic loss, okay. It's a
loss that you know that we can take and we-eaB:-get out because the books are so
big now in terms ofP&L that you know, you know if I take the other side
and say, if you are Achilles, if Achilles is going to decide on this okay, he would
say okay let's get out of the trade and settle with the IB and whatever it is right?
You follow me?
Iksil Yes, yes.
Martin-Artajo So, Q.,J'ou know there is a chance that this happens and they say okay stop this,
we're going to stop this, they call the investment bank and they settle this okay,
they settle the delta difference that we need and the CRM that we need to
externalize okay. There is a chance that this happen, I'm not saying it'sthis-is
to happen Bruno I'm just telling you that this could happen. So let's sit down
tomorrow to discuss because I want to see all the, all the scenarios that we need
discuss, the other scenario that we need to discuss is how, what is the trade that
puts us back inside the capital right, inside the 36 billion. Well, it's very easy to
now because all you need to do is reduce the, reduce the extra delta that Pat has
his book by a third, right? A little bit more than a third, a little bit more than a
third. You follow me?
Iksi1 Yes.
Martin-Artajo You understand what I'm saying?
Iksil Yes, yes, yes, yes.
Martin-Artajo Okay so, you know it could be that they say okay well let's reduce the extra
i.e. the long in G--investment grade by a third, which means that we need to rprll1',,s'" i-.. -.... - ...... ---.. .... - .. -, .. --- .... -.. -"' .. ----.. " ....
the extra delta that we have by, I don't know, the number could be .... I don't

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March 20, 2012
Iksil
Martin-Artajo
Iksil
I
Martin-Artajo
billion, okay? 6 billion, okay? And then we're inside the capital nowal:ld we,
and I, don't want that, because, because we don't because we've decided
what we want to do. But I'm just giving you all the, we need to discuss this
tomorrow, it's not the right time, okay you've sent the email Ina's going to see
she's not going to be surprised by the loss because I've discussed it with her. She
will send me an email, and Achilles tonight, so we-'H-lwill have to answer this
email you see. So, so anyway, you've just created something I need to return,
respond that's all. That's why I'm telling you. Ijust want you to know that this
what's going to happen so you know, it's a consequence that maybe I could have
avoided but it's unavoidable tomorrow, because we need to, we need to explain
what are the options that we have, and when we explain the optionswe're going
say okay, what are the options here? The options are settle with the ..
not settle with the -lB-investment bank but then we have to time the exit
book so, you know, and that's, so they give us extra capital for let's
two, right? And then, you know, you know, then other things happen. I
think that, I think, you know, I think we have to be honest with what we do here,
that's going to be our issue. It's not going to amount to $40 million I agree with
you so I don't think this is an issue, but I wish I could have discussed it with you.
So thank you for urn, thank you for urn, for the work. I don't know man. I know
that you're late in the office and you should go and rest, and we'll talk tomorrow.
Okay, okay.
Everything else, everything else okay? You tired, you okay, man, you tired, are
sleeping well?
No it's, no it's relatively okay because you know again, L..,the discussion withY
Achilles you know I ili!ill.tried again the question I have, do I miss something? Did.. ..
I miss something? And I did feel, you know, unsettled by his questions, you know,Y
and I just think that, I agree with you it's really a question of perfeetioIl:perception,
and yea probably I should not have done that it's just that you know that, that's the) ..
situation still I thought that that would be you know a way to start the
discussion--
Okay, it's not here nor there, okay I'm just saying it's, I don't know.
discuss it with you, because urn, I didn't, I didn't want to show the P&L and
Achilles told me yesterday not to do it. So, okay, so we're just going to have to
explain that this is getting worse, that's it. Okay, alright man -- Sorry?
I Iksil No I said sorry for that, it's just that, yea, I in any case I (inaudible) Of feel bad .
..
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CONFIDENTIALTREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI-H 0006398
March 20, 2012
do that I know I'm not making your life any easier, and if --
I Martin-Artajo No, no, no, you know I,think that you're an honest guy, you know, it's just that,
did not want you to do this way, but you know you feel that the bid offer spreads
are giving you a headache, and you want to release it this way, which is your
way of doing it, and it'sfair, it's fair, it's fair. I don't want you to-- Sorry?
Iksil The thing is you know today, I said I told Julien you know okay let's try to
this you know, this P&L estimate whatever it's going to be, right, so that with
tomorrow, whatever the decision made. right, whether we settle or we decide to
fight, you know like we go long and then we are going to defend the position on
IG, on 9, on H-high yield you know, try to do the minimum size everywhere
know so that the book a little bit but not too much, so that we are, you
know, we maintain knowledge the level where we are, and [inaudible] we aren't
too far off. I thought sa-w-that tomorrow, at one stage, after, before at one stage
later, I would show you, you know what the plan can be, where, how many basis
points here and there we are chasing and what size we can expect to do, right?
I realize!! we were, we were, we had to get closer to where the market is even
market is wrong, you see? Because, because that's where we start, you know,
also, I want to avoid you know a second stage where I say something and you
know, I don't, I cannot deliver because then you know there will be a lot of
questions and doubts, and I didn't see you know we are close enough to where
market is it may move you know, I'm aware of that, so we didn't want to show
something, like. The number I search, you know, is the result of where I
you know, we could take a reference. So that whatever ---
Martin-Artajo Okay Bruno, no, no, no, it's fine, okay, I see what you're going through, okay I
think you're going through your own logic here to explain it, and there is, ==::..=,
you know, I think you have a reasonable way of explaining this, I urn, you know,
would have been okay. I wish I discussed it with you, but that's, that's done,
You've done it, it's ihaHr-fine, and this is what you believe and I'm sure you
you know, we'll sit down tomorrow and we'll look at the spreadsheet. I'm sure
you've done some numbers that make sense and you that think this is a part of
something that you can't recover and there fortherefore you've released, and you
know, I know what you're doing and you're signaling here that there is a
I've already said it, Achilles knows it, and loa knows it, and you're saying now
so, okay, I truly don't have a lot to say now because we have so much to speak
tomorrow, I mean we have a long day tomorrow. So I, I hope, you know. Let's
and relax a little bit if you can, and let's start tomorrow, and we'll start again,
because this is not going to be, you know, there's not a lot we can do on the

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March 20, 2012
Iksil
Martin-Artajo
Iksil
now and you know I want you to be fresh tomorrow too. So I, I, thank you for at
least letting me know and calling me, and I'll see you tomorrow, okay?
Okay, okay.
Okay man. Bye.
Bye.

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Acti' ... US
R.EVISED VERSION OF TRANSCRIPT PRODUCED AT JPM-CIO 0003482 JPM-CIO 0003488
"" _. a _ , ___ _
From: . Grout, Julien G <[email protected]>
Sent: Thu, 22 Mar 2012 17:46:07 GMT
To: CIO ESTIMATED P&L <CIO _CREDIT_P&[email protected]>
. CC: CIO P&L Team <CIO_P&[email protected]>
Subject: CIO Core Credit P&L Predict [22 Mar]: +$82k (dly) -$276,990k (ytd)
Daily P&L: $82,141
YTD P&L: -$276,990,321
Daily P&L($) YTD P&L($).
Redacted By
Europe High Grade 124,436,937
Redacted By
Redacted By
US High Grade -82,388,848409,065,325
Redacted By
US HY &LCDX 94,962,354 -347,851,042
---------"
Redacted By
EXHIBIT #18
CONFIDENTIAL TREATMENT REQUEST ... ---------...
J.P. MORGAN CHASE & CO. JPM-CIO-PSI0016499
; :'
Redacted By
US ABX / TABX -155 -21,008
Redacted By
New Investments -20,633,978 -461,330,052
Redacted By
. ". :
Dead Books (Core) -13 2,017
Redacted By
WashbookiCosts
4- - --- - - - -- ----- ."
I .... r. by the I
:)UOcommHtee on investigations t
--. .. p- .....
Explanatory P&L (in $1000s):
Name Total Dirctnl Tranche Carry IR. NIT Adjust FX
..
Redacted By
Close COD
. . Redacted By
.. ...t.'
Redacted By
Another day of weakness triggered by negative news from China overnight, a very poor set ofPMI in Europe ..
The market feels shaky here, with European financials, iTraxx..Xover and CDX.IG underperforming.
Volatilities are higher by about +4pt across the board, but there was no flattening of index curves -some market
players were actually marking curves a tad steeper, on the off the run series (S9, IG9). No obvious theme in
tranches today - equity tranches were steeper again, in CDX.IG, but slightly flatter in iTraxx.
The behaviour of the book was close to what happened yesterday - the book is making money thanks to the
decompression trades in Europe and in the US (our shorts in CDX.HY, S14,15,16, 17 widened), with gains
to $80M. Again, the book is getting hurt with losses in index forward spreads in S9 and IG9, and in
tranches (weaker CDX.HY equity and mezzanine tranches, steeper IG9 equity tranches).
Today we sold protection in the following index: iTraxx.Main (S.6SB), CDX.IG (3.9SB)
and FINSUB (100M). Beside providing carry, these trades should reduce the VaR, but increase the IRC. We are
pausing in our sale of protection, to see what the overall impact on capital numbers is going to be. .
Again, a lot of prices are still being framed and we are providing our best estimate.
J.P. MORGAN CHASE & CO. JPM-CIO-PSI 0016501
From: Goldman
l
Irvin J
Sent: Thu
t
22 Mar 201219:53:19 GMT
To: Weiland, Peter <[email protected]>
Subject: RE: I would like to understand the increase in positions in credit
Ina is freaking - really! call me
----Original Message----
From: Weiland, Peter .
Sent: March 22, 2012 03:26 PM Eastern Standard Time
To: Goldman, Irvin J
Subject: FW: I would like to understand the increase in positions in credit
Here is my best eStimate.
Delta-adjusted on-the-run equivalent position increased from $918 to $122B, up 34%, same pct as csOL. CSW 10% and 50%
only went up 11-13%. So my estimate would be somewhere in' between but on the high side. I would say IRC increases from
$18.756 to about $268, which would take t6tal RWA to $528.
Starting with the $45B we discussed the other day:
Assuming that the CRM didn't change because most of the activity has NOT been in tranches, I got index position changes
from George:
21-Mar-12
COXIG
ITRAXXMN
Combined T alai
Diff
COX IG
Notional Deleta OTR Spr01 Spr+10% Up500/0
qv os
52,127,750,005 86,961,565,781 -39,871,740 -431,420,257 -2,114,101,859
". .. _ .. _ .. _ -231,638,821 -1,139,079,866
, . _ _ :-_
27,663,000,000 22,670,658,318. -10,374,650 -55,572.802 -280.773.456
EXHIBIT #19
Confidential Treatment Requested by .. ____________ ..
JPM-CIO-PSI 0000410.
Notional DelEta Ad
p
j
OTR Spr01 Spr+10% Up50%
qv os
24,444,750,005 64,290,907,463 -29,497,090 -375,847,455 -1,833,328,404
38,911,775,000 27,038,375,317 -15,606,769 -217,261,857 -1, OO(),582
07-Mar-12
CDXIG
ITRAXXMN
Combined Total :.':.'. ,;: ""'.
Peter Weiland
Tel: +1 2128345549
Mob:+1914_
From: Drew, Ina
.sent: Thursday, March 22, 2012 2:00 PM
To: Weiland, Peter; Goldman, Irvin J
Subcommittee on Investigptions
Subject: I would lik!; to understand the increase in positions in credit
Since our meeting yesterday and what the RWA implications are.
Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI0000411
Confidential Treabnent Requested By
JPMORC3AN CHASE & CO.
JPM-CIO 0000419
JPM-CIO-PSI0000412
:',From: ADE ADETAYO <AADETAY01@
Sent: Fri, 23 Mar 2012 16:35:37 GMT
....;.... Redacted by the Permanent
.subcommittee on Investigations
ADE ADETAYO <AADETAY0111 ; ADE ADETAYO
<[email protected]>; BRUNO IKSIL <BIKSIL2@1 ___ -_
BRUNO IKSIL <[email protected]> . .
To:
. Subject:
03/23/201205:17:22 ADE ADETAYO, MORGAN (J.P.) has joined the room
03/23/2012 05:17:22 ADE ADETAYO, MORGAN (J.P.)
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03/23/2012 OS:17:30 ADEADETAYO, MORGAN (J.P.) says:
hi bruno .
03/23/2012 05:17:30 BRUNO IKSIL, JPMORGAN CHASE BANK, has joined the room
03/23/2012 05:17:30 BRUNO IKSIL, JPMORGAN CHASE BANK, says:
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hello .
05:17:45 ADE ADETAYO, MORGAN (J.P.) says:
I call you
sure
03/23/2012 05:18:14 ADE ADETAYO, MORGAN (J.P.) says:
.if you are free,\
thanks, whats your number ...
03/23/.2.0.12 . 05.:.18.:3.9.BRUNO IKSIL, JPMORGAN CHASE BANK, says:
0044
03/23/201205:50:23 BRUNO IKSIL, JPMORGAN CHASE BANK, says:
javier mobile is ___
EXHIBIT #20
Confidential Treatment Requested by J, . JPM-CIO-PSI 0001240
03/23/2012 06:16:13 BRUNO IKSIL, JPMORGAN CHASE BANK{ says:
did you get Javier on the phone .
03/23/2012 06:16:15 BRUNO IKSIL{ JPMORGAN CHASE BANK{ says:
?
btw we take a big hit today
across the board
03/23/201206:16:44 BRUNO IKSIL{ JPMORGAN CHASE BANK, says:
right where we have a position .
03/23/2012 06:17:17 ADE ADETAYO
r
MORGAN .(J.P.) says:
yes I called spoke to him quickly
03/23/2012 06:17:24 ADE ADETAYO{ MORGAN (J.P.) says:
he said will call me back .
ok
. cool'
thx for that
seems people in the mkt know the position
03/23/2012 06:18:41 BRUNO IKSIL, JPMORGAN CHASE BANK{ says:
yes .
03/23/201206:18:42 BRUNO IKSIL, JPMORGAN CHAsE BANK, says:
they do
03/23/2012 06:18:56 BRUNO IKSIL
i
JPMORGAN CHASE BANK, says:
and they have a chief commander
no good
no
03/23/201206:19:45 BRUNO IKSIL{ JPMORGAN CHASE BANK, says:
usee
03/23/201206:19:55 BRUNO IKSIL, JPMORGAN CHASE BANK/ says:
u will feel less alone very soon
. .
but like u
i did not fail
03/23/2012 06:20:16 BgUNO IKSIL, JPMORGAN CHASE BANK, says:
this is not what i will be told
03/23/2012 06:20:25 BRUNO IK5IL, JPMORGAN CHASE BANK, says:
unlike you
damn
i picked the trades
so us ee
hope it turns out well for you
I really hope so
no well it is not the. end of the world
but the end of what i have done so far
03/23/2012 06:21 :20 BRUNO IKSIL, JPMORGAN CHASE BANK, says:
for sure .
03/23/201206:21:26 BRUNO IKSIL,JPMORGAN CHASE.BANK, says:
.i cannot fight
i cannot wait .
i cannot argue
03/23/20i2 06:22:51 BRUNO IKSIL, JPMORGAN CHASE BANK, says:
i may not come back on Monday
really? .
oh no
03/23/2012 06;23:04 BRUNO IKSIL, JPMORGAN CHASE BANK, says:
well
03/23/201206:23:10 BRUNO IKSIL, JPMORGAN CHASE BANK
r
says:
i will know this afternoon
03/23/201206:23:15 ADE ADETAYO, MORGAN (J.P.) says:
damn
,03/23/201206:23:25 ADE ADETAYO, MORGAN (J.P.) says:
hope goes okay "
this is a big setup i think
03/23/2012 06:23:35 ADE ADETAYO, MORGAN (J.P.) says: "
I relly hope so "
03/23/2012 06:23:40 BRUNO IKSIL, JPMORGAN CHASEBANK, says:
but i comes from the top
03/23/201206:23:56 BRUNOIKSIL, JPMORGAN CHASE BANK, says:
and there is little i can do
if they let the book roll that will be a gain in the end
but the drawdown is huge
03/23/2012 06:24:39 BRUNO IKSIL, JPMORGAN qHASE BANK, says:
a bit like the guys blowing on the super seniors "
damn, so sorry to hear this
03/23/201206:26:23 BRUNO IKSIL,JPMORGAN CHASE BANK, says:
ah it could be worse "
I could have doe a bad trade "
u know some real big mistake
i did not
but u know how it is
03/23/201206:26:49 BRUNO IKSIl, JPMORGAN CHASE BANK, says:
once the loss is there
"03/23/2012 06:26:58 BRUNO IKSIL, JPMORGAN CHASE BANK, says: "
good trades look like very abd trades
and this is where all this stops
i am not so much at loss
03/23/2012 06:27:21 BRUNO 1KS1L, JPMORGAN CHASE BANK, says:
net net
03/23/201206:27:28 BRUNO 1KS1L, JPMORGAN CHASE BANK, says:
if they just freeze the book
that will be a gain
but the damage to me is irreversible
03/23/2012 06:27:52 BRUNO 1KS1L, JPMORGAN CHASE BANK[ says:
and that was the. aim i think
it is flattering to see all these guys devoting so much energy to that aim
the pain for me is sam as for you
to distance myself from wat ketp alive for so many years
and to keep a positive memory of all this
ie not giving too much importance to today's events
wow
so sad this is happening
it had to happe .
03/23/2012 06:31:08 BRUNO 1KSIL, JPMORGAN CHASE BANK, says:
it started back in 2008 you see
i survived pretty well
until i was alone
03/23/2012 06:31:29 BRUNO 1KS1L, JPMORGAN CHASE BANK, says:.
to be the target
u alone now?
. you have the backing of londin right? ..
Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI 0001244
yes i mean the guys know my position because i am too big for the market
03/23/2012 06:31:59ADE ADETAYO, MORGAN (J;P.) says:
london . . .
03/23/2012 06:32:02 BRUNO I K S ~ L , JPMORGAN CHASE BANK, says:
yes
i did .
because i made a lot of money
there was no other reason
03/23/2012 06:32:21 BRUNO IKSIL, JPMOR(;AN CHASE BANK, says:
Jhis year
for the first time, achilles started thinking i could be of use other than to make money
just to protect the whole group
but here is the loss
and it becomes too large
and this is it
03/23/2012 06:33:28 ADE ADETAYO
t
MORGAN (J.P.) says: .
will he bck you? .
we realize that i am too visible
up to a point yes
good
but here this is too big an issue .
it is out of my hands already
so what happens now?
ConfidentialTreatment Requested by J.P. Morgan & Co. JPM-CIO-PSI 0001245 .
you having a meeting with Javier and Achilles
?
03/23/2012 10:20:58 ADE ADETAYO, MORGAN (J.P.) has left the room
03/23/2012 11:30:22 ADE ADETAYO, MORGAN (J.P.) has joined the room
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ANY FINANCIAL PRODUCT DISCUSSED ABOVE. CLIENTS SHOULD CONSULT THEIR ADVISORS ON
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03/23/2012 12:35:37 ADE ADETAYO, MORGAN (J.P.) has left the room
_= Redacted by the Permanent
From: JUUEN GROUT <JGROUT3@ ____
Fri, 23 Mar 2012 18:37:47 GMT
1"0:
JUUEN GROUT JUUEN GROUT <[email protected]>;
BRUNO IKSIL <BIKSIL2@. BRUNO IKSIL <[email protected]>
Subject:
03/23/2012 05:45:49 JUUEN GROUT, JPMORGAN CHASE BANK, has joined the room
03/23/2012 05:45:50 JUUEN GROUT, JPMORGAN CHASE BANK, says:
*** JPMORGAN CHASE BANK, (741671) Disclaimer: THIS IS FOR INFORMATION ONLY, NOT AN OFFER OR
SOUCITATION FOR THE PURCHASE OR SALE OF ANY FINANCIAL INSTRUMENT, NOR AN OFFICIAL
CONFIRMATION OF TERMS. THE INFORMATION IS BEUEVED TO BE RElIABLE, BUT WE DO NOT
WARRANT ITS COMPLETENESS OR ACCURACY. PRICES AND AVAILABILTIY ARE INDICATIVE ONLY' AND
IN ANY FINANCIAL INSTRUMENT DISCUSSED HEREIN. CUENTS SHOULD CONSULT THEIR OWN
ADVISORS REGARDING ANY TAX, ACCOUNTING OR LEGAL ASPECTS OF THIS INFORMATION AND
EXECUTE TRANSACTIONS THROUGH A J.P. MORGAN ENTITY IN THEIR HOME JURISDICTION UNLESS
GOVERNING LAW PERMITS OTHERWISE.
bruno' ,
03/23/201205:45:54 BRUNO IKSIL, JPMORGAN CHASEBANK, has joined the room
03/23/2012 05:45:54 BRUNO IKSIL, JPMORGAN CHASE BANK, says:' , '
JPMORGAN CHASE BANK, (748320) Disclaimer: THIS IS FOR INFORMATION ONLY, NOT AN OFFER OR
SOUCITATION FOR THE PURCHASE OR SALE OF ANY FINANCIAL INSTRUMENT, NOR AN OFFICIAL
'ONFIRMATION OF TERMS. THE INFORMATION IS BEUEVED TO BE RElIABLE, BUT WE DO NOT
.JARRANT ITS COMPLETENESS OR ACCURACY. PRICES AND AVAILABILTIY ARE INDICATIVE ONLY AND
IN ANY FINANCIAL INSTRUMENT DISCUSSED HEREIN. CUENTS SHOULD CONSULT THEIR OWN
REGARDING ANY TAX, ACCOUNTING OR LEGAL ASPECTS OF THIS INFORMATION AND
TRANSACTIONS THROUGH AJ.P. MORGAN ENTITY IN THEIR HOME JURISDICTION UNLESS
GOVERNING LAW PERMITS OTHERWISE .
. .... .'
salut
, salut
c mort la '
03/23/2012 05:46:28 JUUEN GROUT, JPMORGAN CHASE BANK, says: ,
david de CS appoelle au sujet des skew trades. je lui demande un prix ferme sur indice vs single names?
0:3/23/2012 05:46:32 JUUEN GROUT, JPMORGAN CHASE BANK, says:
coupons matched etc
" '1. .
7"'-<,
. ;\'
'1,3/23/2012 05:46:42 BRUNO IKSIL, JPMORGAN CHASE BANK, says:
pUi
... ..
.. '
EXHffiIT#21
JPM-CIO 00Q3515
'""'. n..n nr-.I u nnneA?O
r,
E-MAIL TRANSLATION
JPM-CIO 00035Z7
From: JULTEN GROUT <JGROUT3@1
Sent: Fri., 23 Mai 201,2 18:37 :47 GMT .
- == Redacted by the Permanent
. To: JULTEN GROUT <JGROUT3
<j ulien [email protected]>;
IKSIL <[email protected]>
Subject
BRUNO
03/23/20]205:45:49 JULIEN GROUT, JPMORGAN CHASE BAN.K, has joined the room
03/23/201205:45:50 JULIEN GROUT, JPMORGAN CHASE BANK, says:
*** JPMORGAN CHASE BANK, (741671) Disclaimer: TIllS IS FOR INFORMATION ONLY, NOT
AN OFFER OR SOLICITATION FOR THE PURCHASE OR SALE OF ANY FINANCIAL .
INSTRUMENT, NOR AN OFFICIAL CONFIRMATION OF TERMS. THE INFORMATION IS
BELIEVED TO BE RELIABLE, BUT WE DO NOT WARRANT ITS COMPLETENESS OR
ACCURACY PRICES AND AVAILABILITY ARE INDICATIVE. ONLY AND ARE SUBJECT TO
. CHANGE WITHOUT NOTICE. WE MA Y HOLD A POSITION OR ACT AS A MARKET MAKER
IN ANY FINANCIAL INSTRUMENT DISCUSSED HEREIN. CLIENTS SHOULD CONSULT
. THEIR OWN ADVISORS REGARDING ANY TAX; ACCOUNTING OR LEGAL ASPECTS OF
THIS INFORMATION AND EXECUTE TRANSACTIONS THROUGH A IP. MORGAN ENTITY
IN THEIR HOME JURISDICTION UNLESS GOVERNING LAW PERMITS OTHERWISE.
03/23/20 }205:45 :54 JULIEN GROUT, JPMORGAN CHASE BANK, says:
bruno .
03/23/20 1205:4554 BRUNO IKSIL, JPMORGAN CHASE BANK, has joined the room
03/23120 1205 :4554 BRUNO IKSIL, JPMQRGAN CHASE BANK, says
*** JPMORGAN CHASE BANK, (748320) Disclaimer: TIllS IS FOR INFORMATION ONLY, NOT
AN OFFER OR SOLICITATION FOR THE PURCHASE OR SALE OF ANY FINANCIAL
INSTRUMENT,NOR AN OFFlCIAL CONFIRMATION OF TERMS. THE INFORMATION IS
BELIEVED TO BE RELIABLE, BUT WE DO NOT WARRANT ITS COMPLETENESS OR
ACCURACY. PRICES AND AVAILABILITY ARE INDICATIVE ONLY AND ARE SUBJECT TO
CHANGE WITHOUT NOTICE. WE MAY HOLD A POSmON OR ACT AS A MARKET MAKER
IN ANY FINANCIAL INSTRUMENT DISCUSSED HEREIN. CLIENTS SHOULD CONSULT
THEIR OWN ADVISORS REGARDING ANY TAX, ACCOUNTING OR LEGAL ASPECTS OF
THIS INFORMATION AND EXECUTE TRANSACTIONS THROUGH A IP. MORGAN ENTITY
IN THEIR HOME JURISDICTION UNLESS GOVERNING LAW PERMITS OTHERWISE.
salut
hi
031231201205:46:01 JULTEN GROUT, JPMORGAN CHASE BANK, says:
salut
hi
03/23120 1205:4603 BRUNO IKSIL, JPMORGAN CHASE BANK, says:
c mortla
it is over/it is hopeless now
david de CS appoelle au Sujet des skew trades. je lui demande un prix ferme sur indice vs single names?
David from CS calls about skew trades. I ask him a fum price on index vs single names?
Q3/231201 205:46:32 JULIEN GROUT, JPMORGAN CHASE BANK, says: .
by JPMORGAN CHASE & CO,
Draft Transcript. Subject to Review and Correction
Likely Contains Ertors
JPMCIO 0003528
coupons matched etc
. coupons matched etc
0312312012054633 JULIEN GROUT, JPMORGAN CHASE BANK., says:
?
?
031231201205:46:42 BRUNO IKSIL, JPMORGAN CHASE BANK, says:
oui
yes
03123120 1205: 46: 46 BRUNO IKSIL, JPMORGAN CHASE BANK, says:
c un full upfront
it is a full upfront
031231201205:46:54 JULIEN GROUT, JPMORGAN CHASE BANK., says:
ok understood
ok understood
031231201205:48: 11 JULIEN GROUT, JPMORGAN CHASE BANK, says:
pour revenir a ton premier point .
to get back to our ftrst point
031231201205:48: 14 BRUNO IKSIL, JPMORGAN CHASE BANK, says:
continue a vendre la ss
keep on selling the ss
031231201205:48 :25 BRUNO IKSIL, JPMORGAN CHASE BANK, says:
leve la 0-3 lOyr
levy/raise/exercise the 0-3 lOyr
031231201205 :48 :28 JULIEN GROUT, JPMORGAN CHASE BANK, says
on en discutera lnndi si tu veux bien,
we will talk about that on Monday if it is ftne with you
031231201205:48 :32 JULIEN GROUT, JPMORGAN CHASE BANK, says:
ok ok je continue ca
ok ok I continue that
03123/201205:48 :38 BRUNO IKSIL, JPMORGAN CHASE BANK, says:
.. OUI
yes
je te dis
I tell you
03/23/201 205:48:52 BRUNO TKSIL, JPMORGAN CHASE BANK., says
ils vont nous defoncer
they are going to trash/destroy us
.031231201205:48 :56 JULIEN GROUT, JPMORGAN CHASE BANK, says:
y a bcp a dire, mais je ne veux pas charger ta charette qui est dej a bien remplie
there is a lot to say, but I don't want to burden you more than you already are
0312312012 Q55228 BRUNO IKSlL, JPMORGAN CHASE BANK, Says
c soir tu as au moins 600m
tonight you'll have at least 600m
03123/201 2055236 BRUNO lKSIL, JPMORGAN CHASE BANK, says
BIDASK'
BID ASK
03123120 120552:40 BRUNO IKSlL, JPMORGAN CHASE BANK, says:
MID
MID
Draft Transcript - Subject to Review and Correction
Likely Contains Errors
JPM-CIO 0003529
031231201205 :52 ~ 5 1 B.RUNO TKSIL, JPMORGAN CHASE BANK, says:
BID ASK TV AS 300M AU MOINS
BID ASK YOU HAVE 300M AT LEAST
.. 03/23/201205:54: 46 JULIEN GROUT, JPMORGAN CHASE BANK, says:
tu as vu Ie run de jospehine .. attack full force.
You have seen Josephine's run .. attack full force.
03/23/2012 05: 57: 56 BRUNO IKSTL, JPMORGAN CHASE BANK, says:
OUI
yes
03/23/20120557: 59 BRUNO IKSIL, JPMORGAN CHASE BANK, says:
cpartout
it is everywhere!all over the place
03/23/20120558:04 BRUNO IKSTL; JPMORGAN CHASE BANK, says:
on est mort je te dis
we are dead I tell you
03/23/2012 05: 58 : 19 BRUNO IKSIL, JPMORGAN CHASE BANK, says:
mais bon c hors de mon controel maintenant
but then it is out of my hands now
03/23/201205: 58: 27 BRUNO TKSIL, JPMORGAN CHASE BANK, says:
j'ai fait ce qu'il fallait
. I did what I had to do
ok
ok ,
03/23/201206: 18: 11 JULIEN GROUT, JPMORGAN CHASE BANK, says
oula bnp .. .
wowbnp .. .
03/23/201207:2702 JULIEN GROUT, JPMORGAN CHASE BANK, says:
bruno!
bruno!
03/23/201207: 30: 46 BRUNO IKSTL, JPMORGAN CHASE BANK, says:
OUI
yes
03/23/201207: 31:38 JULIEN GROUT, JPMORGAN CHASE BANK, says:
l'arret du trading c nous 3 ou juste moi?
The stop of the trading, is it the 3 of us or only me ?
03123/2012 07: 31: 49 BRUNO IKSIL, JPMORGAN CHASE BANK,. says:
toi
you
03123/2012 07:31 :52 BRUNO IKSTL, JPMORGAN CHASE BANK, says:
sur core
. on core
03/23/201207:31 :52 JULIE GROUT, JPMORGAN CHASE BANK, says:
ok
ok
03/23/201207:32:05 JULIEN GROUT, JPMORGAN CHASE BANK, says
ericlluis ils peuventcontinuer, sur leUr tactical
ericlluis can go on, on their tactical
03/23/2012 07: 32: 06 BRUNO IKSIL, JPMORGAN CHASE BANK, says:
JPM-CIO 0003530
continue sur la ss les 0-3 1 A yr
go on with the ss the 0-3 1 Ayr
031231201207: 32:07 JULIEN GROUT, JPMORGAN CHASE BANK, says:
ok?
Ok?
OUl
yes
03123120 1207: 32: 27 BRUNO IKSIL, JPMORGAN CHASE BANK, says:
continue sur les 25-35 HY
go on with the 25-35 HY
03123120120732: 32 BRUNO IKSIL, JPMORGAN CHASE BANK, says:
pas les 15-25 .
not the 15-25
031231201207:32:53 JULIEN GROUT, JPMORGAN CHASE BANK, says:
ok
ok
tu pourr<l;S me donner la couleur stp? stil y en a.
will you give me the color please? if.there is some.
rien poour Ie moment
nothing for now
03123/201207: 33: 20 JULIEN GROUT, JPMORGAN CHASE BANK, says:
ok
ok
03173120120733 :28 BRUNO IKSIL, JPMORGAN CHASE BANK, says:' .
ca va se negocier avec l'IB
it will be negotiated with the IB
toutenhaut
at the top
et je vms en prendre pour mon grade
and I am going to be hauled over the coals
031231201207: 33:44 JULIEN GROUT, JPMORGAN CHASE BANK, says
today?
today?
03123/20120733:49 BRUNO IKSIL, JPMORGAN CHASE BANK, says:
mais bon on a du carry
but we have some carry
ah? cela tta ete confirmel .
ah ? it was confirmed to you? .
031231201207: 34:03 BRUNO IKSIL, JPMORGAN CHASE BANK, says:
c pas necessaire
it is not necessary
03/231201207:34:20 BRUNO IKSIL, JPMORGAN CHASE BANK, says
tu ne perds pas 500M sans conseuqences
you don't lose 500M without consequences
by JPMORGAN CHASE & co.
JPM-CIO 0003531
031231201207:34:30 BRUNO TKSIL, JPMORGAN CHASE BANK, says
garde Ie pour toi
keep it for you
ob. oui '
ohyes
03123120120734:52 BRUNO IKSIL, JPMORGAN CHASE BANK, says:
c Ie bon sens qui me elit ca
good sense tells me so
03/23120120746:55 JULIEN GROUT, JPMORGAN CHASE BANK, says:
, tua as parle a august? sinon,je lui dis de nous montrer Ie skew trade (sous Ie bon format)?
Did you talk to august? otherwise, I tell him to show us the skew trade (under the good format)?'
03/2312012074729 BRUNO IKSIL, JPMORGAN CHASE BANK, says:
OUl
yes
0312$ 12012074735 JULIEN GROUT, JPMORGAN CHASE BANK, says:
ok
ok
essaie decollecter prix fermes .
try to collect firm prices
03123/2012074 745 BRUNO IKSIL, JPMORGAN CHASE BANK, says:
je n'ai rien vu de ferme pour Ie moment
I haven't seen anything firm for now
03/231201207481 5 JULIEN GROUT, JPMORGAN CHASE BANK, says:
ok
ok
0312312012 07:56:47 JULIEN GROUT, JPMORGAN CHASE BANK, says
Bruno? tu as besoin de qqchol '
Bruno? do you need anything?
031231201208:13:16 JULIEN GROUT, JPMORGAN CHASE BANK, says
bon bruno
well bruno
031231201208: 13 :26 JULIEN GROUT, JPMORGAN CHASE BANK, says:
javier est reparti dans un conf call avec A
javier is back again in a phone call withA
0312312012081332 JULIEN GROUT, JPMORGAN CHASE BANK, says:
je n'ai pas pu lui parler
I couldn't talk to him
03123120120814 :05 BRUNO IKSIL, JPMORGAN CHASE BANK, says:
ok
ok
mais bon il n'avait pas I'ai conceme par des slidse .. plutot autre chose
but anyway he did not seem concerned by the slides .. rather something else
je vais chercher Ie dej et je reviens
I am going to get lunch and I come back
031231201208:26: 17 BRUNO IKSIL, JPMORGAN CHASE BANK, says
tu es la?
Are you here?
Likely Contains Errors .
JPM-CiO 0003532
- ---------- _ .. --- __ _ ..... "' ....... .t"Tr'"n "" I" ... nDf"'t.AAt """UI\C'C p t'-n
.IPM-CIO-PSI-H 0006455
031231201208:31:42 BRUNO IKSIL, JPMORGAN CHASE BA.NK, says:
urgent
urgent
031231201208:3349 JULIEN GROUT, JPMORGAN CHASE BA.NK, say s:
oui
yes
0312312012 085930 BRUNO IKSIL, JPMORGAN CHASE BA.NK, says:
regarde ton email
look at your email
03123120 1209:0002BRUNO IKSIL, JPMORGAN CBASE BANK., says:
essaye de retrouver les run de roman shukhman sur ig9 pour montrer qu'ils sont plus steep et mettent Ie
ig9 lOyr plus que Ie marche
try to fmd roman shukhm
lll1
's runs on ig9 in order to show that they are."more steep"/steeper and that
they put the ig9 10 yr more than the market .
031231201209:01 :36 JULIEN GROUT, JPMORGAN CHASEBA.NK, says:
bruno
bruno
03123120120902:07 BRUNO IKSIL, JPMORGAN CHASE BA.NK, says
essaie de retrouver les chat surles chat dejp ou ilsnou sniffent
. try to find the chats about the jp' s chat where they sniff us
0312312012090213 JULIEN GROUT, JPMORGAN CHASE BA.NK, says:
tu te rappelles l'rustoite de debut d'annee avec Sylvain sur Ie roll s9 5y?
do you remember the story from the beginning of the year with Sylvain on the s9 5y 1:011 ?
03123120120902:20 BRUNO IKSIL, JPMORGAN CHASE BA.NK, says:
non
no
03 123120 1209:02:26 BRUNO IKSIL, JPMORGAN CHASE BA.NK, says
c'etait koi deja?
What was it again?
03123120120902:41 JULIEN GROUT, JPMORGAN CHASE BA.NK, says
j'avais checke sylvain, et fait une gross taille de roll s9 5y
I had checked with Sylvain and done a big size of roll s9 5y
031231201209:0251 JULIEN GROUT, JPMORGAN CHASE BA.NK, says:
peux de temps apres il me dit que jpm Ie lift des sus .
shortly after he tells me that jpm lifts him from it
03/231201209:0256 BRUNO IKSIL, JPMORGAN CHASE BA.NK, says:
ahoui
ohyes
03123 120 1209:03:04 BRUNO TKSIL, JPMORGAN CHASE BA.NK, says:
iUaut Ie retrouver celui la
we need to find this one
031231201209:03 :13 JULIEN GROUT, JPMORGAN CHASE BANK, says
je 'ai, en francais maIheureusement
I have it, in French unfortunately
03123120120903 :21 BRUNO IKSIL, JPMORGAN CHASE BA.NK, says
c pas grave envoie
it does not matter, send it
03123120120903:31 JULIEN GROUT, JPMORGAN CHASE BA.NK, says
en rrecanche peux tu me rappeler ce que tu avais tradelbooke?
However could you remind me what you traded/booked ?
03123120120903 :33 BRUNO IKSIL, JPMORGAN CHASE BA.NK, says:
Draft Transcript Subject to Review and Correction
JPM-CIO 0003533
Inu I'll" DCI U nnnC::A I:c:t
achilles comprend tresbien Ie francais .
achilles understands French very well
cad?
Whlch means?
031231201209:03:48 juLIEN GROUT, JPMORGAN CHASE BANK, says:
je veux Ie timing exact
I want the exact timing
03123120 1209:03:56 BRUNO IKSIL, JPMORGAN CHASEBANK, says
de quai?
of what ?
ben des evenements
well, of the events
0312312012090416 JULIEN GROUT, JPMORGAN CHASE BANK, says
parce que si tu as deja traite du roll avant moi Iadessus
because if you have already treated some roll before me on that
0312312012090420 JULIEN GROUT, JPMORGAN CHASE BANK, says
. ca sera encore plus limpide
it will be even clearer
03123120 120904:23 JULIEN GROUT, JPMORGAN CHASE BANK, says:
tu vois?
Do you see?
je ne me souviens plus
I don't remember
ok je regarde Ie blotter
ok I look at the blotter
c queljour?
What day is it ?
ah ui ! tu as traite 250m de roll s9 avec db a 7h55 !!
oh yes! You dealt with 250m of roll s9 with db at 7h55!!
03123120120905 :29 JULIEN GROUT, JPMORGAN CHASE BANK, says
Ie 4-jan
on 4th Jan
ok
ok
03123120 1209:0618 BRUNO IKSIL, JPMORGAN CHASE BANK, says
tu as Ie chat?
Do you have the chat?
ajoute Ie
add it
avec sylvain? oui .
---- --- - - --- ..,-..... - ... ~ - --_. ---""""-- _ ... , -..... a.","""" ... """UftC'l'-t:: I) ,-..n
JPM-CIO 0003534
.IPM-CIO.PSIH 0006457
with Sylvain? yes
03123120120906:31 BRuNo IKSIL, JPMOE-GAN CHASE BANK, says:
je ne vois rien chez moi
I c a n ' ~ see anything on mine
03123120 1209:06:37 BRUNO IKSTL, JPMORGAN CHASE BANI<, says:
mais je me rappelle
but I remember
. ok apparemment tu as booke Ie trade vers 8h20 ce jour Ill, moi j'ai trade a 9h.
ok apparently you booked the trade around 8h20 this day, and I traded at 9h.
031231201209: 14 :52 BRUNO IKSIL, JPMORGAN CHASE BANK, says
cool
cool
031231201209:5007 JULIEN GROUT, JPMORGAN CHASE BANI<, says:
pour l'instant je n'ai que 5 'pieces' au dossier
for now I have only 5 documents in the file
03 1231201209:53:45 BRUNO IKSIL, JPMORGAN CHASE BANK, says:
regarde ton email
look at your email
031231201209:53:49 JULIEN GROUT, JPMORGAN CHASEBANK, says:
vu
seen
un de plus .
one more
03/231201209:54:03 BRUNO IKSIL, JPMORGAN CHASE BANK, says.
ben oui on ne va pas bosser comme si on etait parana tout Ie temps aussi
well yes, we are not going to work as if we were paranoid all the time!
6 pieces
6 documents
03/23120120956:24 BRUNO IKSIL, JPMORGAN CHASE BANK, says:.
regarde tes chats a toi avec JP guys .
look at your own chats with the JP guys
je fais Mark Shirfan
I look at Mark Shirfan
03123120 12 10:2250 JULIEN GROUT, JPMORGAN CHASE BANK, says:
vois les emails stp
look at the emails please
0312312012102314 BRUNO IKSIL, JPMORGAN CHASE BANK, says
Je VOIS
I see
la var explose
the var explodes
031231201210:2328 JULIEN GROUT, JPMORGAN CHASE BANK, says:
am
yes
JPM-CIO 0003535
cfoutu
it is over
Ie sule moyen c Ie book a zero
. the only way is the book at zero
tu peux me dire ce que t'a dit ade ce matin?
Can yon tell me what ade told you this morning?
03/23/201210:2550 BRUNO TKSIL, JPMORGAN CHASE BANK:, says
3 gars de l'ib sont venus lui demander ma taille sur ig9
3 IB guys came to ask him my size on ig9
03/23/2012 1026:08 BRUNO IKSIL, JPMORGAN CHASE BANK., says:
je ne veux pas savoir qui c
I don't want to know who it is
03/23/2012 1026: 19 BRUNO IKSIL, JPMORGAN CHASE BANK., says:
je suis sur Ie call
I am on the call
03/23/2012 10:28:01 BRUNOIKSIL, JPMORGAN CHASE BANK., says:
as tu eu des updates sur.les marginal?
Did you get the updates about the marginal?
no
no
03/23/201210:28:10 BRUNO IKSIL, JPMQRGAN CHASE BANK, says:
rwa
rwa . .
48.7
48.7
03/23/2012 10:2848 BRUNO IKSIL, JPMORGAN CHASE BANK, says:
les marginals sur Ie rwa
the marginals on the rwa
031231201210:29: 15 JULIEN GROUT, JPMORGAN CHASE BANK, says:
non rien .. en cours
no, nothing .. in progress
j'en ai besoin
I need them
03/23/201210:2939 JULIEN GROUT, JPMORGAN CHASE BANK, says
Je SalS
I know
03/23/20J 2 10:2944 JULIEN GROUT,JPMORGAN CHASE BANK, says:
je vie:t:Ls de relancer pat
I just asked Pat again
03 /23 /2012 10:29:59 BRUNO IKSIL, JPMORGAN CHASE BANK, says:
merci
thanks
03/23/201210:31: 18 JULIEN GROUT, JPMORGAN CHASE BANK, says
tu peux me faire les transcripts de david gldenberg a CS stp?
JPM-CIO 0003536
1_ ,..,.11"'\ nC'1 u nnneA.c:o
Can you please do/check david gldenberg's transcripts to CS ?
031231201210:31 :38 BRUNO IKSIL, JPMORGAN CHASE BANK, say s:
je suis sur Ie call
I am on the call
03/23/201210:3145 JULIEN GROUT, JPMORGAN CHASE BANK, says:
ok
ok
03/23/2012 10:3148 BRUNO IKSIL, JPMORGAN CHASE BANK, says:
tout est sur Ie chat de cs
everything in on cs' s chat
peux tu Ie faire.
can you do it? .
ok .
. .
03123120121057: 13 BRUNO IKSIL, JPMORGAN CHASE BANK, says:
appelle moi qd tu peux
. call me when you can
031231201211 :36: 16 JULIEN GROUT,JPMORGAN CHASE BANK, says:
tjs en ligne?
Still online?
031231201211 :3842 JULIEN GROUT, JPMORGAN CHASE BANK, says:
dis moi quand tu as pu retrouver les chats de David Goldenberg
tell me when you can find David Goldenberg's chats
0312.3 120 12 11 :3 843 JULIEN GROUT, JPMORGAN CHASE BANK, says:
stp
please
03123120 J 2 1200:09 BRUNO IKSIL, JPMORGAN CHASE BANK, says:
c sur Ie chat de cs sur 1a fm de mois
. It is on cs' s chat at the end of the month
0312312012 1200 16 BRUNO IKSIL, JPMORGAN CHASE BANK, says:
et il ya celui de citi .
and there is the citi one ,
03123120121200:28 BRUNO rKsIL, JPMORGAN CHASE BANK, says:
it fant montrer les deux en parallel
you need to show both in parallel
0312312012 120034 JULIEN GROUT, JPMORGAN CHASE BANK, says
peux tu me les envoyer stp? .
Can you send' them to me please?
031231201212:0106 BRUNO IKSIL, lPMORGAN CHASE BANK, says
ok je fqis citi
ok I do citi
. 031231201212:01 :12 BRUNO IKSIL, JPMORGAN CHASE BANK, says:
tu peux fqire cs?
Can you do cs please?
C'ETAIT SUR QUOI DEJA? LES 6B?
About what was it again? The 6B?
by JPMDRGAN CHASE & CO.
JPM-CIO 0003537
.nu ,.,n
03 123120 12 12:0440 BRDNO IKSIL, JPMORGAN CHAS;E BANK, says:
ok laisse tomber .
ok give it up
031231201212:0441 BRUNO IKSIL, JPMORGAN CHASE BANK, says
je e fais .'
I do it
desole y avait j avier j 'ai perdu Ie fI1
sorry javier was here and I lost track
03123/2012 12:04:59 BRUNO IKSIL, JPMORGAN CHASE BANK, says:
pas de pb
nopb
regarde tes email
look at your emails
03/2312012 1205: 16 BRUNO TKSn .. , JPMORGAN CHASE BANK, says:
. je faire janvier et feYrier sur credit suisse
I am going to do January and February on credit suisse
peux tu te rappeler des chats ou les traders te disaient que rIB poussait sur ig9?
Can you remember chats where the traders told you that the IB insisted on ig9?
031231201212:07:45 BRUNO TKSIL, JPMORGAN CHASE BANK, says:
non
no
03123 !201212:07:47 BRUNO IKSIL, JPMORGAN CHASE BANK, says:
aucun
none
bruno .
bruno
031231201212: i9:39 BRUNO IKSIL, JPMORGAN CHASE BANK, says:
oui
yes
031231201212: 19:46 BRUNO IKSIL, JPMORGAN CHASE BANK, says:
ignore Ie demier emWl pour csfb*
disregard the last email for csfb
03123120121219:49 BRUNO TKSIL, JPMORGAN CHASE BANK, says:
CUll dupe
it is a trick
0312312012 12: 1952 JULIEN GROUT, JPMORGAN CHASE BANK, says:
bonj'ai les marginals old fashion .
well, I have ,the old fashion margi:rials
031231201212 1956 BRUNO IKSIL, JPMORGAN CHASE BANK, says
. ah demande a Javier
ah ask Javier
0312312012122001 BRUNO IKSIL, JPMORGAN CHASE A ~ says:
quel pnl on print today
what pnl we print today
je ne sais plus la .
. Draft Transcript - Subject to Review and Correction
JPM-CIO 0003538
In .. I',n D ~ I LI nnnc:,Ac:,1
I don't know anymore
03123120121220:22 JULIEN GROUT, JPMORGAN CHASE BANK., says:
j'ai aussi les roarginals pour un split IRC/optimal tranches book, ca t'interesse?
I also have the roarginals for a split IRC/optimal tranches book, are you interested?
0;112312012 12:20:29 BRUNO IKSIL, JPMORGAN CHASE BANK, says:
OUI
yes
stp va voir Javier
please, go see javier
031231201212:20:40BRUNO IKSIL, JPMORGAN CHASE BANK, says:
je ne sais pas quel pnl envoyer la
I don't know which pm I should send
0312312012 12:20:42 JULIEN GROUT, JPMORGAN CHASE BANK, says
ok j e vais aller lui demander. il pense que les pieces que j I ai amassees ne sont pas assez
. ok I am going to ask him, he thinks that the documents that I collected are not enough
03123120 121 2:20:44 JULIEN GROUT, JPMORGAN CHASE BANK, says:
ok
ok
03123120 12 12:20:49 JULIEN GROUT, JPMORGAN CHASE BANK, says:
je vais alier lui envoyer .
I am going to send them to him
dis rooi qd core delta est updated .
tell me when core delta is updated
.031231201212:24:27 JULIEN GROUT, JPMORGAN CHASE BANK, says
done
done
03/231201212:24:51 JULIEN GROUT, JPMORGAN CHASE BANK, says:
si on doit faire bcp plus de ig9 vs ig 18 il fant faire une simulation sur Ie rwa via Pat
if we must do much more ig9 vs ig18, we need to do a simulation on the rwa via Pat
0312312012 12:27: 17 JULIEN GROUT, JPMORGAN CHASE BANK, says:
bon je fais Ie pnl1a
well, I do the pnl now
.03/23/2012 1227: 18 JULIEN GROUT, JPMORGAN CHASE BANK, says:
ok?
ok?
031231201212:29:55 BRUNO lKSIL, JPMORGAN CHASE BANK, says
ah non on ne fera jamais ca !
oh no, we will never do that !
yen a mare a la fro
enough is enough
tu as parle a Javier?
Did you talk to Javier?
031231201212:37: 12 JULIEN GROUT, JPMORGAN CHASE BANI( says:
tu noteras qu'il veut faire les simuls de capital A V ANT de traiter
you'11 notice that he wants to do the capital simulations BEFORE dealing
Draft Transcript'
o
Subject to Review and Correction
JPM-CIO 0003539 .
0312312012 12:51 :30 JULIEN GROUT, JPMORGAN CHASE BANI<, says:
bon ca va douiller sur la compression la
it is going to be spent/expensive on the compression now
03123120 lKSIL, JPMORGAN CHASE BANK, says:
oui
yes
031231201212:53:00 JULIEN GROUT, JPMORGAN CHASE BANI<, says
as tu parle a Javier?
Did you talk to j avier ?
0312312012125606 JULIEN GROUT, JPMORGAN CHASE BANK., says
b?
b?
031231201212:56:35 BRUNO IKSIL, JPMORGAN CHASE BANI<, says:
oui
yes
ok
ok
we show -3 until month end on this one
we show -3 until month end on this one
03123120 12 12: 57: 21 BRUNO IKSIL, JPMORGAN CHASE BANK, says
anyway
anyway
03/23120121303 :35 JULIEN GROUT, JPMORGAN CHASE BANK, says:
je peux appeler?
Can I call? .
si tu veux
if you want
Ie bo ne va rien faire, parce quele pb aujourd'hui clest la compression
the bo is not going to do anything, because today's problem is compression
03123120 12 13 08:07 BRUNO IKSIL, JPMORGAN CHASE BANI<, says
arrete
stop that
031231201213 :08 :19 BRUNO IKSIL, JPMORGAN CHASE BANI<, says:
tu ne perds pas 200m en compression
you do not loose 200m with compression
bon
well
031231201213:09:28 JULIEN GROUT,JPMORGAN CHASE BANK, says:
on a 34m de esOl en ig. hy uneld today (par rapport a nos marques) et ig+3.25. ea fait 11 Om
we have 34m of cs01 in ig. Hy unc'd today (in comparison with our marks) and ig+3.25. it makes
110m
03/2312012 1309:35 JULIEN GROUT, JPMORGAN CHASE BANK, says
ok?
Ok?
JPM-CIO 0003540
.IPM-CIO.PSI-H 0006463
. , ~ .
0312312012 l309:44 BRUNO IKSIL, JPMORGAN CHASE BANK, says:
ecoute je n'ai pas Ie temps .
listen, I don't have time
pok
why?
03123120121309:51 JULIEN GROUT, JPMORGAN CHASE BANK, says
ok
ok
03123120 12130953 BRUNO IKSIL, JPMORGAN CHASE BANK, says:
jesuis avec pat pour voir les trades
I am with pat to see for the trades
03123120 1213 :10:04 BRUNO IKSIL, JPMORGAN CHASE BANK, says:
tout ce que je te demande c de dire a Javier ce que tu vois
all that I am asking you is to tell Javier what you see
031231201213: 10: 14 BRUNO IKSTL, JPMORGAN CHASE BANK, says:
c tout et ils decide ce qu'on montre
that's it and he decides what we show
031231201213: I 0:20 BRUNO IKSIL, JPMORGAN CHASE BANK, says:
parce que la moi je ne. sais plus
because me, I don't know anymore
03123120 12 13 1026 BRUNO IKSIL, JPMORGAN CHASE BANK, says.
je regarde la reduction du rwa
I look at the reduction in the rwa
031231201214: 37 :47 JULIEN GROut, JPMORGAN CHASE BANK, has left the room
JPM-CIO 0003541
JPM-CIO-PSI-H 0006464
From: Goldman, Irvin 1 <[email protected]>
Sent: Mon, 26 Mar 2012 22:23:58 GMT
To:
cc:
Macris, Achilles 0 <[email protected]>; Martin-Artajo, Javier X <javier.x.martin- .
[email protected]>
Drew, Ina <[email protected]>; Wilmot, John <[email protected]>;
Weiland, Peter <[email protected]>; Stephan, Keith
< keith [email protected]>
Subject: Tranche Plan
All,
Now that we have the new RWA increase, Ina would like to the forward plan for reduction. She does not want any
trades executed until we all discuss it. We will have a call first thing in the morning.
Irv
Irvin Goldman I J.P.Morgan ! Chief Invc:stment orne"" ! 270 Park Aw.1 ~ Tel: +1 212 834 2331 : GJ irvin j gQldman@jpmchase com
Confidential Treabnent Requested by J ... __ .E.XH ... I.B .. I.T .. #.2.2 ___
JPM-CIO-PSI 0001267
From: Macris, Achilles 0 <[email protected]>
. Sent: Fri,30 Mar 2012 14:15:25 GMT
,
fa:
Bacon, Ashley <Ashley,[email protected]>; Goldman, Irvin J
<irvin,[email protected]>
Subject: synthetic credit -- crisis action plan
FYI
From: Macris, Achilles 0
Sent: 30 March 2012 15:13
To: Hogan, John J.
Cc: Drew, Ina
SUbject: FW: synthetic credit -- crisis action plan
HiJohn,
1 have asked Ashley for help with the synthetic credit book.
In the first quarter, my team failed in targeting RWA and we need your urgent help to do a better job in Q2 .
. Ashley, Javier and myself think that the most experienced person at the firm is Olivier. Olivier is both familiar with the
correlation product as well as the capital attributes of correlation.
"would be grateful if you could approve dedicating Olivier to CIO priorities for Q2.
1"ackground: following years of exceptional performance in this book utilizing 5b RWA, we have decided to risk neutralize the
book post the large gains on the AA events around thanksgiving. While we remained short in HY, we have bought IG to
achieve a risk neural stance. Since then, and while both IG rallied and the RV between HY and iG worked in our favour, the
proxing of IG long via IG 9 forwards, did not work and resulted in almost total loss of hedging effectiveness: Additionally, the
RWA increased beyond my targets and I have lost confidence in my team's ability to achieve the targeted RWA and their
understanding of the synthetic levers to achieve the RWA objectives.
Due to the size of the book, our market manoeuvrability is limited. I am further worried that the "best" course of action from
a,risk and economic point of view, may be conflicting with the appropriate capital utilization .
. 't.
Many thanks,
Achilles
--------.----------,....---- ----- ~ ---------------- --..:.--- ----------------- ... ----- --------.- _ .. --- -----'" --- -------------------------_ .. ----
From: Bacon
t
Ashley
Sent: 30 March 2012 14:14
To: Macris, Achilles 0
Subject: RE: synthetic credit -- crisis action plan
('
Achilles, John asked that you send him a note (cc Ina) just summarising that you want Olivier, what the ask. is, and that this
has ~ o m e urgency. Then I think we move ahead.
Thanks
EXHIBIT #23
Confidential Treatment Requested by J,' .. ____________ ..
JPM-CIO-PSI 0001220
Sent: 30 March 2012 13:50
, Cc: Drew, Ina; Martin-Artajo[ Javier X; Tse, Irene Y
'ubject: RE: synthetic credit -- crisis action plan
Hi Irv,
I just spoke with Ashley regarding the issue and he has agreed to dedicate Olivier to help us with RWA targeting for 02.
Ashley immediately understood the issue and agreed with the approach to get the firm's best talent involved early in the
process.
Without any doubt, Olivier is very familiar with the correlation product as well as the management of the capital attributes of
, correlation.
Following our call, Ashley spoke with Venkat who also agreed with our proposal to dedicate Olivier to our prioritIes for 02.
We have jointly agreed to have Olivier based in our office for 02. Ashley will be informing John Hogan.
Both Ashley and Venkat are displaying very strong support and partnership on this. I am indebted to both.
best,
Achilles
_= Redacted by the Permanent
_______ . __________________________ .. __ : ________ . __ .... __ . __ . __ ... _ ..
From: macrjs@1
Sent: 30 March 2012 10:38
Martin-Artajo, Javier X; Stephan, Keith ,
,c: Brown, Anthony Mi Polychronopoulos, George H; Uzuner, Tolga Ii Enfield, Keithi 'Chris'; Weiland, Peter
Subject: synthetic credit -- crisis action plan
Hi guys,
On Tuesday we will be presenting the final action plan for the book for 02.
As we already had several meetings on this, we must get it right this time, otherwise we could lose our collective credibility.
Due to the size of the book,we only have "one move" to achieve our dual objective of stabilizing the risk and P+L of the book,
while achieving our
targeted RWA objectives for the end of 02.
We must insure that we don't overtrade, or alter the risk profile to an uncertain RWA result.
Therefore, the objective is to determine what is the best course of action to insure that the book is and remains balanced in
risk and P+L terms.
Additionally, we must "price" the best economic solution in terms of average and final 02 RWA.
Regarding RWA targeting, I will be asking Ashley for help. Hopefully, Olivier will be made available to exclusively focus on the
CIO RWA targeting for 02.
Clearly, we are in a crisis mode on this. The crisis team is to have short daily meetings and your daily update and progress
report needs to be commercial and forward looking to mark to implementation of the stated objectives.
We will be discussing the suspension of our investment programs as well as potential OCI crystallizations at the ISMG.
Thanks,
Achilles
THE WALL STREET JOURNAL.
April 6, 2012,1:19 p.m. ET
'London Whale' Rattles Debt Market
By GREGORY ZUCKERMAN And KATY BURNE
In recent weeks, hedge funds and other investors have been puzzled by unusual movements in
some credit markets, and have been buzzing about the identity of a deep-pocketed trader
dubbed "the London whale."
That trader, according to people familiar with the matter, is a low-profile, French-born J.P.
Morgan Chase & Co. employee named Bruno Michel Iksil.
Mr. Iksil has taken large positions for the bank in insurance-like products called credit-default
swaps. Lately, partly in reaction to market movements possibly resulting from Mr.lksil's trades,
some hedge funds and others have made heavy opposing bets, according to people close to
the matter.
Those investors have been buying default protection on a basket of companies' bonds using an
index of the credit-default swaps, or CDS. Mr. Iksil has been selling the protection, placing his
own bet that the companies won't default.
Mr. Iksil, who works primarily out of London, has earned around $100 million a year for the
bank's Chief Investment Office, or CIO, in recent years, according to people familiar with the
matter.
There is no suggestion the bank or the trader acted improperly.
Mr. Iksil didn't respond to calls and emails seeking comment.
J.P. Morgan said the CIO unit is "focused on managing the long-term structural assets and
liabilities of the firm and is not focused on short-term profits."
The bank added, "Our CIO activities hedge structural risks and invest to bring the company's
asset and liabilities into better alignment."
Kavi Gupta, a trader at Bank of America Merrill Lynch, wrote a message to investors Thursday
about the mystery 'trader, saying hedge funds are accelerating wagers against "the large long,"
or bullish investor. "Fast money has smelt blood,"he wrote. Bank of America declined to
comment.
The hedge funds are wagering that the cost of default protection using the index will increase,
potentially putting Mr. Iksil in a money-losing position and forcing him to reduce some of his
holdings.
Buying protection on the index is currently cheaper than what it costs to protect the index's
component companies individually.
Any reduction in Mr. Iksil's position could result in profits for the hedge funds and losses for the
bank, according to a person familiar with the matter. There is no indication that any such
reduction is planned.
EXHIBIT #24a
J.P. Morgan Chase has emerged from the financial crisis as one of the strongest global banks,
and Chief Executive James Dimon often boasts of the company's "fortress balance sheet."
Mr. Iksil's trades are partially hedged, or protected by some offsetting trades, according to
people close to the matter. Mr. Dimon is regularly briefed on details of some of the group's
positions, these people added.
One person familiar with the matter said the bank has run tests that show Mr. Iksil's positions
likely will be profitable in any economic or market downturn.
Some analysts who follow J.P. Morgan Chase, the biggest U.S. bank by assets, said they
weren't aware of the group's trading. "They've talked about their investment strategies and
procedures and risk controls but haven't highlighted this division," said Gerard Cassidy, a
banking analyst at RBC Capital Market.
J.P. Morgan said the CIO unit's "results are disclosed in our quarterly earnings reports and are
fully transparent to our regulators."
Mr. Iksil, who has worked at J.P. Morgan since January 2007, commutes to London each week
from his home in Paris, and works from home most Fridays. He sometimes wears black jeans in
the office and rarely a tie, according to someone who worked with him.
Mr. Iksil works with two junior traders and focuses on complex trades in credit markets,
developing most of his investment ideas and then getting approval from senior bank executives,
according to someone close to the matter.
In the past, he often has been bearish on markets and placed trades to express that downbeat
perspective, sometimes criticizing colleagues as too optimistic on markets. Some of his best
performances have come during market downturns, though he has also made trading mistakes
in volatile times. .
However, Mr. Iksil has turned more upbeat recently. He has been selling protection on an index
of 125 companies in the form of credit-default swaps. That essentially means he is betting on
the improving credit of those companies, which he does through the index-COX IG 9-tracking .
these companies.
Mr. Iksil has done so much bullish trading that he has helped move the index, traders
say. Now, even as Mr. Iksil is selling credit protection on the company index, a number
of hedge funds and other investors are buying protection on it.
Some investors say they are betting that Mr. Iksil could have to exit some of his bullish
trades, perhaps because the pending Volcker rule limiting bank risk-taking would push
up the cost of credit protection. J.P. Morgan has said the Volcker rule doesn't prohibit its
CIO unit from investing or hedging activities.
A sign of how hot the trade is: The net "notional" volume in the index ballooned to
$144.6 billion on March 30 from $92.6 billion at the start of the year, according to
Depository Trust & Clearing Corp. data.
Write to Gregory Zuckerman at [email protected] and Katy Burne at
[email protected]
Bloomberg
PrintBack to story
JPMorgan Trader's Positions Said to Distort
Credit Indexes
By Stephanie Ruhle, Bradley Keoun and Mary Childs - Apr 6, 2012
A JPMorgan Chase & Co. (JPM) trader of derivatives linked to the financial health of
corporations has amassed positions so large that he's driving price moves in the $10 trillion
market, traders outside the firm said.
The trader is London-based Bruno Iksil, according to five counterparts at hedge funds and rival
banks who requested anonymity because they're not authorized to discuss the transactions. He
specializes in credit-derivative indexes, a market that during the past decade has overtaken
corporate bonds to become the biggest forum for investors betting on the likelihood of company
defaults.
Investors complain that Iksil's trades may be distorting prices, affecting bondholders who use the
instruments to hedge hundreds of billions of dollars of fixed-income holdings. Analysts and
economists also use the indexes to help gauge perceptions of risk in credit markets.
Though Iksil reveals little to other traders about his own positions, they say they've taken the
opposite side of transactions and that his orders are the biggest they've encountered. Two hedge-
fund traders said they have seen unusually large price swings when they were told by dealers that
Iksil was in the market. At least some traders refer to Iksil as"the London whale," according to
one person in the business.
Joe Evangelisti, a spokesman for New York-based JPMorgan, declined to comment on Iksil's
specific transactions. Iksil didn't respond to phone messages and e-mails seeking comment.
Most-Active Index
The credit indexes are linked to the default risk on a group of at least 100 companies. The newest
and most-active index of investment-grade credit rose the most in almost four months yesterday
and climbed again today.
The Markit CDX North America Investment Grade Index of credit-default swaps Series 18
(IBOXUMAE) rose 3.3 basis points to 100.2 basis points as of 10: 18 a.m. in New York, after
jumping 4.4 basis points yesterday, according to Markit Group Ltd. The price of the index is
quoted in yield spreads, which rise along with the perceived likelihood of increased corporate
defaults.
Permanent Subcommittee on
EXHIBIT #24b
1
A credit-default swap is a financial instrument that investors use to hedge against losses on
corporate debt or to speculate on a company's creditworthiness.
Iksil may have"broken" some credit indexes -- Wall Street lingo for creating a disparity between
the price of the index and the average price of credit-default swaps on the individual companies,
the people said. The persistence of the price differential has frustrated some hedge funds that had
bet the gap would close, the people said.
Close Supervision
Some traders have added positions in a bet that Iksil eventually will liquidate some holdings,
moving prices in their favor, the people said.
Iksil, unlike JPMorgan traders who buy and sell securities on behalf of customers, works in the
chief investment office. The unit is affiliated with the bank's treasury, helping to control market
risks and investing excess funds, according to the lender's annual report.
"The chief investment office is responsible for managing and hedging the firm's foreign-
exchange, interest-rate and other structural risks," Evangelisti said. It's "focused on managing
the long-term structural assets and liabilities of the firm and is not focused on short-term profits."
Iksil probably traded under close supervision at JPMorgan, said Paul Miller, an analyst at FBR
Capital Markets in Arlington, Virginia.
"The issue is how much capital they're putting at risk,"said Miller, a former examiner for the
Federal Reserve Bank of Philadelphia.
V olcker Rule
A U.S. curb on proprietary trading at banks, meant to reduce the odds they'll make risky
investments with their own capital, is supposed to take effect in July. Regulators are still
determining how the so-called Volcker rule will make exceptions for instances where firms are
hedging to curtail risk in their lending and trading businesses.
Wall Street banks including JPMorgan, Goldman Sachs Group Inc. and Morgan Stanley have
submitted comment letters and met with regulators to discuss their complaints about the rule.
"Several agencies claiming jurisdiction over the Volcker rule have proposed regulations of mind-
numbing complexity,"JPMorgan Chief Executive Officer Jamie Dimon said in his annualletter to
shareholders released this week. "Even senior regulators now recognize that the current proposed
rules are unworkable and will be impossible to implement."
2
Combined Revenue
JPMorgan had $4.14 billion of combined revenue last year from the chief investment office,
treasury and private-equity investments, according to the annual report. The treasury and chief
investment office held a combined $355.6 billion of investment securities as of December 2011,
up 14 percent from a year earlier, according to a year-end earnings statement.
ChiefInvestment Officer Ina Drew, who runs the unit, was among JPMorgan's highest-paid
executives in 2011, earning $14 million, a 6.8 percent pay cut from 2010, the bank said in a
regulatory filing this week. Drew referred a request for comment to Evangelisti.
lksil has earned about $100 million a year for the chief investment office in recent years, the
Wall Street Journal said in an article following Bloomberg News's initial report, citing people
familiar with the matter.
Iksil joined JPMorgan in 2005, according to his career-history record with the U.K. Financial
Services Authority. He worked at the French investment bank Natixis (KN) from 1999 to 2003,
according to data compiled by Bloomberg.
Trader's Position
The French-born trader commutes to London each week from Paris and works from home most
Fridays, the Journal article said, citing a person who worked with him.
The trader may have built a $100 billion position in contracts on Series 9 (lBOXUG09) of the
Markit CDX North America Investment Grade Index, according to the people, who said they
based their estimates on the trades and price movements they witnessed as well as their
understanding of the size and structure of the markets.
The positions, by the bank's calculations, amount to tens of billions of dollars and were built
with the knowledge ofIksil's superiors, a person familiar with the firm's view said.
To contact the reporters on this story: Stephanie Ruhle in New York at [email protected];
Bradley Keoun in New York at [email protected]; Mary Childs in New York at
[email protected]
To contact the editors responsible for this story: David Scheer at [email protected];
Shannon D. Harrington at [email protected]
3
From: Hogan, John J. <[email protected]>
~ e n t : Tue, 10 Apr 201223:17:16 GMT
.>: Braunstein, Douglas <[email protected]>
Subject: Re: Credit
Lovely
From: Braunstein
t
Douglas
Sent: TuesdaYt April lOt 2012 07:14 PM
To: Hogan, John J.
Subject: Fw: Credit
A bit more than we thought
From: Drew
t
Ina
Sent: TuesdaYt April lOt 2012 07:08 PM
To: Dimon, Jamie; Braunstein, Douglas; Wilmot, John; ZubrowtBarry L; StaleYt Jes
Subject: Credit
The mtm loss is 412 mil today, an 8 standard deviation event mostly from the steeping of the Ig9 curve. SPECIFIC to our
position. No other high grade or high yield index moved much clearly anticipating our liquidation.
I ' r n in t.he office further reviewing the p I scenario with London and will send it on shortly .
.. ,',
"
COnfidential Treabnent Requested by
CONFIDENTIAL TREATMENT REQUESTED BY J
EXHIBIT #25
JPM-CIO 0002817
From: Wilmot, John <[email protected]>
Tue, 10 Apr 2012 22:50:48 GMT
Dimon, Jamie <[email protected]>; Braunstein, Douglas
Hogan, John J. <[email protected]>;.Drew; Ina
<[email protected]>; Zubrow, Barry L <[email protected]>
cc:
Goldman, Irvin] <[email protected]>; Stephan, Keith <[email protected]>;
Weiland, Peter <[email protected]> ' .
Subject: Net positions vs average trading volumes
00 Net Positions in Selected Indices vs. 1m daily trading volume:
The below table shows that CDX.lG.9 net position for ClO is $82.2bio, which is approximately 1015 days of 100% of trading volume'
based on the 1m avg volume published by JPMorgan Research. 1TX.9 net position for ClO is $35bio, which is approximately 8-12 days
of 100% trading volume based on the Im'avg volume. For on the run positions the numbers are much smaller, ranging from 0.25 days
to 2 days volume in IG and HY"respectively.
dd:[email protected]
John C. Wilmot i Oli .. r Investment Office i G:l john.wilmoti!>jpmorgan.com I 11: Wori<:' (212) 834 5452' 1,11: Cell:_
Confidential Treatment Requested By
-..;, Redacted by the Permanent
JPM-CIO 0001069
EXHmIT#26
Confidential Treatment Requested by J. \ .. ___ I11III ________ ..
JPM-CIO-PSI0001026
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Wong, Elwyn
Kirk, Mike
5/18/2012 3:20: 16 AM
RE: CIO call with Mike Brosnan
This is just a strategy and not an explanation. this is Ina Drew speak before she was
fired.
They took up a strategy to reduce their make believe voodoo magic "Composite Hedge" linearly
to change in 5ryr - 10 yr fwd CDS spread.
I give them first prize for "consistency". But so what? Why were they right qnd as hindsight
itlOuld have it, they were wrong.
From: Kirk, Mike
Sent: Thursday, f1ay 17, 2012 6:20 PM
To: Wong, Elwyn
RE: CIO call with Mike Brosnan
That's the point!
The relationship obvious],y didn't hold, and I' would be if we plotted the graph today the
locations would be far from the diagonaL.and I be if we had access to the data that the red
portion is moving up and farther to the right with each passing day in April
From: Wong, Elwyn
Sent: Thursday, Hay 17,2012 5:58. PM
To: Kirk, Hike; Crumlish, Fred; Hohl, "James
Cc:Waterhouse, Scott
Subject: RE: CIO call with Hike Brosnan
I was not at the April 16 meeting. But let me venture to guess what it is trying to say.
[cid: [email protected]]
The y-axis is rolling 10 yr cds - rolling 5 yr cds. They had a few Bloomberg graphs showing
how this rolled spread from being NEGATIVE i!1 2008 and 2009 (just like Greece and Italy)
towards more normalization when it eventually returned to being positively sloped .
. The x-axis is the Hedge Index Composite. I venture to' guess this is the aggregate hedge that
think they need to put on, related to the aggregate number on the extreme lower right hand
.side, the $158 .498 mil. They have a whole matrix of longs and shorts and that's the
composite. As fear resided and rolling 10 yr minus rolling 5 yr returned to positive, they can
reduce their total hedge. As Hike said, the REDS are which they are at now --- so their hedge
is not that unreasonable, IF THE HEDGE. AMOUNT DID HAVE THIS RELATIONSHIP TO THE SLOPE of 5yr
to 10yr CDS
The sentence which is somev,hat perplexing is "the relationship is bounded by the off-the-run
HY shorts and the on-the-run IG shorts. Heaning that this is their core hedge?
[cid:'image002 [email protected]]
The whole scenario thing about convexity is talking their book/advertizing - in a panic
situation, people will run to put protection in the short end and not the long end. So the
curve FLATTENS again like in 2007. In other words, their hedge has analytical underpinning.
Not only are they reducing their shor.t risk hedge prudently according to the slope of the 5yr
-lOyr, as plotted on' Bloomberg, the flattener would have been a safe bet because in case they
itle.re reducing their hedge too fast and the economy tanked against, the built in flattener
itlould be there to help.
Permanent Subcommittee on Investillations
EXHIBIT #27
BANK PROPRIETARY AND/OR TRADE SEC 1. __________ __
OCC-SPI-00021602
INFORMATION
From; Kirk, Mike
Sent; Thursday,' May 17, 2012 4;51 E;'M
To: Crumlish, Fred; Hohl, James; Wong, Elwyn
Cc; Waterhouse, Scott
Subject: RE: CIO call with Mike Brosnan
Fred,
Happy to join you in your calls with Mike B.
In respect to your questions, in the order asked:
The graph on page 7 Shov-lS the slippage of their portfolio compared to the hedge. The closer
to the diagonal the more closely the hedge tracks the portfolio. The red highlighted.area is
recent period they were discussing where hedges were breaking dOvffi, and markets were not
moving according to their modeled projections based upon historical correlations.
To make the chart you would need two items. A targeted portfolio and a hedge pqrtfolio. We
could ask for this chart of the strategy prior to re working the hedge position to remove part
of the hedge (why we were told they decided to sell IG with fallen. angels). This request may
be instructive and could settle the issue of whether the original portfolio was an effective
hedge. P&L for previous 4 years, however, was fairly reasonable, so that would tend to support
the banks' statement that the hedge worked well for years. It went astray When they reduced the
hedge.
I think Matt Zames would likely have a different view of the choice of strategy with
hindsight being a benefit. Position reaily went bad as shown in l'-1arch/}\pril, question is did
the London desk continue selling in IG in April with the curve steepening and spreads widening
and basis (to theoretical) trading rich. This is something we do not at this time know.
You can give Mike B my cell phone number ..
PleaSe note Elwyn and James will likely have quality information to add so you may want to
wait to hear from them before passing along.
Regards,
Mike
From: Crumlish; Fred
Sent: Thursday, May 17, 2012 4:22 PM
To: Kirk, Mike; Hohl, James; i'ilong, Elwyn'
Cc: Waterhouse, Scott
Subject: CIO call with Mike Brosnan
Scott and I spoke to' Mike Brosnan today about what we t-Jere doing nOH and going forward on the
CIO book. We Hill likely have a .call Hith him frequently, and, particularly Hith respect to
the intricacies of the position, will need to include you.
A couple of things specific t.o the pre-April 16 interactions and some of the emails that are
circulating: .
- I told Mike B that the Joe Sabatini. emails with selected position information ,-Jere sent by
the bank after initial aee and FRB enquiries. We concluded that this information Has pretty
much useless, as it did not tell us what Has happening risk wise .. We also talked about a
couple of those other emails, but I emphasized that the culmination was getting a meeting with
Ina Drew and company on April 16.
- With respect to the April meeting, Mike B. is going through the "synthetic credit deck" and
he had a few technical questions, not all of which I was able to fully answer since I didn't
recall or had been focusing on other issues and didn't think of those questions. With respect
to this presentation: .
o Mikeand James: Please have a look at your ~ o t e s f o r page 7 as I wasn't fully able to explain
BANK PROPRIETARY AND/OR TRADE SECRET
INFORMATION
OCC-SPI -00021603
the graph on the bottom. Also if you have details on the scenario description on page 11, we
should pass that along.
o It would be nice at some point if we' could get a chart such as that on page 5 *before* the
position was put on. Maybe we will request it, maybe not. Let's see if we need it after going
through new reporting
o More to the point, I told Mike that the bank would likely not stand behind (aside from a
statement that it was the best they knev, at the .time) this analysis at this point, as the
position turned out to be far more problematic than presented and so the description of risk
itlaS missing.
o Mike Kirk - as usual, don't be surprised if Mike just calls you sometime.
- I told Mike that next Monday we will be going over current risk reporting and positions in
more detail, as the reporting is evolving. He might want to speak with us shortly after. I'd
expect to have Mike and Elv,yn to help speak to technical details etc.
So, keep your not.es current. ] \ ~ l emails get circulated. widely, and of course generate
questions.
- apc
*** If you have received this message in error, please delete the original and all copies, and
notify the sender immediately. Federal law prohibits the disclosure or other use of this
information. ***
INFORMATION
OCC-SPI-00021604
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CONFIDENTIAL TREATMENT REOUESTED BY J.P. MORGAN CHASE & CO.
JPMCto-PSIH 0002812
C;ent: Fri, 16 Mar 2012 18:12:42 GMT
0: Grout, Julien G <[email protected]>
. Subject: FW: update on Core PNL
Sent: 16 March 2012 17:34
Subject: update on Core PNL
The divergence has increased to 300 now; the rescap news is pushing the tranches and HY indices against us.
I worked on the IG9 ans main 59 a bit today. There is some size. Not large. But if I trade 2 bps tighter, I reckon there will be
. size.
Tactical starts being impacted despite the trading gains. Small though. But the hits show anywhere but the spots I tried to
correct.
It has been like this since the start of the year qnd the drift keeps going. I reckon we get to 400 difference very soon.
;uno
EXHmIT#29
JPM-ClO 0003475
From: Drew, Ina <[email protected]>
Sent: Fri, 23 Mar 201211:13:55 GMT
To: Martin-Artajo, Javier X <javier [email protected]>
CC: Macris, Achilles 0 <[email protected]>
Subject: Re: Synthetic Book - URGENT
. You guys need to get irv and call hogan and explain. I can give him a heads up. Smart to involve ashl':!y. More later
Sent: Friday, March 23, 2012 06:48 AM
To: Drew, Ina
Cc: Macris, Achilles 0
Subject: Synthetic Book - URGENT
Ina,
during the last week we.have been trying to work on our best path for the Synthetic Book trying both to reduce our overall
RWAs and get the book in a balanced way. The problem with this has been that we have engaged in a dialogue with Risk
Management( Ashley Bacon) I QR (Venkat) andthe IB (Guy America and Daniel PInto) and this has resulted In a hightened
alert about our positions in the IS and is really hurting us in various ways.
While we have been. reducing the VAR and SVAR we have increased our overall RWAs because of the increase of the IRC (
New'to CIO given the problems that we highlighted with QR) and also we' have worse marks against our current book.
We are left here with two options:
option A : We do not settle with the IB : we do not change the current book and exceed the RWA that is going to be in the
region of 44-47 Bin (this has to be confirmed by QR next week) . This -option will have a bad month ~ n d mark P/L impact 0 to
-150-200 MM. This i ~ our favoured choice that gives us time to correct mistakes with QR I positive carry and upside on
defaults. We would still need to reduce RWA by reduCing our IRe or joining the IB with reducing the CRM outside. So this will
be a mark to market P /L problem and we are left with a book that has positive carry and upside on defaults .
Option B :we settle with the IB : we close the extra long position' with the IB and we will have a book that is not as well
balanced will have a short bias, will reduce RWA by 10-15 Bin and have an impact on PjL that could be as large as - 350 MM.
This loss wili be, permanent and would leave the book with fJ small negative carry and option on defaluts but a permanent loss
for the book.
In any case it is very important that we need to let the IB know that we need to talk to them to stop this negative esplral
that we are seeing in the market because we have disclosed too much information to them and we are severily affected by
. this. Specifically on the long IG 9 position that is getting the attention of the market.
I need to discuss this as soon as posible
regards
Confidential Treatment Requested by 1. __ .E.X.H_IB_IT .... #.3.0 ___
JPM-CIO-PSI0000416
From: ACHILLES < - = Redacted by the Permanent
Sent: Fri, 06 Apr 2012 20:29:53 GMT
-Subcommittee on In\'estigations
CC: InaDrew <[email protected]>
Subject: Re: Update
The issue remains; what is "fair value" for the I09, as this will drive the marks.
As the I09 is not "pure play" 10 due to the risky HY names included, the regular 10 participants are not likely to be
supporting it. Therefore, relatively small selling (against single names etc) could drive the marks further.
In our case, we are ultimately secure on those risky names (as they are included in our HY short), however we must
project what the possible negative marks may be resulting in P+L terms and what would be the exact market
mechanism to stabilise the series absent an event.
Sent: Friday, April 06, 2012 07:59 PM
To: Drew, Ina
Subject: Update
Ina,
I just had a conversation with Achilles and I would like to update you on two topics: one relates to compliance and
another one relates to work I am doing on the book to estimate the worst case P/L for Q2 .
Redacted by t ~ e
In terms of the worse case scenario for us for Q2 I am redoing the work once again to make sure that if we exclude
very adverse marks to our book the potential loss due to market moves or any economic scenario including defaults
would not exceed a number higher than - 200 MM USD at the end of Q2 with the current book as it is . I will have all
the numbers ready on Sunday afternoon NY time and send it to you as soon as I have them.
I will send this information and an update from compliance too on Sunday .
Best regards
Javier
This email is confidential and subject to important disclaimers and
conditions including on offers for the purchase or sale of
Confidential Treatment Requested by J.P .. __ .E.XH_.IB_IT_#.3.1 ___ .. JPM-CIO-PSI 0001429
March 16, 2012
Call #5601530708350439469,
Julien: Bruno? It's Julien. I'm at minus 4 with a lot of effort, plus 2 points. I can do better
but...
Bruno: No, don't waste your time, it won't help. Check the new trades because I don't
think.there are as many winning trades. I did some "coquilles" in the booking.
J. There's 500mln de F9 lOY. I think that's BNP
B. No, 500 min, I applied at 143 I think.
J. At what level on the 5Y?
B.93.
J. Oh yes, OK, that's much tighter, you have 9, 9.50, you lose a lot. [discussionJlt's logical.
B. Yes, yes.
J. Do you know what you did with nealia?
B. I went ahead at 30.
J. In fact it's flat, with the Delta, it's flat.
B. Yes.
J. 250 min of 5Y, what level?
B. 121 and something.
J.12l?
B. 100,000, yes, there's about a million there.
J. Yes. The big items, 450 of...
B. yes, you mark 5/8, right?
J. No, I was obliged to mark at 3/8.
B. So that makes ... that will [ ... J a lot.
J. you projected at what level?
B.3/4
J. Yes, that makes 1.7 min, 1.6 min.
B. This makes no sense. Is [ J still there?
J. Yes, he's locked away. But he seems relaxed, I don't know what you told him just now. He
said not to worry, not to worry.
CONFIDENTIAL TREATMENT REQUESTED BY J.P. r Permanent Subcommittee on Investigations
EXHIBIT #32a
JPM-CIO 0005615
March 16. 2012
B. But there is no hope, these are contracts of "debils" (idiots). I'm in the middle of analysing
something - at the end of the afternoon we did the book and it's much smaller than it is today,
and if they had applied the RWA methodology that we are going to use, in fact this makes a
huge difference.
J. Wait a second, can we send 2.1 on "tactico?"
B. Yes. [unintelligble - but I think he is saying something ofthe family of ... I will take it up the
asS]. 300 minimum, minimum.
J. Days like this are hard when you look at the basis that is narrowing ...
B. No, there is no way, look at a class, we take 300 min of new Pnl
J. You did this today?
B. No, these are not real new trades, just exercise of options, there's a freakout, no one is able
to explain what happened.
J. Did you speak to [ ... ]
B. Yes, yes. He says nothing, I find that ridiculous. I'll send you the thing I sent.
J. You sent something to propose doing that?
B. Yes, that's what I sent when you said it was at 300. I can't keep this going, we do a one-off
at the end of the month to remain calm. I think what he's expecting is a remarking at the end
of the month, you can't do it unless it's monthend. It's clear that I'm the [ ]. He can't imagine
a bank, a dealer, a hedge fund [unintelligible]. I don't know where he wants to stop, but it's
getting idiotic. OK, go ahead with the commentary.
J. Yes, I agree. I think what he's expecting is some hope on the rolls.
B. No, but it's exactly that that he doesn't understand, he doesn't understand, there is no roll,
there isn't, you see, that's all. And Monday we'll start with a $100 gap and end the week with
a $300 gap. The market has done nothing, it's rallied.
J. And instead there has been movement on the [elM] that could have justified some things.
B. No, I looked at that, it's not that clear. It's off by 50.
J. Where do you see the 50?
B. 30, 32.
J. That's before the marking.
B. Yesterday it was at 30 mid, today it's at 30 and a half mid, on the same quoter. Today it's
almost normal. Once we get the feedback we need to ask what was the RWA now with your
way of looking at the book at the beginning of the year, beginning of 2011 because in my
opinion there is a huge mistake. The more I think about it, the more emotional I am, looking at
JPM-CIO 0005616
March 16, 2012
the book in 2010, there was no reason to do work on the RWA at the time. When I see the ORE
on the PnL, we had ORE on the Pn L, there were aggressive movements on the book of the
same type, but it was 3 times, maybe 4 times smaller. There's no use, it's ridiculous, it's
ridiculous. I tried to call him but he didn't answer, I don't want to ruin his long weekend. Oid
you tell him that the difference was so high or not?
J. No, because it was before I did the estimates.
[unintelligible - difficult to understand]
B ... Yes, but a marginal difference means we should have recouped ... now it's worse than
before, I don't want to overstate it but it's worse than before, there's nothing that can be
done. This is the first time I've ever seen this, there's nothing that can be done, absolutely
nothing that can be done, there's no hope. There is no solution, the book continues to grow,
more and more monstruous. Can you send me the prices of where you are? Send me the
positions in advance so I can make my comments because I don't want to ruin my weekend on
that. At this point we need to be lucid with the solutions. Someone .is calling me ... it's [ralia],
ciao.
J.
JPM-CIO 0005617
03/16/2012 12: 19:32 BRUNO IKSIL, JPMORGAN CHASE BANK, says:
ok
i have the loss
right?
03/16/2012 12:19:55 LUIS BURAYA, JPMORGAN CHASE BANK, says:
the new trade pnl is f*ck up because the prices are stupid, have a look into new trade tab
th call 1300
the FV should be 105.11, that it is where it is closed. I don't understand why they are still priCing it at
998.29
same with the call 1350 and with the call 1160
and 1320
the FV should equal the price
how and when does this clear?
the ESDP is 1405.11
the reported pnl is correct
or should be
do you follow me?
03/16/2012 12:35:25 ERIC DE SANGUES, JPMORGAN CHASE BANK, says:
SX5E vol going very bid into the close, very squeezy, outperforming the rest of europe by 30bps across the
curve.
03/16/201212:36:46 LUIS BURAYA, JPMORGAN CHASE BANK, has left the room
03/16/2012 12:39:18 LUIS BURAYA, JPMORGAN CHASE BANK, has joined the room
03/16/2012 12:50:55 LUIS BURAYA, JPMORGAN CHASE BANK, has left the room
Bruno : Tactical pnl 1st draft -7.3M USD
block 4 ,.8AM divs +1.8M
CONFIDENTIAL TREATMENT REQUESTED B) Permanent Subcommittee on Investigations
EXHIBIT #32b
JPM-CIO 0005610
block 4 detail: 71 eur +3.5M /71 USD - 5M /75 USD -7M /74 + 76 +0.6M (atlas is +l.3M)
Recovering from yesterday
what do you want us to do Bruno?
ok
is the atals pnl correct?
Reported pnl should be correct
However '
with the option expiry I cannot guarantee that
so new trade is correct
?
my reported pnl is wrong in the strats where I have expiring options
The options are misprice in atlas, I don;t know the situation in Scala.
can you send me the positions eric?
If there's pnl coming we will check if it is from those instruments
The cash is supposed to correctly reflect the pnl
positions and predict in your mailbox bruno
The problem is as usual, the fair value concept
Eric, what is the pnl in equities only? In the option rewport
In MT
JPM-CIO 0005611
thx erie
let me see
where is core pnl here?
julien?
03/16/2012 13:16:23 JULIEN GROUT, JPMORGAN CHASE BANK, says:
yes
306
03/16/2012 13: 16:45 JULIEN GROUT, JPMORGAN CHASE BANK, says:
hy taking a beating today actually, esp in tranches
ok
so the pnl in tactical is doen wiht thos eprices that brings up 306 in core right?
correct
ok
03/16/2012 13: 17:55 BRUNO IKSIL, JPMORGAN CHASE BANK, says:
i think u should set ig9 levels as follows
5 yr at 72
7yr at 88
10 yr at 110
well rite now i am 70.2586.25 109.75
.03/16/2012 13:19:00 JULIEN GROUT, JPMORGAN CHASE BANK, says:
ref 88.75
i will use your levels
i see ur levels
JPM-CIO 0005612
03/16/2012 13:19:34 JUliEN GROUT, JPMORGAN CHASE BANK, says:
ah ok
03/16/2012 13: 19:37 JUliEN GROUT, JPMORGAN CHASE BANK, says:
one sec
or u do the corrections ur self
i do not mmind
Be back in 15m ins .
sent an Email to javier anouncing this is more 300 now
that was 100 Monday
it is 300 now
1000 for month end?
ouch
well that is the pace
any update JUlien?
still working on this, sorry it's taking time
i am sorry too
this is the end
?
03/16/2012 13:48: 18 ERIC DE SANGUES, JPMORGAN CHASE BANK, says:
hey hey
no talk like that
cheer up
JPM-CIO 0005613
yes JP
will not lose a cent on this
we'll see
one day after the other
like in 09
no
ok call me when u have something ready
will do
sorry it's taking so long again.
bruno 9m de new trade?
03/16/2012 14:04:38 JULIEN GROUT, JPMORGAN CHASE BANK; says:
currently -4m
core
tactical now +2.1M
03/16/2012 14:13:21 ERIC DE SANGUES, JPMORGAN CHASE BANK, has left the room
03/16/2012 14:55:50 LUIS BURAYA, JPMORGAN CHASE BANK, has left the room
03/16/2012 15:00:36 JULIEN GROUT, JPMORGAN CHASE BANK, has left the room
03/16/2012 15:17:02 JULIEN GROUT, JPMORGAN CHASE BANK, has joined the room
JPM-CIO 0005614
JPMCIOPSIH 0003819
TRANSCRIPT OF AUDIO RECORDING PRODUCED
TO THE PERMANENT SUBCOMMITIEE ON INVESTIGATIONS
Date: Undated (likely late April 2012) Telephone Call
Parties: Javier Martin-Artajo, Ina Drew, Gina Serpico
Identifier: JPMC Box 10\20120827 _Audio Documents\20120827 _PSI-A_WH\NATIVES\
JPM-CIO-PSI-A 0000076.wav
Mr. Martin-Artajo: JP Morgan.
Ms. Serpico: Yes, may I please speak to Javier?
Mr. Martin-Artajo: Yeah, it's me.
Ms. Serpico: Oh, hi! I don't recognize your voice. It's Gina. Can you hold for Ina,please?
Mr. Martin-Artajo: Sure.
Ms. Serpico: Thank you. [Speaking to Ina] It's Jav-
Ms. Drew: Hi.
Mr. Martin-Artajo: Hi, Ina.
Ms. Drew: Excuse me. Just so you know, I tried to call Achilles. You might want to let him
know.
Mr. Martin-Artajo: Yeah.
. Ms. Drew: I saw Hogan. I delivered the message on what we can and cannot deliver on limits
this week or next. That we are doing an appropriate review, that there is a
divergence between the single name system that's [Indecipherable.] the number
and the index system, and he needs to take the pressure off in terms of penciling in
a number quickly.
Mr. Martin-Artajo: Ok.
Ms. Drew: I think he's fine with that. And what we can pencil in, we will, but we don't have to
do everything. And then I just wanted to get a really brief update on, you know,
what the P&L might look like. It looked like the curve, the forward curve was
flattening a little.
Mr. Martin-Artajo: Yes. We are going to be showing a slight positive today. I just want to confirm that
with Bruno. I think we are going to be up like somewhere around $20 million today,
ok? So this is the first, this is a big event for us, because we are starting to get
money back. The guys are a little bit unsure, because we are not trading in the
EXHIBIT #32c
Ms. Drew:
market. Maybe, maybe, maybe there's a little bit more money in the trade. I, I
want them to just show me what they think is for sure, ok? So I think we are going
to be up probably somewhere in the $20 million, ok? Somewhere around that.
That, that's on the curve?
Mr. Martin-Artajo: That's on the curve. It's a little bit on the curve. And, you know, if we mark the full,
the full, I think, I think, to be honest with you Ina, we don't know where the market
is trading, so really-
Ms. Drew: I understand.
Mr. Martin-Artajo: Because the bid/offer spread is a little bit wide, it's getting better every day so we
are within the bid offer spread. Now, that means that probably the real P&L is
probably like $50, but I'm going to show about half of that, ok? I just want to make
sure that we don't, because I, I, I really want to make sure what we put in the P&L
what we know for sure. And, so we are, but it is very important, because this is the
first day that we are -If you forget about the idiosyncratic thing that happened
yesterday in Rescap, I mean - this is a, this is a market that actually is starting to
trade a little bit better for our position. It is slightly better. I'm not saying that this
is going to be a fast process, but it, it is important that we start getting positive
numbers now, right?
Ms. Drew: The curve that I put on, Manish put on the screen for me with Julien's help, that it
was starting to, point upwards slightly.
Mr. Martin-Artajo: Yeah. Yeah, it is starting to get a little better. The only thing is I don't know how
much it's trading and I don't want to, I, I, I don't want to show the P&L until these
guys confirm. I mean we are normally quite conservative in that. And, and I, you
know, you know, if, if, if the price gets outside the, the bid-offer spread, then we
mark that, ok? So, so 3 bps as you know is 150 bucks.
Ms. Drew: Yeah.
Mr. Martin-Artajo: So the instruction to you that we have here is probably around $100 million, ok? So
I don't want them to show $100 million today if they are not sure, ok? So, so just
for you to know that, you know, it's about, you know, you know, if this is, you know,
we need to have a real, sort of 3bps move to, to, to recognize that. I hope it
happens and, if it happens between now and the end of the day or, or, whenever it
happens, I'll show you. I'll let you know, ok? I'll send you an email when, if, if things
are improving.
Ms. Drew: Here's my guidance. It's absolutely fine to stay conservative, but it would be
helpful, if appropriate, to get, to start getting a little bit of that mark back.
Mr. Martin-Artajo: Exactly, I know.
2
Ms. Drew: If appropriate, so you know, an extra basis point you can tweak at whatever it is I'm
trying to show, you know, with demonstrable data and if not, then the description
is, you know, we have a conservative mark but the curve is starting to trend
[Indecipherable.] -
Mr. Martin-Artajo: Ok, I will write that. I will write that. It's just that I don't want to do it until I'm sure,
ok? Because I, I, I know that we need this. I know that we need the reversal, and it
does help our case enormously, right? It starts to give us a little bit of credibility
that I've lost by, by explaining this in, in, in such a bad way, really.
Ms. Drew: Ok. But are you ok?
Mr. Martin-Artajo: I'm ok. I'm ok. Thank you very much for - I thought that today's meeting was very
good, Ina. I, I really felt that, that we had a good meeting, today. I think that-
Ms. Drew: Get our arms around everything, and we will, you know, go forward, but sometimes
you gotta, like, look back to go forward.
Mr. Martin-Artajo: Yeah. Yeah, I mean we've shown a lot of our mistakes today. I think that, I think
that, you know, I think this post mortem is, is actually a, a realistic one. I, I, I, you
know, I think that we've, we've made quite a lot of mistakes. I think that we
communicated poorly internally. You know, I think we also forgotten how, how,
how difficult it was, you know the positions that we've made given everything,
right? Given, given, you know, year end. Given how fast things have happened in
Europe. How, how, you know, I, I, I, I'd like to go to New York after, you know, in a
week or two or three to, to, to just, you know, maybe, maybe we can sit down.
Because I feel, you know, we have cathartic things here that maybe healsome of
the things that maybe were not as good in the past. And, and, you know, things like
this, it's like the twin towers falling down and suddenly we get, you know, we
remember, how privileged this thing is and -
Ms. Drew: Ok, I've got it. I'm just reaching out to mostly tell you about the limits and get the
P&L, and I'm going to L&C and I will look, look out for the email later.
Mr. Martin-Artajo: Thank you, Ina. Thank you.
Ms. Drew: Call if you need me. Bye.
###
3
May 8, 2012
Javier Martin-Artajo and Alistair Webster Conversation
Javier: Hi Alistair
Alistair: Hey how are you?
Javier: I'm good man, tell me
Alistair: I have a very quick question for you. Apologies for pestering you on this.
Javier: Yeah, no no that's absolutely fine. Tell me ..
Alistair: So I have, we've obviously been through a lot of detail on sort of pricing moves and how we got
to where we got to at each position level.
Javier: Yeah.
Alistair: But there's just one sort of trend that I'm being asked for a sort of sense of how we think it
happened from a trend perspective.
Javier: Right.
Alistair: And that is if we look at the 18. You remember our famous population of 18?
Javier: The 18? What is the 18?
Alistair: The 18 positions that we reviewed with Doug.
Javier: Yeah.
Alistair: So if I look at those back in January, the front office marks were all either mid or somewhere
close to mid.
Javier: Right.
Alistair: That ..
Javier: In terms of conservative and aggressive. That's what you're asking?
Alistair: Well, it's subtly different, subtly different.
Javier: Okay.
1
Drnft .......................... ...
Likel Permanent Subcommittee on Investigations
EXHIBIT #32d
JPM-ClO 0003631
May 8, 2012
Alistair: But they were, none of them were actually at the boundaries of the bid or offer.
Javier: Right.
A: So then when, if we roll forward to March, if the front office marks had migrated, not all of them, to
the aggressive side, most of them, not all of them, to the aggressive side, but they've also migrated from
either mid to somewhere close to being at the, you know, the bounds of the bid or offer.
J: Yeah, but I think that's because we were trading there. I think that's because we were trading them,
quite heavily ..
A: Um hmm.ln March .. ?
J: Yeah, in March we were not trading as, I mean, we traded as I mean, to be honest with you, we
traded a lot in March and we traded a lot in January. We didn't trade as much in February right? I
mean, that that's kind of how it went for us. We traded a lot in January and we traded a lot in the
middle of ... towards the, I think, the peak of the trading was like the 2D-23rd of March. That's when we
traded a lot. So we were on one side of the market obviously because that's what we were doing.
A: But would that be, if you were trading would you, you would be on the conservative side of the
market as opposed to the the aggressive side, right?
J:. If you're trading, I don't understand your question.
A: I think that ..
J: I mean are you saying that we had a trend at the end of the month to mark a little bit towards more
one side of bid offer as opposed to the trend that we had at the beginning of the year. That's what
you're saying right?
A: Yeah, cause before the beginning of the year you guys ...
J: Okay two things. One is that at the end of March we really traded a lot and second, that, I don't think
the traders have that bias to be honest with you. I don't think so. I mean, listen, you can have any
interpretation you want, but, ...
A: Agreed.
J: I don't think so. I do not think that they were, let's not forget that we stopped trading at the 28th of
March, cause Ina just wanted us to stop trading, so maybe the last three days, I mean, if you're asking
aboutthe last three days we traded less. I don't think they changed the way they mark their books to be
honest with you. I don't think that's what I would say happened.
A: Umhmm.
2
JPM-CtO 0003632
May 8,2012
J: What I would say happened is that the most surprising thing to me that, and I told you before and I
will tell you again Redacted Attorney Client Privilege
A: Umhmm.
J: The thing that I experienced that was incredibly strange to us, right, is not only that you're telling us
about about mid offer spread, but we were actually finding very surprising is a move between the actual
marks that we mark the book at the end of the month okay ...
A: Umhmm.
J: and what we got from Markit and Totem three days later, okay.
A: Umhmm.
J: That is an incredibly surprising thing to me and tothe traders. How much that difference was. So
what my conspiracy theory is telling me is that there's information between when we close our books at
the end of March and where they agreed where the market was three days later.
A:Umhmm.
J: That is very very difficult for me to explain and, to be honest with you, I still don't know, I mean I still
don't know why that happened. I'm still looking into it and I will never give up until I find out what
happened there. My guess is that they were already, Bloomberg and Wall Street Journal were already
writing their story so so their story was ready then. I think they were ready to publish it. I think they
only needed to confirm a few things and they just delayed it for one week. So I think that information
was already in the dealers and the hedge funds to be honest with you. that is a big move for me, and
when we look at the actual move of that and we look at how the difference of our book marks at the
end of the month, and when I look at the IB marks at the end of the month that they gave us, and I look
at Totem marks, what surprised me incredibly was the same amount that the IB would have priced our
book atwas actually the price that at which Totem would have marked it. Now, I think that is very very
very interesting to look at that and compare to the quotes that we had from JPMorgan at the end of of
March.
A: Um hmm.
J: and that is an amazingly, interesting thing for you as an auditor and as an accountant. I'd love you to
help me with that once this is a little bit less critical, because ...
A: Okay
J: I do not know, I don't understand how can it be that the quotes we get form our own IB and from the
market that we trade on on the end of the month and during the day of the end of the month, which,
you see the history of that ...
Confidential T reabnent Requested
3
JPM-CIO 0003633
May 8, 2012
A: Umhmm.
J: You .. then, you see what happened when the Totem numbers were published.
A: Umhmm.
J: This is an amazing thing for me and not only that, what is amazing to me is that the actuallB marks
agree with Totem marks which is even more surprising to me, so this is what I would say is more than
where the traders mark their book which I would like to, you know, I don't think they have a bias. I still
don't think they have a bias now. I do think that on April 30th, I think you're going to see the same thing.
I think, I mean Ashley was saying the same thing as your're ~ l I i n g me.
A: In April it would revert back to the norm in the sense that there's some mid, some, somewhere
between bid and offer, and that there's two ...
J: I know you're saying that, but let me tell you what Ashley told me. He says that we are not. He told
me that I should be even more conservative than that, so, there's lots of opinions on this.
A: Oh no; I have to agree with that ...
J: This is an OTe market. We trade in the markets. We have an interpretation. We are changing it into
what you guys are guiding us that we should do and we're going to do it. I mean I will do what the Firm
wants me to do. I just, you're asking me if I think that the traders had a change in the way they marked
their books. I don't think so. To be honest with you, we traded less at the end of March, the very last
three days of March, but, we were very alert on what the close would be because it was very material
for us since we had been losing a lot of money that week. And the books experienced a very large
drawdown that week. So obviously these guys were looking at the markets, you know, even more
attention than ever. On Friday as you can see, the market was very volatile and also that explains quite
a lot of things if you look at the spreadsheet I sent you.
A: Um hmm.
J: But I wouldn't say that we were aggressive or particularly aggressive in March. I wouldn't say that. I
would say that it it was very difficult to mark books even though we didn't trade as much then and I
don't think that. I don't feel that, Iwas aggressive to be honest with you. Doug's asked me that three
times already.
A: Um hmm.
J: You're asking me twice, umm.
A: No no I'm not, I'm not.
J: And Ashley is already asking me. Ashley is asking me the same thing. Look, first of all,.! wasn't aware
that this was going to be an issue because I wasn't, I mean I don't, I don't, you know, mark books. You
know we have a lot of valuation processes that you know very well.
4
JPM-CIO 0003634
MayS, 2012
A: Urn hmm.
J: and you know, we contribute to the marking of the books. As you know, we do the estimates and the
. best estimates that we can. Today we still have issues because today, I was just before this meeting,
trying to explain, you know again, you know, how we did it for last week. So it's not exactly like we are
yet with a firm way to explain this. Unfortunately, it's difficult to to get to the right methodology. We
differ from the IB--we trade at different times we have different different markets and, I know that the
firm wants us to have one standard but you know that I think it's difficult to agree with that because you
know I was stiliI'm still doing this in parallel to see what it means for our book, and I think we're going
to get a lot of volatility if we do that so I think it's better if we actually get some tolerance which is lower
and we try to price everything in ICE or Markit everyday. And then the tranches do what the guys are
doing, which is give the best estimate based on the quote, so at least we align the indexes with ICE and
. or Markit. And I'd like to do that-- more than aligning that to the IB quotes. I really think that having the
IB quotes is a problem and I don't want to be, you know, dealing with that. I think that the IB has a
different business model and they are buyers on certain things and they don't trade quite a lot of the
things that we own, so I think Markit or ICE is the reference we should use, or close to that, and then,
you know, without interpretation of the traders, so no interpretation on that and then we do what we
can on the tranches. I think this would remove some of the bias I think that you are referring to.
A: Urn hmm, the possible bias, the possible bias ..
J: I don't think there was a bias to be honest.
A: Understood.
J: Is that what you wanted from this call?
A: No, I mean, to be honest with you, I mean you you can interpret it any which way you want to and
I'm not here to accuse you or anything like that. It was more, just a sort of, someone will ask that, you
know, cause obviously we've documented everything you've done and you know we've been through
the process, position by position, and well, they say, well they did this on that one and what they did
with this on that one. I was just trying to catch if there was some sort of general trend you know and
essentially what you articulate is look, you know, less trading at the end of the month, you know
potentialiy the information is already out there so the banks are starting to move against us and there's
volatility in the market.
J: That is basically what I am saying.
A: So that was very helpful.
J: Ok, you're welcome.
A: As always, Javier, I'm not certainly not trying to, you know, be an accuser. I'm just trying to get toa
grip with everything. I'm just a simple guy.
5
JPM-ClO 0003635
May 8,2012
J: Ok.
A: But I do certainly appreciate all the time and effort that you've put into helping me and you know ...
J: I have to say the same Alistair. I, you have to understand, that I get probably, I'm getting between
100 and 150 calls a day. I don't know how many does Jamie Dimon get, but I am sure I get more, but, I'm
the. only one here, ok, thank you, man.
A: That's why I say I'm grateful...
J: Alrighty.
A: for the time. Thanks a lot.
J: Cheers.
6
JPM-ClO 0003636
From: Grout, JulienG <[email protected]>
<;ent: Tue,10 Apr 2012 19:02:01 GMT
'0: CIO ESTIMATED P&L <CIO_CREDrCP&[email protected]>
CC: . CIO P&L Team <CIO':"'P&[email protected]>
Subject: CIO Core Credit P&L Predict [10 Apr]: -$5,711k(dly) -$626,834k (ytcf)
Daily P&L: - $5,710,991
YTD . P&l: - $626,833,772
Daily P&L($) YTD P&L($)
Europe Financ i als -15,447,416 - 70,109,112
Redacted By
PerD!anent Subcommittee on Investigations
Europe High Grade . . -72,418,493 ' - 83,e26, 416
. . '. . Redacted By
Permanent Subcommittee on Iuvestigations
Redacted By
us High Grade -31e,657,048 -178,547,277
Redacted By
'IS HY & LCDX ' 410,592,536 281,987,487
---- ----------------- - --- -------- ------------ -- -
,' ,'
EXHIBIT #33
JPM-CIO D003510
Redacted by tile
-771-___
----- - "" ----- , -.-
UJ, linc'!'ligations It

New Investments . 6,522,635 -529,210,342
- - - - - - - - - - - .- = - - -:..:.; - -:..:.; - -=- ---.... - ---;;.;.;- --.. - .;;.;;.;;.;;.;;...-.--
'
Redacted by tbe I
Subcommittee on Investigations'
Dead Books (Core) -33.1 1,790
----- -- -- --- ----------
Redacted by tbe
' Permanent Subcommittee on Investigations

Wash book/ Cost s o
o
Redacted! I '
Permanent Subcommittee on Investigations .
I
JPM-CIO D003571
Redacted by
Big moves in credit index today. US creOn: , nao already taken a hit ' following Friday's poor NFP
report. Today's s,ell off was a'mplified by further concerns in the European complex, with Spain
(+21bp at 488bp) and Italy (+20bp at 4'38bp) leading the way wider,. This is pushing financials and
, iTraxx.Main too, and credit is actually compressing in Europe, thus despite the worsening of the
economic situation there . This compression is causing a 70M loss today. The' l 'oss however is
partially compensated by decompression in US cr"edit, with the COX.HY complex underperforming.
Today saw a significant bear steepening in off the run CDX.IG9 and iTraxx.Main 59.index curves:
for instance iTraxx.Main S9 jun18 is underperforming the on ' the run benchmark index by +3bp while
the front end 59 .. Jun,13 is outperforming by -2bp ' . It is difficult to find a 'catalyst
for these' moves - one would have expected some flattening in those; despite, the substantial move
in 'spreads (and in credit volatility in general) and some flattening seen in single name curves,
, the front end .of these curves is still outperforming. Note that the moves happened in small
volumes - if 'any, in iTraxx . Main 59 .,
No trade today.
raxx.Main 517
Jun17
iTraxx.Main 59
Jun18 ,
5/10 S9
5y S9
iTraxx.Xover 517
OTE5y CDS
PORTEL 5y CDS
BESPL 5y CDS
DXNS 5y CDS
CDXJG18 Jun17
CDX.IG9 Dec17 '
IG95/10
5y IG9
RDN 5y CDS
' MBI 5y CDS,
FON 5yCDS
SFI 5y CDS
HY10
HY11
HY14
HY15,
HY16
liY18
ESCAP 5y CDS
10-Apr-
12
04-Apr-
12
03: Apr-
12
02-Apr-
12
02-Apr-
12
30-Mar-
12
Again, a lot of prices are still being framed and we are providing our best estimate
Confidenti-ll Treatment Requested
JPM-ClO 0003572
From: Grout, Julien G <[email protected]>
<;ent: Tue, 10 Apr 201220:30:42 GMT
, :0: cm ESTIMATED P&L <CIO_CREDIT_P&[email protected]>
CC: CIO P&L'Team <OO_P&[email protected]>
Subject: CIO Core Credit P&L Predict.[l0 Apr] : -$394,735k (dly) -$1,015,858k (ytd)
Daily P&L:. -$394,735,128
YTD P&L: -$1,815,857,982
Daily P&L($) YTD P&L($)
Eur e lnanCla 5 . , ,589
.
Europe High Grade -189,451,352 -288, 859,275
Redacted by the
Redacted By
US High Grade . - 449,375,288 -.317,265,429
.j-
Redacted by the
<IS HY & LCDX 346,855,897 217,458,848

, Redacted by the
I
P
Confidentiiil Requeste>l
on Investigations
JPM-CIO 0003573
Redacted By
US ABX./ TABX - 774 -26,312
Redacted By
New Investments -62,215,559 -597,948,537
Redacted By
Dead Books (Core) '-343 1,784
Redacted By
Washbook/<:;osts
e e
Redacted By
JPM-ClO 0003574
Redacted By
Permanent Subcommittee on Iuvestigations
Big moves in credit index over the long week end . US credit had already taken a :hit following
Friday's poor NFp report. Today' s sell off was amplified by further concerns in the European
complex, with Spain (+21bp at 488bp) and Italy . (+28bp at 438bp) leading the way wider. This is
pushing financials and iTraxx.Main too, and cr.edit is actually compressing in Europe (iTraxx.Xover
outperforming by -9bp), thus despite the worsening of the economic situation there. This
compression, along the directional moves in the index, is causing a 8aM loss today. In the US the.
compression is less obvious, although CDX. HV has been outperforming equities.
Today saw a significant bear steepening in off the run CDX.IG9and iTraxx.Main S9 index curves:
for instance iTraxx.Main 59 Jun18 is +lS.7Sbp wider while theon the ruw be>nchmark index 517 is
.+12bp and the front end iTraxx. Main 59 . Jun13 is only +7.2Sbp, thus a steepening +8.Sbp; similarly
CDX . IG9 Jun17 is marked +12bp wider while the on the run CDX.IG18 is +9bp and the front end
CDX. IG9 Dec12 is only +6bp, thus a +6bp steepening. It is difficult to find a catalyst for these
moves - one would have expected some flattening in these curves; despite the substantial move in
spreads (and in. credit volatility in general) and some flattening seen in single name curves, the
front end of these curves is still outperforming. Note that the moves happened in small volumes
if any, in iTraxx . Main 59. These moves are causing a loss of 16aM in CDX.IG and 148M in
iTraxx. Main ..
-', trade today .
iTraxx.Main 517
Jun17
iTraxx.Main 59
Juri18
5/10 S9
5y S9
iTraxx.Xover 517
OTE 5y CDS
PORTEL 5y CDS
BESPL 5y CDS
DXNS 5y CDS
CDX.lG18 Jun17
CDX.IG9 Dec17
IG95/10
5y IG9
RON 5y CDS
MBI 5y CDS
FON 5yCOS
SFI 5y CDS
HY10
HV11
HV14
iY15
HY16
HY18
10-Apr-
12
Confidl!rrt.illl Treatment Requested
by JPMORGAN CHASE. & CO.
30-Mar-
12
JPM-CICTOOO3575
From: Hughes, Jason LON <[email protected]>
Sent: Fri, 20 Apr 2012 19:07:35 GMT
To: Kastl, Edward R <[email protected]>
Subject: RE: Credit Index and Tranche Book
Exactly. Marked within bid offer except for the positions where you see an adjustment
Instrument
ITRAXX MN S09 10Y 22-100
COX HY S10 05Y 15-25
COX HY S11 05Y 15-25
COX IG S09 10Y 00-03
COX HY S08 05Y 10-15
COX IG S09 05Y 00-03
ITRAXX MN S09 07Y
COX HY S10 07Y 10-15
COX IG S09 10Y 30-100
COX HY S11 05Y 10-15
COX IG S09 07Y 30-100
ITRAXX MN S16 05Y
COX LCOX S10 05Y 12-15
COX HY S11 07Y
COX LCDX S10 05Y 15-100
COX HY S08 07Y 15-25
Regards,
Jason Hughes
C/O Europe
020 7777 3301
From: Kastl, Edward R
Sent: 20 April 2012 19:52
To: Hughes, Jason LON
Cc: Wilmot, John
Tolerance
5 bps
0.5 price points
0.5 price points
1.5bps
1 price points
1bps
0.75 bps
6bps
1.5 price points
0.75 bps
0.5 bps
2 price points
Obps.75
2bps
0.5 bps
1 price points
0.5 price points
0.5 price points
2 price points
Subject: RE: Credit Index and Tranche Book
When you say "most advantageous" you mean within Bid/Offer tolerances, correct? Only the $17mm at the bottom would be
outside of tolerance and that is where we posted an adjustment.
Generally speaking, what are the tolerances for these 19 positions?
Ed
From: Hughes, Jason LON
CONFIDENTIAL TREATMENT REQUESTED B
EXHIBIT #34a
JPM.CIO 0003599
Sent: Friday, April 20, 20122:41 PM
To: Kastl, Edward R
Subject: Credit Index and Tranche Book
Ed, At March month end the CID FD marked their book at the most advantageous levels based on the positions they held in
specific indices and tranches. CID VCG price tested the positions initially mid versus mid and that resulted in the following
adjustments
Differences Differences
Global (Ccy) ($)
S4FINSUB -18,443,604 -24,560,425
S6 EU -4,268,031 -5,683,523
S12 EU 0 0
SI4_EU -27,536,181 -36,668,556
S6 US 3,466,609 3,466,609
S18 US -80,183,976 -80,183,976
SllB_US 2,223,732 2,223,732
Sl1C_US 5,371,007 5,371,007
S15B 26,090,038 26,090,038
S15C 9,122,647 9,122,647
S15D -37,088,552 -37,088,552
S9 US 0 0
S27A US 5,178,854 5,178,854
S27B_EU -2,285,717 -3,043,776
S27C_US -61,254,250 -61,254,250
S27D US 5,492,713 5,492,713
Core Credit Total -174,114,711 -191,537,457
Tactical 14pU 0 0
Tactical 32 EU -89,449 -119,115
Tactica170pU -19,890 -26,487
Tactical 70 USD -7,689 -7,689
Tactical 71_EU -1,067,544 -1,421,595
Tactical 71 USD 0 0
Tactical 75_USD 0 0
Tactical Total -1,184,572 -1,574,886
Credit Total -175,299,284 -193,112,343
However, based on our normal practice we then applied market derived thresholds to each of the individual positions. If a
position was within tolerance then no adjustment was required and if a position was outside tolerance an adjustment was
passed to bring it back within tolerance. After applying these tolerances the adjustment became
Differences Differences
Global (Ccy) ($)
S4 FIN SUB -2,757,552 -3,672,094
S6_EU -987,157 -1,314,547
S12 EU 0 0
SI4_EU -2,920,748 -3,889,415
S6 US 2,218,438 2,218,438
SI8_US 0 0
SUB_US 0 0
SllC_US 0 0
S15B 0 0
JPM-CIO 0003600
S15C 0 0
S15D 0 0
S9 US 0 0
S27A_US 0 0
S27B_EU -6,028,625 -8,028,018
S27C US 0 0
S27D_US 0 0
Core Credit Total -10,475,644 -14,685,636
Tactical14_EU 0 0
Tactical 32 EU -89,449 -119,115
Tactical 70 EU -505,906 -673,690
Tactical 70_ USD -7,689 -7,689
Tactical71 EU -1,067,544 -1,421,595
Tactical 71_ USD 0 0
Tactical 75 USD 0 0
Tactical Total -1,670,588 -2,222,089
Credit Total -12,146,232 -16,907,725
The difference between the 2 numbers highlights the size of the positions CIO hold and the difference that can result from
marking within a normal market bid/offer spread.
liquidity Reserve
Our policy has been to exclude Series 9 of the ITAXX and CDX IG based on the liquidity of these series as they are still very
liquid for the correlation markets. The following table shows the changes we have been able to make to our positions in these
indices and tranches during 2012 (Positions are in local currency)
Dec-31 Jan-31 Feb-29 Mar-31
ITRAXX MN 809 05Y 25,376,375,000 19,682,625,000 13,748,375,000 17,304,875,000
ITRAXX MN 809 05Y 00-03 -2,480,000,000 -2,595,000,000 -2,615,000,000 -2,950,000,000
ITRAXX MN 809 05Y 03-06 35,000,000 -5,000,000 -300,000,000 -360,000,000
ITRAXX MN 809 05Y 06-09 -15,000,000 280,000,000 340,000,000 340,000,000
ITRAXX MN 809 05Y 09-12 25,000,000 165,000,000 280,000,000 280,000,000
ITRAXX MN 809 05Y 12-22 -1,075,000,000 -375,000,000 -175,000,000 -125,000,000
ITRAXX MN 809 05Y 22-100 7,300,000,000 11,300,000,000 7,500,000,000 7,100,000,000
ITRAXX MN 809 07Y 3,855,000,000 3,837,000,000 4,353,250,000 5,016,250,000
ITRAXX MN 809 07Y 00-03 -480,000,000 -480,000,000 -490,000,000 -590,000,000
ITRAXX MN 809 07Y 03-06 -10,000,000 -10,000,000 -140,000,000 -160,000,000
ITRAXX MN 809 07Y 06-09 10,000,000 -25,000,000 -25,000,000 -25,000,000
ITRAXX MN 809 07Y 09-12 230,000,000 180,000,000 180,000,000 180,000,000
ITRAXX MN 809 07Y 12-22 -950,000,000 -750,000,000 -450,000,000 -450,000,000
ITRAXX MN 809 07Y 22-100 6,575,000,000 6,675,000,000 9,975,000,000 10,950,000,000
ITRAXX MN 809 10Y 7,892,750,000 10,573,750,000 10,339,750,000 12,957,600,000
ITRAXX MN S09 10Y 00-03 1,425,000,000 1,415,000,000 1,445,000,000 1,270,000,000
ITRAXX MN S09 10Y 03-06 -220,000,000 -100,000,000 -140,000,000 5,000,000
ITRAXX MN S09 10Y 06-09 160,000,000 270,000,000 270,000,000 380,000,000
ITRAXX MN S09 10Y 09-12 -30,000,000 235,000,000 235,000,000 235,000,000
ITRAXX MN S09 10Y 12-22 -1,015,000,000 -495,000,000 180,000,000 155,000,000
ITRAXX MN S09 10Y 22-100 5,100,000,000 7,775,000,000 12,070,000,000 15,810,000,000
COX IG 809 05Y -30,569,500,000 ..,40,103,500,000 -49,563,000,000 -32,722,500,000
COX IG 809 05Y 00-03 -2,580,000,000 -2,725,000,000 -2,995,000,000 -3,570,000,000
JPM-CIO 0003601
COX IG S09 05Y 03-07
COX IG S09 05Y 07-10
COX IG S09 05Y 10-15
COX IG S09 05Y 15-30
COX IG S09 05Y 30-100
COX IG S09 07Y
COX IG S09 07Y 00-03
COX IG S09 07Y 03-07
COX IG S09 07Y 07-10
COX IG S09 07Y 10-15
COX IG S09 07Y 15-30
COX IG S09 07Y 30-100
COX IG S09 10Y
COX IG S09 10Y 00-03
COX IG S09 10Y 03-07
COX IG S09 10Y 07-10
COX IG S09 10Y 10-15
COX IG S09 10Y 15-30
COX IG S09 10Y 30-100
-1,090,000,000
-1,435,000,000
-2,905,000,000
-12,215,000,000
-270,000,000
30,253,500,005
-705,000,000
165,000,000
-345,000,000
-925,000,000
-4,940,000,000
10,380,000,000
37,219,500,000
3,300,000,000
-20,000,000
155,000,000
-785,000,000
-1,345,000,000
11,975,000,000
-1,355,000,000
-2,045,000,000
-2,905,000,000
-12,215,000,000
270,000,000
28,885,000,005
-555,000,000
165,000,000
-345,000,000
-1,195,000,000
-5,340,000,000
10,980,000,000
54,764,500,000
3,290,000,000
60,000,000
345,000,000
-1,730,000,000
2,075,000,000
16,625,000,000
-1,395,000,000
2,045,000,000
2,905,000,000
-12,215,000,000
-270,000,000
33,546,000,005
-370,000,000
-190,000,000
-410,000,000
-1,820,000,000
-6,290,000,000
.10,780,000,000
67,790,500,000
3,370,000,000
-120,000,000
265,000,000
-1,900,000,000
-2,750,000,000
15,875,000,000
-1,395,000,000
-2,045,000,000
-2,905,000,000
-12,215,000,000
-270,000,000
33,847,000,005
-405,000,000
-215,000,000
-365,000,000
-1,970,000,000
-6,965,000,000
11,430,000,000
80,343,500,000
2,805,000,000
60,000,000
775,000,000
-1,980,000,000
-3,800,000,000
16,725,000,000
These moves only show the changes month on month and do not show the significant volumes we have been able to trade
intr-month.
Regards,
Jason Hughes
C/O Europe
020 7777 3301
JPM-CIO 0003602
Sent: Fri, 20 Apr 2012 10:27:58 GMT
'0: Bates, Paul T <[email protected]>
Subject: RE: U ~ G E N T ::: Huge Difference for iTraxx & CDX trades
thx Paul. We can address that partly because it is possible here that BofA and MS are not in line with other market
participants.
From: Bates, Paul T
Sent: 20 April 2012 11:23
To: Iksil, Bruno M
Cc: Grout, Julien G; Martin-Artajo, Javier X; O'neill, Rory H; Hughes, Jason LDN
Subject: RE: URGENT::: Huge Difference for iTraxx & CDX trades
Hi Bruno
J
The file we were sent only had the top 15 trade breaks with either BOA or MS in it. They were not
complete trade lists therefore I do not know the complete valuation difference with each of these
CpJ s .
. Here are the two summary pivots based on the trades we were given:
BOA:
M5:
As you can see the bigger differences are on the Itraxx 59 22% - 100%.
have attached the files with these pivots so you can drill down to look at the underlying
_,'ades.
EXHIBIT #34b
JPM-CIO 0003582
If you need more details please let me know.
Paul
-----Original Message-----
Sent: 29 April 2912 11:99
To: Bates, Paul T
Cc: Grout, Julien G; Martin-Artajo, Javier X
Subject: RE: URGENT ::: Huge Difference for iTraxx & COX trades
thx Paul. Could you help us "decipher" in plain words what we should look at and come back to you
on the issues raised here?
From: Bates, Paul T
Sent: 29 April 2912 19:58
To: Grout, Julien G; Iksil, Bruno M
Cc: O'neill, Rory H; Coombes, Hema S; Hughes, Jason LDN
Subj ect: FW: URGENT ::: Huge Difference for iTraxx & CDXtrades
Here are the detailed files we were sent from the collateral guys.
---Original Message-----
Sent: 29 April 2912 19:31
To: O'neill, Rory H
Cc: Enfield, Keith; Bates, Paul T; Coombes, Hema S
Subject: FW: URGENT ::: Huge Difference for iTraxx & COX trades
Rory, Can you liase with Julien on this
Regards,
Jason Hughes
CIO Europe
929 7777 3391
-----Original M e s s a g e - ~ - -
Sent: 29 April 2912 19:39
To: Hughes, Jason LDN
Subj ect: RE: URGENT ::: Huge Difference for iTraxx & CDX trades
I would like to know the detail of the instruments and the counterparties claiming this. Please
'form Julien and Javier about this.
JPM.CIO 0003583
Sent: 20 April 2012 10:13
To: Iksil, Bruno M; Grout, Julien G
bj ect: ,FW: URGENT Huge Difference for i Traxx & COX trades
Bruno/Julien, We've had some queries from the collateral group' around some of our tranche marks.
Major query seems to be on Itraxx Series 9 10year 22-100 tranche. I've had a quick look at some
data and my thoughts are shown in the mail below and just wondered if there was anything else you
wanted to add (or if I got anything wrong) of if you had any further evidence for the prices.
I'm from home today but happy to speak on phone if required
Regards,
Jason Hughes
cra Europe
El20 7777 3301
From: Hughes, Jason LDN
Sent: 20 April 2012 09:51
To: O'neill, Rory H; Bates, Paul T; Green, James E; CIa EMEA CIa P&L Team
Cc: Coombes, Hema S; Enfield, Keith
Subject: RE: URGENT ::: Huge Difference for iTraxx & CDX trades
I've quickly looked into ITRAXX Series 9 10year 22-100 tranche which seems to form the majority of
issues in both files.
AS of 30th March 2012 for this tranche CIa were marked at 33 versus an independent price of 34.75.
Considering that the. bid offer seen in the market is anything between 3 and 6 bps we considered
the position to be marked within tolerance and therefore at fair value. For the same date
Dataquery (JPM data but independent of CIa) shows a level of 35.
For 18th April, the date that these files refer to, CIa is marked at 45.75 Dataquery has a price
of 48. Even using the tolerances we applied at last month end (which are now probably too tight)
we would still fall within tolerance and so from my perspective we still look to be well marked.
It is probably worth confirming with Bruno/Julian but I'm sure with all the sensitivity around the
book they are going to be very sure of all their marks;
Any questions let me know
Regards,
Jason Hughes
CIa Europe
El20 7777 3301
---C--:Original Message-----
O'neill, Rory H
2El April 2012 09:23
To: O'neill, Rory H; Hughes, Jason LDN; Bates, paul Tj Green, James Ej CIa EMEA MO; cra P&L Team
Confidential Treatment Requested JPMCIO 0003584
Subject: RE: URGENT :::'Huge Difference for iTraxx & CDX trades
'oth files attached)
From: O'neill, Rory H
Sent: 20 April 2012 09:14
To: Hughes) Jason LDN; Bates, Paul T; Green, James E; cra EMEA MO; CIO P&L Team
Sent: 20 April 2012 08:59
To: Bates, Paul T; O'neill, Rory H; Green, James E; CIO EMEA MO; CIO P&L Team
Paul, Valuations were OK as of March month end. I can't do an intra-month valuation as we don't
get sufficient market data especially around tranche positions
Regards,
son Hughes
_.LO Europe
020 7777 3301
-----Original Message-----.
From: Bates, Paul T
Sent: 20 April 2012 08:46
To: Hughes, Jason LDN; O'neill, Rory H; Green, James E; CIO EMEA MO; CIO P&L Team
Rory, Can you and James check all the trades are ok and they are getting the correct MTM fed
down. Have they sent us the full population? Do we know the size of the difference?
Jason, Can you look in detail at these valuation differences and check that you are happy with our
current marks on these instruments.
Thanks
Paul
nt: 20 April 2012 08:27
.J: O'neill, Rory H; Green, James E; CIO EMEA MO; CIO P&L Team
Cc: Bates, Paul T; Coombes, Hema S
JPMCIO 0003585
Rory, Assuming you meant end of March and not April. There were differences between the desk and
'e independent marks at month end. The desk marked the book at the boundary of the bid/offer
_pread depending on whether the position was long or short. We then applied a tolerance to make
sure the prices were within tolerance and the majority of positions were. We had a number of
positions where they fell outside these tolerances and hence the adjustment that was passed. With
volatility seen around month end and the size.of our positions even small price differences
would be expected:
Regards,
Jason Hughes
CIO Europe
020 7777 3301
From: O'neill, Rory H
Sent: 20 April 2012 06:22
To: Green, James E; CIO EMEA MO; CIO P&l Team; Hughes) Jason lDN
Cc: Bates, Paul T; Coombes) Hema S
Subject: Re: URGENT ::: Huge Difference for iTraxx & CDX trades
Can you confirm the 30Apr VCG result on these instruments? Do we have any known discrepancies with
the mkt?
.tanks,
Rory
------Original Message------
From: Vaz, Daniel X
To: Green) James E
To: CIO EMEA MO
To: CIO P&l Team
Cc: IBOD Collateral Project Team
Cc: Miller, Charles R
Cc: Demo, Mark
Cc: Daryanani, Nilam I
Subject: URGENT ::: Huge Difference for iTraxx & CDX trades
Sent: 20 Apr 2012
Hi James, CIO,
Can you please validate the marks for the CDS trades booked with ref entity as iTraxx Europe s9
22%-100% or CDX.NA.IG.8 30%-100%? We are seeing huge differences in these trades when we compare
our marks with CP marks. I took a sample of 15 trades from MSCS & BOA portfolio with greater MTM
differences. Can you please investigate & advice .why we would have such huge differences at a
trade level which is impacting our margin calls?
CP
tal portfoliO diff
trade count
Comments
Internal Collateral tracking number
JPM-CIO 0003586
MSCS
USD 36.2 MM
15
All trades are booked with ref entity as iTraxx Europe. s9 22%-100% cart=351950 BOA USD 46 MM
15
Trades are booked with ref entity as iTraxx Europe s9 22%-100% or
CDX.NA.IG.8 30%-100%
't=351952
Daniel Vaz I Team Leader I Collateral & Derivatives Confirms I Investment Bank I J.P. Morgan I T:
+912261260408 I danieL x. [email protected] I jpmorgan. com I JPMC Internal use only
JPM-CIO 0003587
From: Braunstein, Douglas <[email protected]>
Sent: Fri, 20 Apr 2012 15:31:33 GMT
To: Hogan, John J. <[email protected]>
Subject: Re: Collateral Disputes
Is this the first time this has happened
From: Hogan, .John J.
S!nt: Friday, April 20, 2fJ12 11:24 AM
To: Braunstein$ Douglas
Subject: Fw: Collateral Disputes
This isn't a good sign on our valuation process on the Tranche book in Cia. lim going to dig further.
From: Goldman, Irvin J
Sent: FridaY,Aprii 20, 2012 11:21 AM
To: Hogan, John J.
Subject: FW: Collateral Disputes
-----Ortginal Message-----
From: LewiS, Phil
Sent: Friday, April 20,. 201211:20 AM Eastern Standard Time
To: Goldman, Irvin J; Weiland
t
Peter
Cc: Kastl, Edward R; Bates, Paul T
Subject:. RE: Collateral Djsputes
Yes e a r e , ~ we havecoHateral disputes frorha number of counterparties (obviously on positions thatarenit novated to ICE!
so the trarichesand ICE ineligible indices). Biggest are with MS and .G& Fil'stwe heard of these was this mornlrig(co([ate.ral
process is done at a Legal entity level -when differences becom.e big enough they reach out to MO& VCGJ. MO are checking
all bookings and flows,with the desk and VCG (Jason Hughes/Ed Kastl) are checking marks .. Weare also trying to get some
granularity by flroduct
I'll forward you a note from the co.llateral guys.
This t<lbleshowsdifferences by cptyand the (;ross AbsQlute PV across all outstanding trCldes vvitheach cpty
SUm ofABS Sum of
CP (LoGa!) MTM DIFF %
BBVASA 856;948 ..:141;471 -17%
BNPP t,427 ,575, 1 oe .17,698,254 1%
BOA 3,135;860,8U2 72,455,626 2%
BPLC 1,078,123,886 -427,$85 0%
CA 28,737,306 2,032,294 7%
CGML 49,019,323 -007;742 .1%
elTl 4,417,744,863 60,630,170 1%
CSI 421,675,999 27,289,077 6%
esl<. 474,311,8.03 15,227,896 3%
DBKAG 3,080,139,893 56,005,118 2%
GSI 4.,701 ;976,454 89,576,9]9 2%
JPM-CIO-PSI-H 0000108 CONFIDENTIAL TREATMENT REQUEST. ... __ E.XH_.IB_IT_#.3.5 __ __
J.P, MORGAN CHASE & CO.
HSBCEU 100,908,403
H$BCU$ 35,801,766
MLI 6;244,6.92
MSCS 4,124,528,028
MSI.L 222,395,628
NOM URAl? 298,811,944
RBS;PLC 81,168,415
SGCIB 3,1'04,157;922
UBSAG 2,576,649,497
Grand Total 29,226,690,681
From: Goldman,lrvin J
Sent: Friday, April 20, 2012. 1.1:00 AM
To: Lew!s, Phil
SlIbject: FW:c CQlIaterill Disputes
Please let me know.
From: 'Hogan, John J.
121,569 0%
6,027,80& 17%
-3%
114,910;670 3%
1,724,699 1%
.,2.974;037 -1%
.,3%
16,658,449 1%
46,660,667 2%
519,983,977 2%
Sent: Friday , April 20, 2012 10:22 AM Eastern Standard Time
To: Goldman, Irvin J;Weiland, Peter
Sul,lJect: Collateral DiSPJltes
Are YOllhaving any in the tranche (OT index) positions?
CONFIDENTIAL TREATMENT R,EQUESTEDBY
J.P, MORGAN CHASE & CO.
Table of Contents
I. Background
II. JPMorgan Chase Fair Value Measurement Policy
III. CIO Valuation Approach
IV. Conclusions
V. Appendix A - 3/31/12 Position Marks
VI. Appendix B - Ql Price Testing Analysis
VII. Appendix C - CIO Transaction Data
Privileged and Confidential
Attorney Client Work Product
May 10, 2012
This memo summarizes the Firm's review of the valuation of its CIO EMEA credit portfolio in
light of the current market conditions and dislocation that occurred in April 2012.
I. Background
The CIO EMEA credit portfolio is made up of Investment and Core Credit portfoliosl. The
Investment portfolio consists of available-for-sale investment securities, while the Core
Credit Portfolio primarily consists of synthetic credit positions -- credit derivative positions
on various credit indices and tranches of those indices (the index and tranche credit
derivatives portfolio). These synthetic positions were entered into to manage the market
value deterioration in a potential stress scenario associated with investment securities held
in the available-for-sale portfolio; the positions have changed over time depending on the
Firm's view of credit risk.
CIO has a substantial presence in the financial markets, and the breadth and depth of its
activity has generally given CIO a good sense of the market, with strong market contacts and
market intelligence. In particular in these credit products, CIO executed a significant volume
in the market and therefore had deep access to market pricing and color;
During January, February and through the first few weeks of March, CIO was buying, to add
to existing positions, the risk of (i.e. selling credit protection) the following indices and
tranches to reduce the short high yield credit risk position in the portfolio:
CDX Investment Grade North America Series 9,10 year and 7 year.
ITraxx Main Series 9,10 year and 7 year.
In addition, on April 6, the business press began reporting on certain of these positions,
providing other market participants with some level of information regarding the Firm's
positions and activity.
1 CIO also has a North America credit portfolio, but that portfolio does not include synthetic credit positions and
therefore is not subject to this review.
1
CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORC:: .. ___ E.XH ... ffi IT ... #.3 .... 6 ___ ..
CONFIDENTIAL TREATMENT REQUESTED BY J.I
JPM-CIO 0009724
May 10, 2012
In April
1
, market activity and market prices for these credit derivatives changed significantly
and a number of unusual trends were observed, including:
The difference between cost of protection on investment grade indices and high
yield indices in Europe and North America reduced significantly.
The difference between cost of protection on short dated risk and long dated risk in
a number of indices increased significantly. For a number of indices the cost of
protection on the index moved inconsistently with the prices of protection on
various tranches of the index. For example, for the iTRaxx Main Series 9 10 year
during April:
o Spread moves for the index itself implied some increase in losses due to
increased correlation within the index.
o Price moves in the super senior tranche implied losses due to very much
larger increases in correlation within the index.
o Price moves in the more junior tranches implied limited increases in
correlation.
lThese trends began to emerge in late March, but developed and became much more
significant in April.
These changes have been unusual compared to the historical relationship between
. investment grade and high yield indices, as well as the relationship between index and
tranche exposures. Due to the complexity and the size of the Firm's positions, the effect of
these changes, in conjunction with other market factors, on the estimated fair value of the
Firm's positions has been significantly negative during April. As noted throughout this
memo, relatively small variations in price can have a relatively large impact on the estimated
fair value of the entire portfolio, given the size of the Firm's positions.
Size of Position Data
The following table provides the absolute notional amounts (in USD) of these positions at
various dates.
Table 1: Notional amount of CIO positions
ITRAXXMN 63,877 ,901,370 76,235,846,930 97,848,010,020 118,982,003,490 118,505,911,681
CDXIG (1 e..,:3/.':?' ($,.:i.:ifi ,Ei$ti j 6,220,451,026 54,767,087,520 56,054,146,920
CDXHY 8,123,572,169 4,810,808,419 (':i)':tl,S:?4,9:>:l) (7 .i:1H.S57 U ,557
ITRAXXXO (5,20't,eO"! ,COO) (4,371,339,000) (7,017,111,cGG) (8:ee9,9t;9,500) (8.736.455.500)
ITRAXXFINSUB (2.324.5<lG.GQG) (2.191,63(),OOO) {3,D79,32C,OOC) (2.' i2.C4(WGG) (2,080<280,00(:)
CDXLCDX 1 ,856,414,686 1.826,651,611 1,796,888,575 1,796,888,575 1,796,888.575
ITRAXXFINSEN (79,9" 0,(00) (";4G,7GCJ)CGi 73,150,000 100.706,250
SOVXWE 46,665,000 46,665.000
Total 50,997.179,286 67,783,741,435 94,611,293,688 156,944,227,652 158,129,707.994
,. _,' ....................... " ""' ,,. .,'n .......... .... , .... M ........ ,. ... v ................... ...................... v ............... , ,,,. " ........ , , ..... , ........... ".'.''',' , ............ ,. ...... ,., ... , , .... M ... ,.,. ,. ...... .
2
JPM-CIO 0009725
May 10, 2012
Table 2: Cia's share of market volume
The following table compares the absolute notional amount of Cia's transactions in selected
indices and to the absolute notional of street-wide transactions, in order to provide a sense
of the relative size of Cia's activity in the market for the first four months of 2012. This data,
as well as similar data from 2011, demonstrates two key points: 1) prior to late March 2012,
cia was a substantial participant in these credit markets, and 2) even without Cia's
involvement (throughout these periods and in April after cia substantially reduced its
activity), the remaining street volume was substantial.
ITRAXXSERIES 9 7Y
.. ... ;; .....! . .
Feb-12 4,751,750,000 9,754,250,000 49%
Mar-12 775,000,000 8,325,375,000 9%
Apr-12 487,500,000 5,004,150,000 10%
__ w. __ ____, __l ___. __ .. .. ,,,, __ __"" __ "' ____N
ITRAXXEUROPE SERIES 910Y
.. ; .. , ... .. ;L .. ? .. ... .. ....... L.i.: .. : ..
Jan-12 $ 11,769,250,000 $ 26,758,710,300 44%
Feb-12 7,244,900,000 15,205,250,000 48%
Mar-12 6,601,250,000 13,806,250,000 48%
Apr-12 338,750,000 5,570,925,000 6%
. ....................... w .. ...... w, .... w ........ m
ITRAXX EUROPE SERIES 16 5Y
.. . ..; ... ...... .;,i;.gjQ.f&,;;:':'.
Jan-12 $ 26,440,500,000 $ 206,771,511,713 13%
Feb-12 36,359,500,000 216,991,196,801 17%
Mar-12 26,075,000,000 199,058,170,509 13%
Apr-12 25,000,000 13,785,754,578 0%
........ , ...... w .......... t ... w ... ..... l, ....... ........................ "' .. .
CDXNAIG.9 7Y
.. ..
Feb-12 8,387,000,000 48,791,460,000 17%
Mar-12 2,017,000,000 41,738,540,328 5%
Apr-12 256,000,000 23,310,200,000 1 %
. .. w ............... .. l .... ..1.?l?1.!.9QJ9g,R, ... 1 ......... ............................. .
CDXNAIG.9 10Y

Jan-12 $ 28,528,000,000 $ 83,065,700,000 34%
Feb-12 20,032,000,000 48,049,133,456 42%
Mar-12 9,819,500,000 72,016,977,456 14%
Apr-12 677,000,000 31,722,763,000 2%
..... w .................. l ......... ...... l .......... ... ....................... ..
Note: April data extends to April 26, 2012.
3
JPM-CIO 0009726
May 10,2012
Given the size of the Firm's portfolio and the nature of the positions, the portfolio is
sensitive to small changes in credit spreads. At March 31, 2012, the sensitivity to a 1 basis
point move in credit spreads across the investment grade and high yield spectrum was
approximately ($84) million, including ($134) million from long risk positions, offset by $50
million from short risk positions.
II. JPMorgan Chase Fair Value Measurement Policy
General
Fair value is the price to sell an asset or transfer a liability in the principal (or most
advantageous) market for the asset or liability (an exit price). The sale or transfer assumes
an orderly transaction between market participants.
Data Sources and Adjustments
Valuation techniques used to measure the fair value of an asset or liability maximize the use
of observable inputs, that is, inputs that reflect the assumptions market participants would
use in pricing the asset or liability developed based on market data obtained from
independent sources. Valuations consider current market conditions and available market
information and will, therefore, represent a market-based, not firm-specific, measurement.
Where available, quoted market prices are the principal reference point for establishing fair
value. Market quotations may come from a variety of sources, but emphasis is given to
executable quotes and actual market transactions (over indicative or similar non-binding
price quotes). In certain circumstances valuation adjustments (such as liquidity adjustments)
may be necessary to ensure that financial instruments are recorded at fair value.
Bid - offer spread and position size
As further described in US GAAP Accounting Standards Codification Topic 820 Fair Value
Measurement("ASC 820"'), the objective of a fair value measurement is to arrive at an
appropriate exit price within the bid - offer spread, and ASC 820 notes that mid-market
pricing may (but is not required to) be used as a practical expedient.
820-10-35-36C "If an asset or a liability measured at fair value has a bid price and
an ask price (for example, an input from a dealer market), the price within the
bid-ask spread that is most representative of fair value in the circumstances shall
be used to measure fair value regardless of where the input is categorized within
the fair value hierarchy (that is, levell, 2, or 3). The use of bid prices for asset
positions and ask prices for liability positions is permitted but is not required."
820-10-35-36D ''This Topic does not preclude the use of mid-market pricing or
4
JPM-CIO 0009727
May 10, 2012
other pricing conventions that are used by market participants as a practical
expedient for fair value measurements within a bid-ask spread."
Effective Q1 2012, size-based adjustments are explicitly not allowed for cash instruments
held by a firm. However, US GMP continues to permit size-based adjustments for
derivatives portfolios if an election is made to do so. Under its current business and risk
management strategy, the Firm has not made such a portfolio election for this CIO portfolio,
and so evaluates the value of its positions without specific consideration of their overall size.
Cut-off and Timing
US GAAP is not prescriptive regarding market close and timing of valuation. As an
operational matter, the Firm allows desks in different regions to mark their books as of the
close in that region, and requires that these cut-off practices be applied consistently.
III. CIO Valuation Process
Background
ClO's valuation process reflects how and to whom CIO would exit positions by typically
seeking price quotes from the dealers with whom CIO would most frequently transact and
with whom CIO would seek to exit positions, rather than looking for more broad based
consensus pricing from a wide variety of dealers not active in these credit markets. In that
regard, ClO's valuation process is consistent with that of a non-dealer investor/manager.
CIO necessarily uses judgment to identify the point within the bid-offer spread that best
represents the level at which CIO reasonably believes it could exit its positions, considering
available broker quotes, market liquidity, recent price volatility and other factors.
As noted below, CIO's evaluation of valuation adjustments has been based on market
liquidity for the positions, rather than on the absolute size of CIO's positions. In the normal
'course of business, CIO will continue to review its valuation practices in light of its current
risk management and exit strategies to ensure its valuation practices continue to represent
CIO's estimate of exit price.
Front Office Mark Process
The main source of information for pricing comes from the Bloomberg messages (pricing
runs distributed by the dealers). Where aV<:lilable the desk collects them for all indices and
tranches.
5
JPM-CIO 0009728
May 10, 2012
Then depending on the product and availability of information the following processes are
followed:
For index products:
o liOn the run" indices (Le. most recent series, Sy point): as these are the
most liquid instruments, the front office typically uses the dealer runs.
o "Off the run" indices: Front office looks at bid-offer spreads, volumes,
recent price changes and recent transaction data, and the front office mark
is established at an appropriate price within the bid-offer.
For tranche products:
o For liquid tranches: front office computes the best-bid/best-ask using the
dealers' runs - the tranche is then marked using the mid of this 'best'
market.
o For illiquid tranches: front office looks at bid-offer spreads, volumes, recent
price changes, relevant index prices, and recent transaction data, and the
front office mark is established at an appropriate price within the bid-offer.
Timing of Valuation
ClO's valuation policy, consistent with the Firm's policy, is to value its positions as of the
close of business in the relevant region. Although the broker quotes CIO receives are
generally consistent with that timing, other data sources may provide data using different
timing, as follows:
Source
Broker quotes
Markit/Totem - NA indices and tranches
Markit/Totem - EMEA indices and tranches
ICE - NA indices
ICE - EMEA indices
VCG Independent Process
Timing
As received
New York close
London close
30 minutes before New York close
30 minutes before London close
VCG independently price tests the front office marks at each month end and determines
necessary adjustments to arrive at fair value for the purposes of the US GAAP books and
records. The remainder of this section describes this process.
A. Pricing data sources
CIO VCG obtains prices from third parties as follows:
Markit/Totem
2
- an independent service that provides prices for a wide range of
products derived from the inputs provided by a number of financial institutions.
2 Markit and Totem are within the same group. Markit provides data the credit derivative indices, while Totem
provides data for the tranche risk of those indices.
6
JPM-CIO 0009729
May 10, 2012
Dealer Quotes - Prices from major broker dealers for specific indices and tranches
of those indices.
VCG must approve the sources for all market prices and other parameters as being
reliable and applicable.
CIO VCG also looks to actual prices at which CIO has executed recent transactions as an
additional source of market information.
The following is a list of the dealers cia VCG obtains quotes from on a regular basis for
indices and tranches in which they have a reasonable level of activity:
Citi
Goldman Sachs Morgan Stanley
Deutsche Bank JPMorgan (lB) BNP Paribas
Credit Suisse Royal Bank of Scotland Nomura
HSBC Barclays BofA/Merrili Lynch
These dealer quotations are received from a standing solicitation for price estimates for
index and tranche positions. The number of dealer quotes received in any particular
month generally ranges from 1-4, and is based primarily on which dealers choose to
provide quotes that period.
B. Deriving the best estimate of mid-market price (VCG mid-market price) for price testing
purposes
Indices:
For the more liquid indices, typically the on the run indices, VCG utilizes Markit as its
primary source for the cia VCG mid-market price. VCG will also look to broker
quotes, butgenerally finds there to be limited differences to Markit data.
For the less liquid indices, CIa VCG again uses Markit data as the primary source of
independent data. However, given the reduced liquidity of these indices dealer
quotes sourced by the front office are also used. Differences between the Markit
data and the broker quotes are investigated, for example by reviewing actual levels
of trading activity. The cia VCG mid-market price is determined using the
combination of the Markit data, broker quotes and actual trades executed by cia.
Tranches:
cia VCG uses broker quotes as the primary source of data for determining the cia
VCG mid market prices for the tranches positions. CIO VCG also obtains consensus
prices from Totem from the Investment Bank
3
(JPM IB). However, cia VCG uses the
3 The Investment Bank obtains these as it contributes as a dealer to the Totem consensus prices.
7
JPM-CIO 0009730
May 10, 2012
broker quotes, with less reliance on TOTEM data, due to the Firm's experience that
the tranches tend to be less liquid than the indices and for any given position, only
2-3 dealers tend to be active in that tranche. Therefore, CIO VCG believes that the
broker quote process is appropriately focused on the more active dealers for those
tranches. This emphasis on broker quotes also reflects Cia's likely exit strategy,
which is more likely to be with specific dealers active in these tranches. Where there
are significant differences between broker quotes and TOTEM, CIO VCG will
investigate the reasons for such differences, for example, by looking at the levels at
which CIO has actually executed transactions, to validate the integrity of the broker
quotes received.
C. Estimating the range of fair value utilizing price testing thresholds
Price testing thresholds are commonly used in valuation to account for reasonable
degrees of variance between valuation data obtained from different sources.
These thresholds are generally established to represent normal bid-offer spreads for
each product, with the goal of ensuring that the final mark used by the Firm is
within the range of bid-offer spread after applying these thresholds.
Price testing thresholds may be determined on a variety of bases (e.g., volatility of
parameter, market depth and liquidity and pricing service spreads).
CIO VCG is responsible for establishing the price testing thresholds used.
The tolerance thresholds were consistent from 12/31/11 to 3/31/12.
D. Determining a book price
The cia VCG mid-market price plus/minus the price testing threshold set by CIO
VCG per instrument (the VCG valuation range) is compared to the front office mark.
If the front office mark is outside the VCG valuation range, the position mark is
adjusted to the outer boundary of the range. Within the VCG valuation range front
office marks may be used without adjustment.
Irrespective of threshold levels, any difference between front office mark and the
mid-market price may be adjusted, at cia VCG's discretion.
cia VCG has not historically adjusted front office marks directly to Markit/Totem
spreads/prices for the less liquid indices and tranches because:
o Given its level of activity in the market, cia has large amounts of specific
transaction data that should be considered in determining fair value.
o cia has observed that broker quotes are indicative prices that are relevant
to the valuation process, in addition to the consensus prices provided by
Markit/Totem.
Based on cia experience, CIO believes that the broker quotes
received better reflect executable prices, and therefore represent
8
JPM-CIO 0009731
May 10,2012
important market data that should be given priority where
available.
Cia's experience is that not all dealers participating in the Totem
process are active in the relevant products and that obtaining direct
dealer quotes from the more active dealers for a particular product
may better reflect executable prices.
o Markit/Totem prices are based on quotes by market makers acting in that
capacity. Cia, like other non-dealer investors/managers, is not a market-
maker and it does not contribute to the Markit/Totem service. Furthermore,
in the case of Totem the resulting data is accessible only to market makers
who contribute to that service.
o cia has observed that the business valuation cut-off time may differ from
the data provided by Markit/Totem. The combination of intra-day price
moves on the last day of the month and the difference between the time
when Markit/Totem fixes and the time when CIO closes its books can result
in pricing differences that while small from a price perspective, could be
significant for such a large portfolio.
As additional analysis, cia estimated that as of March 31,2012, the sum total ofthe
differences between the front office marks and the cia VCG mid market estimates
was $512 million before adjustment to the boundary of the VCG valuation range
(considering price testing thresholds) and $495 million after adjustment.
E. Apply necessary valuation adjustments
cia applies valuation adjustments as appropriate for positions deemed to be less
liquid. Generally, any on the run index (typically, the four most recent series) and
associated tranches have been viewed to be liquid based on market activity, and
appropriate front office and cia VCG judgment. In addition, other indices and
tranches continued to have sufficient market activity to be deemed liquid as of
March 31, 2012 (for example, ITRAXX Main Series 9 indices and the CDX IG Series 9
indices).
As of March 31, cia recorded liquidity valuation adjustments of $188 million for the
following:
o High yield - series 11 and prior indices and tranches.
o Investment grade - series 12 and prior, excluding series 9 index.
cia believes that the investment grade Series 9 index has generally
traded similar to on the run positions because it is viewed as a
market benchmark by investors.
The liquidity adjustments for the series 9 tranches (both high yield and investment
grade) were recorded as of March 31, 2012 to reflect the decline in market liquidity
CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & co.
9
JPM-CIO 0009732
May 10, 2012
by the end of the first quarter. The incremental liquidity reserve of $155 million for
series 9 investment grade tranches was applied for the first time at March 31 as a
result of this decline in market activity.
The liquidity reserve was calculated using Cia's standard liquidity reserve
methodology and using spread volatility provided by JPM lB. This volatility varies by
position in the capital structure, and is highest for equity tranches and lowest for
super senior tranches: = [CS01] x square root [holding period] x [spread volatility
o CS01 is the credit spread sensitivity to a 1 bps change in market spreads
relative to position size
o Holding period -JPM IB suggested max 120 days was used
o Spread volatility - provided by JPM IB; varies by position in the capital
structure, and is highest for equity tranches and lowest for super senior
tranches.
As of March 31 a liquidity valuation adjustment was not recorded for the COX North
America Investment Grade and Itraxx Main Series 9 indices as each was viewed to
be liquid. As noted in Table 2 above, trading volume inthe Series 9 index continued
to be relatively robust, including through April, without cia activity in the market,
and the volume of market activity excluding cia has been substantial.
Details of all adjustments taken to arrive at the fair value for US GAAP books and
records are included in Appendix A.
F. Comparison to Industry Practice
The Firm believes that its valuation practices in cia are consistent with industry
practices for other non-dealer investors/managers. Cia, like other non-dealer
investors/managers, relies more heavily on transaction-level data available through its
own market activity, and its valuation process reflects its exit market and the
participants in that market. In the normal course, the Firm evaluates its own business
and risk management practices, and makes appropriate refinements to reflect its best
estimates of fair value.
G. Review of cia Q1 pricing information
cia analyzed its priCing data as compared to other available market sources and the
results are included in Appendix B.
As of the January, February and March month ends cia compared its front office
marks and final US GAAP book price for reasonableness to a combination of the
Markit/Totem data, broker quotes and actual transaction data around the month
end date.
There was evidence that actual transactions and broker quotes diverged from
Markit/Totem prices in some cases.
cia book marks on individual positions were generally within the bid offer spread.
10
JPM-CIO 0009733
May 10, 2012
As additional analysis, cia estimated the aggregate difference in the front office
marks and the cia VCG mid-market estimates. This difference ($512 million), less
the price testing threshold adjustment of $17mm and less the liquidity reserve of
$188mm, was approximately $307 million as of March 31, 2012, compared to the
gross value of derivative receivables and payables of approximately $8 billion.
IV. Conclusions
cia believes that its marks as of March 31,2012 represents Cia's estimate of its exit
price as of that date.
In the context of its gross marks (approximately $8 billion of derivative receivables and
$8 billion of derivative payables across Cia's portfolio), intra-day price volatility, and
Cia's transaction data, cia believes that it has made reasonable judgments regarding
the prices within in the bid-offer spread that best represent Cia's exit price.
The cia valuation process is documented and consistently followed period to period.
Market-based information and actual traded prices serve as the basis for the
determination of fair value.
Cia's book value, including the valuation adjustments, at March 31 2012 for the index
and tranche credit derivatives portfolio is within the range of reasonable fair values for
such instruments.
We have shared this memo with PricewaterhouseCoopers; they concur with the conclusions
reached herein.
11
JPM-CIO 0009734
May 10,2012
Appendix A - March 31, 2012 Position Marks
The following table provides the notional amount and fair values of the Firm's positions as of March 31,
2012, including the following: $17 mm tolerance level adjustments, $33 mm liquidity adjustment, and
$155 incremental liquidity adjustment.
(Note: subsequent CIO analysis noted that the required tolerance adjustment should have been $12 million, but the following
schedule provides detail of the original $17 million estimate.)
.. ... ' . i .................... ...... s .." ... .. .o ... . .. .. NO.. . J ....... ......... ...'N,- . .. .. L .....M u. . .P rfi.. . .M ..... ..l. . i.k1..VcG .. .... . .. C.. . .. ..; ..u .. ..... . . ...... .
'H"'O.. .,"; . ".." ,
' .. -. S:1AAt., 64:627:195';" o
;,6SX HE 6.2 AfJA
:ABX HE 6.2 BBB
.... HE' 6'::i >
.... :".1' A'
". HE' 7'.1' AAA"
:I>BXHE7.1 BBB35-100
...
:COX HYS07 OlY
...................................
28,036,361
......... ...
39,325.000 .
...... "4:;:742,:"73 ...
, , .... 334',76!1,632:"
6,346,154:
0' {:1)
........... ... .
f,\.'):
0,
6,346,154 : 6,120,712
. '" ""', ........ .
... ., .. .0:, .... ....

', ... . 620,000,000 ........
:CDXHYS0707Y25-35 0: .... :::::::::::::::;'::::.::::::::::::::::': ,T"
754,123,080' 0 6.280.655 ...... "'6',2'8(},655':
:CDX HY S08 05Y ... , . . .... .. " ............ : .. . . ...
. ';'0"0;< HY Siis '05y'1 0:.;5 ... " .. :.::: i: .... , . .......... V . ' ..
: . 'soB .. , .. " ... .... : .... . ..
. .. . 2,853,000,000' ..... , ...... {:i7 ,smn .....
.... 13,:'5ii,563.878: 94,469.231 9,154,335 . 9,146,081:
:CDX HYS08 07Y 5,796,420,000 179,760,000 ,ju,}
...
326,970.000 ... .................... .
.. '.fiiis ;000 :00'0 .;" .,. \:225 ... .. . . j ... ,.1. ? . . . '37 936': :CDXHYS0807Y1526
;COXHYS0807Y2S:.jS
'.
HY S09 05Y
'902:000:000':'" .... _ .14i I ...... : r::::
"'1;24'2:270;38(" 10,626,032 10,539,115:
12,701,075,000: 66,922.108 n,i5;3;;.:i'!"Qi
:CDXHY$09 05Y 10-15
.. .... .
." 'HY 509 'Oiiy'2S';;S'"
... ,. ... .... 5
3,225,000.000: .... .......
.... ;:2"i5.cjoo'.(ioll' .. 33,600,243
'" .. TC'OX"HY '509 ..... 3',239,503,Os2 .. {' . ";'17',453',529"
:COXHYS1005Y 21,259,098,000: 9,234,582,000:
:CDXHYS10 05Y10-15
.. .. .
... .
{244.e52)

; .....
; 9,460,325:
.. 33,3iis,38i:
...
504,750,000: ..
: . ..... "3:663,000:000': ... > ... .. ... :: r i::::::" _ ..
:CDX HY 510 05Y 25-35 : ... .. 1:845;000:000.. .....

..
. -
;'5" HY' 510 05Y .. : .... '14;352:100:62'" 7}';" 272.290,710
..... '2:048;550:000: h" ............ '.
:2 :CDX HY 510 07Y 10-15 ..... ... 5: ... .. .. (-;3,
. ';'c'o';( 'HY 51'0 '07Y'1S-25' 1,605,000,000 ..... ..... ....... , .......
". '$1'0' 07Y25.:35 "f'::::: , .... . ..
' ..... . 7,? ....... ...... :::.: :::
je":'c'oX'Hy'S1','05Y" . 5,606,580,000; 33,242,983 n

... .. ..
........
:CDX HY511 05Y 10-15
:CDXHY511 05Y1525
..;{} tH:r,t:n\,l.w:.:
05Y25:3'5
.. .,. ....... ..
. 987,492,693: ..... ..
:COXHYS11 07Y .. 77,631.118
07Y10-15 16,825,000
:CDXHYS11 07Y15-25 .,......... ...... .... ..
' ...... '" ...... ........ ..
'HY'81'4 '03Y'
; 7' 'HY '51'4 '05Y'"
is !CDXHY $15 05Y
...
;COXHYS16 lOY
72,750,000 72,750,000 ....... ... .
12".073.590.000:
9,982,270,000 : 9,520.550,000 :
8,308,050.000 .. . , .... ..
4'8:5oopoe;:" O' 0
::: ...... :::: ::::: ' ... ...
" .. 05Y .. " .. 5:665:292"
$07 07Y07-10 250,000,000, {i 2.073.690
:CDXIG S07 07Y15-JO . ...... ..
. . 3,857,595,440;
{.j!
. . ... r:: i: .. '2i; '85.6"67';
nPj.:,:SQ) .......... : .... ,
. .... " .,., ... 72',5'82',2; ti)
...................... , .......... .
......... ; .... ..
414,812:
,:., .. ,
11,372,087:
.... ..

14,917.661
:',,,cl:
..
...... 5.657.083;
1,998.039:
... .. :::::: :::::
'" sos OlY" 858,616,000; ... ...... . Hi ... .
:CDXIG S08 07Y03"()7 60.000,000 : 0: (o1;ii,Uf;"!I
: .. . i. > .
12
JPM-CIO 0009735
May 10, 2012

:cox IG SOB D7Y .... __ .... ..... , .......... : ......
... .. ' ...... O ....... . ..... "",,_ ........ , ... 13.842.410:
']'6'OX"I<3"$09'05Y" 116.298,890,477: ":i1',676,3S(i,Ooo: 26,177,866
IG S09 05YOO..()3 6,009,760,374: 2,719,245.188: 497,344,882 496.605,800:
..... : .... > 1,395.000,000: ..
" .... 10.687,000,000: .. '2:04"6:000:000'; ..... ... .
... .1. '5;67'5:000:00(/' .. '2:905;000;000" ... .............. . . i1P.,42P"iw):
;CDX tG S09 05Y 15-30 , ..... 3o;24":OOO:ooit ""> .
...... ...... .. 16,928.753:
:11 :CDXIGS09 D7Y .. .....
.... ':'C'OX'1(3 '509 07YOO.:o3 3,469,513,118 ....... ..... . ... ::::: ...
2,045,000,000 215,000,000. 50,233,428 50.002,024:
6,325,000,000: 36S,oOO,OOO 119,476,524 119,066,192:
. ..... ; ...
509
..
:CDX IG S09 07Y1530
................................. .
:CDX IG 809 07Y 30-100
50910,,"
2.790,000,000; ... . ...... ..
.. ::: ... . , .... ..... .
... 306,212,949
.. . ...... '[1
';'
;10:COXIGS0910YOO...o3
i:::
92.607.592,000: CI 1.lf"J..f:O)t!..r..)!l):
4,147,420.182: .. . ...
. . 2,590.ooii.ooo: ..... ...... ............................ " ...... " ..

.. ':(;'ox
.::: ..... .... " .. ..: ................. ."
3,510,000.000: 1,980.000,000; 117.037,861
S09 10Y15--30
;COXtG $09 10Y30-100
5.400,000,000 3,800.000,000' C'JfJ1.l'M:;:-:
............. , ........ .
:CDX IG S10 05Y
.
;CDX IG $10 05Y03-07
:CDXIG S10 05Y0710
..
... ';'C'DX'iG'S1'O' ;0,,'
.

..
:CDXIG 514 lOY
........................ .
:CDX IG 815 03Y
..... :COX io S15 03Y0(I..o3
:COXIG 815 D5Y
:COXIG 815 05YOO-03
61'505Y03.:o7
.. "' 'rc'ox 'IG's1'i;05Y 00' .
:COXIG 815 10Y
:CDX IG $16 05Y
....................... .
:CDXIG 516 10Y
........................... .
; ;CDXIGS17 05Y
s;a05""
06Y
808 05Y
:ITRAXX FINSEN S10 05Y
.;... .. . . ..........
0
,,; ............ .. , .. .
.. .
.
.... , ... ..
265,232,000;
...................... -
0:
. ........ .. .
0- 0
.... ,. ................. ....... , .... ... .
5,560,068,409: 0: 98,999
4,862.764,000 : O {.':;;,t'-Hj)
.: ..... . .. ... . ..... ..
1,243,000,000: .... .. ........
'604:000:000::' ........
40,000,000: O'
23,298.500.000: 17,520,500,000 {1:j;'
. .. _ ... ..
20,000,000: (2)J..:HE},G:V.H ..... ..
.. .... ;oci,oiXi'Ooo: ,ib.:>.t.n:i(:nij); 6,539
254,000,000: 377,531
24,206,250,000' 18.476,750,000 .. . ....
. :': . ..
.. !? ..
15.191,000,000: ': .n;j!!.!"!;j!'!}: 65.505,416
5,760,874,000 :
221,670,056
0:
.... ........ : . . ..
..... :iTRAXX FINSE'N' $13' 05Y' ...... '11"9:84"8:496';"
..... FINSE'N'S14'05Y" .. .. '1:302:353:651'
Do
o
0:
'" ..... ..
......... ..
(1.>l'.i4)
of! FINSEN $15 06Y 2,604,041,478
:ITRAXX FINSEN S16 05Y
... '17OSy:- .
.... TrTRAXX'FiN'SUB soe'lC1Y'" .'
FINSUS S07 05Y
:rrRAXXFINSUBS0710Y
...............................
:ITRAXX FINSUB S08 OSY
.. - ...... - .......... - ..... .
2,693,675,342: {O}; ........... .. .
(7';:2.:';:; ..... ..
66,562,498' 0': 2,474
171,109,443:
.... ..
1.574,010241 ;
1,176,365 123,843,445 :
0: .....
703,111.17.4: ......
. _ ....... .. .
739.D99,182:
.. '
.. .. ....... ..
0:
.
98,999;
377,531:

{;::, .:
. .......
65.505,418:
6,340:

. ...................... ., ................ .
......... . ......
322,939:
:11
:rrRAXX FINSUB SOB 10Y
........ ................... .
8,276,439 - j ..... FI'NSUEl309 05y ....... .... 2:2S3;15iiis .
199,747,493: 0:
,. . ..... 1,471,473,195:
:rTRAXXFINSUBS1010Y ....... 0:
. ;-rrRAXX.'FiNSUB S'11 '05Y'" . 303.329.972: , .................. 0:"
..... , .......... -.

.... . .... ...
.. ...
6,736
. ............. ..
2,010,983,162: , ,033,360,361: 62,100,561
:ITRAXX FINSU8 S,3 05Y (vI: .....
... ... ; ...... ... .... ..
;rrRAXXFIN8USS1505Y 3,495,561,119 605,900,727 ......
.. FINsuel 316' ... '5:254:690:70 ..(' 62,140,503
FINSUB $17 05Y
HV
: rrRAXX MN 806 10Y
986,420,963; -':Y1.4Q!{ 64,496,190
128,730,601 0'
....... :: .: .... .. ..
....
....
6,736;
.. -.....
82,140.503:

.. :riAAXX'MN'S061'Oy'oo:'t13'
712,432,723
.... (li.j::; ... :.; . i"
163,139,744 . 93,141,390
. 92,995,060;
: ....... ... TrrRAXX'MN' S06 .'.
! ...... : 1D1,803.oo2
. .............. .. :S,2:41.{,1S0;
.
... '.. 3.142,693,883: .... . ..... .. .
.......... ::::.
;ITRAXX MN S0610Y 12-22 ; .....
13
JPM-CIO 0009736
May 10, 2012

MN S06 10Y ....... ,. . .. .... " ... . . .: ..... .
.. .. : ...... 0: 0 0:
2.870,074,158"' ..... <0 "'0:" 7,466 7.466:
:ITRAXXMN 507 10Y06-09 479,393,982 :
:ITRAXXMN $0710YQ912 ." .... ..
.... =rrRAXX MN 'S07'10Y' .... ..
" .... MN S07;OY22.'-iOO 6,879,658,746
... MN'SOS'05Y'"
MN S08 OoYOO-03 346,228,987 :
:rrRAXXMN SOB 05YOa..Q6 .... , .. . .. .
... 'MN' S08 05Y os:cis ..... ... .
.... 09::12'" 159.197,994'

;rrRAXXMN 508 10Y
: ITRAXXMN S0810YOO-03
--':rrRA'XXMNsOS10YOJ.:OS--
:rrRAXXMN S0810Y 12-22
5.124.169,007 :
625,S76,477 :
905;521:966 ...
4,037.562.649 :
.. , .......... .
o 7,141
tvi 4,039.422
. ..... .... " .. ..
..... ..
.... .... 0:.. 146
.. .. (::t ....... .. .
....... .
170.086
...................
0; 1,386,232
.. ....... ... .
o
O.
. .... ....
. .... ....
. .. "7

..
653,326:
..... : :::.::::
. ... :::::::
710.086:
':3ai23i

226,681:
........................
2.278,173:
.. : :::::r:
16,046,944:
.... S08 :ioy 22::;00 ',' . < '12',3'64',344'.537:'" ....
.... 05Y' r::: .... ..
. .................................
. ;'riRAi< i:isy 00:03"
3,928,367,353 ... ..
479.393,982 ;
11.180,676.800 :
.. trrw..xxMN 509 05Y 03:06" .'. . 8.842'.,'55.670 ..
;rrRAXXMN 509 05Y06..(lS ......
.. .. ; 6,431,869,260'
50,970,087
...... .. .
...... ..
;rrRAXX MN 509 05Y 12-22 "'. ','3:056;827:762":" 166:456:244':
....
": ITiiAXX MN'SOS'05Y' ' .. i57 :381 :487 :482'1' . "4i4 7}';" !: 2
.......... ; .....
{:,;i:1f.3')!'
16 MN 509 07Y 35.784,430,375: 108,669.114
. ...
..... !:1: .. ..
... 50,727.638:
96,367.169:
'13i66.fi7S:
.
.... "ii :",;)1

:ITRAXXMN 50907YOo.03 ., .... ...... ..... .. .
.... SOg OlY 692,457,974: ... ...... ..
. ............ 398,953.850:
. ...........
... \YRAXX'MN'S09 07YOfM)9 ... 3.... ..6 ....95....6.i.3 ... 33,291.249: ...... 6.3.. .29 ... 5 .5 .. 4. 6 ... .
852,255,968: 'i ..
: .. '.rr .. RAXX .. "MN .... S .. 0... 0 .. 7Y .. 0....' .. 2 .' . -"
:rrRAXX MN 509 07Y 12-22 2,996,212,388 : 699,242,478:
: 14 MN S09 07Y : .... .... ................ ; ..... .
66,222,479.490: 303,088,246 ..
:'13 ;rrRAXX :
MN 'S09 'OY03.:o6 .. "', .. (S 1,445,527
MN 509 10Y06-09 3,275,858,878:
:rrRAXX MN $09 10Y09-12 .... .... .... .. ..
"';"ITRAXX'MN'S091'Oy';2:2'2'" 10,200,438,619: ...... .
1SrrrR;.xx 'MN' S09 :IOY22:"00 :::.::: {:
trrR..\XXMNS100SY 15,508.571,098' ':81)
:rrRAX,XMN 511 05Y
i . . .....
rrRAXXMNS1305Y
4.335,698,507 ;
5,122,191.534 :
.. ,'0:941 :501:61'6';"
9,088
o ..... " ..... ..
0, 1.692
'" .. :rrRAXX MN'S1'4'05Y
... :ITRAXX MN i15'03'Y:"
1'9;77'2:338:46; ':' :::: ...
"5:272:002:153':" 3,740,604,710
i ilTRAXXMN S15 03YOa-03 ; 93.215.497; 93,215.497 32,188,065
... . ..... ,' ...... :f: .... '! .. .
:rrRAXXMN 515 03Y 22-1 00 1.930,892.428: ........ .. .
... ';'rfR'AXX'MN' 515 05Y' ..... "23,;'73',705,347 ..... ..
":ITFv.xx.'MNs15 . 332.912',488:" 332,912,488 175.486,448
MN S15 05Y22-100 : 2,596,711,403: .. 13.929,469
.. : ..... .:. ..
' ... . ... .. ............. " .. ..
.. fTRAXX MN'S 1'5'07',,'22.'1 00': ..... itiii:l;ioo:9oo': ... ...... i}' . ;:;
:rrRAXXMN S1 10Y .... ......... ..
1's':'rrRAXX ',:IN' S 16 06Y' ....... :, .... .. ..... ....... , ............... .
';'ITRAXX'MN'S;S10Y 2.390,311.661 ..... .....
. ... ..... ..
, TrTRAXX'SOVXWE'S03',)SY' 24,265,800 3,103
:ffRAXX50VXWE 506 05Y 46.665.000: ... <.
... ........ 0:
:rrRAXXXOSOS05Y 59,924,24S" .. (.:).!)
.... 'jrrRA-xX xc; 509 05Y" ......... 23'9;696:991:.... . ............
.... ..
......
;ITRAXXXO 510 05Y
:ITRAXXXOSl1 05Y
":'rrRAXX'XO'S1"i05Y"
.. . '$1'3 '05';;"
..
:ITRAXXXOS1505Y
198.469,109 :
155.248.012:
.............................
469,805.102 :
....
1,483.804.274 :
0,
0'
0'
6,525.085:
2,346,034,300: 1.140,133,512
.. .................... ,. .. .
57
....................
'40
.. "{'I
12,315,943
63.253.192:
(?%tt,12t'!:
. .... ...
300,976,670:
......... {2'.ii( .. ('!','1'6f:,n6
{1 (f.2h':"f;. !t'':'l:
" .. ...
. ... J,:?!: r ...
. , . l, :.:: i:

9.OB8;
.... .. :,,692:
. . .....

32.188.065:
.. ........ 1)
1,822.606: .
::::
176,486,448:
13,929.469:
::lS
. 235 .cioa.fi; 6':
63',6'53i24':
.' ..
82.791,564:
... :::::
...........
579:
140:
..
12,315,943;
'ITRAXXXO 516 05Y 9.971,394,827' ... ... 177 ,663.391:
.... ':rrRAXXxo 51:; 05Y' ...... ,. .. '. ... .: 5,043,322 ., ....
: .. , . nH' ,. , :.:: ..
. .
.. : .. 7 ,987,328.316 7,879,974.825:
{7-" 2'; {3.a i Y . (G.j :;,c;.j {i;j
14
JPM-CIO 0009737
May 10, 2012
Appendix B - CIO Price Testing Data
The following tables set out valuation estimates of various sources, as well as the final CIO price
recorded books and records for the most significant positions within the portfolio. The table also
includes notionals for the positions and whether CIO is long or short the risk of the index/tranche (Le.
whether it has sold or purchased credit protection respectively).
The following observations were noted:
For all selected positions the front office marks were within the bid offer spread indicated by the
broker quotes except for the iTraxx Main lOX S09 07Y.
o This was a result of a front office data input error that was identified and adjusted by VCG to
the outer boundary, in accordance with the VCG price testing protocol. (The value
difference between the original front office mark and the intended mark was approximately
$20 million, and the difference between the CIO book value and the intended mark was less
than $15 million).
CIO VCG spreads/prices correspond to Markit/Totem data for the liquid indices and reflect the
broker mids for illiquid indices and tranches.
There are a number of instances where the broker-mid spreads/prices diverge from the
Markit/Totem data.
There are a number of instances where the CIO transaction data in appendix C show that actual
traded spreads/prices diverge from Markit/Totem data in similar time periods. For example: iTraxx
Main lOX Series 16 5 year at February month end, and COX High Yield Series 107 year 10-15%
tranche at January month-end.
Average traded prices in the few days surrounding month-end are directionally consistent with the
point in the bid offer spread in which the positions have been marked by CIO, as shown by Appendix
C. In general, the front office marks, subject to liquidity adjustments, used for CIO books and records
reflect information derived from numerous data sources available to CIO front office, rather than
relying solely on anyone single factor. For example:
o Recent transaction data (same-day and recent day actual trades) may in some cases be
viewed to provide more relevant and reliable information regarding current exit prices (see
additional observations below).
o In some cases, differences between CIO book values and other market information such as
Totem/Markit are created because of timing differences between the close of ClO's books
and the close of the Totem/Markit data (see additional observations below).
In certain cases, CIO executed trades on the last day of the month at a price that is different than
Totem (and in several cases, was between the Totem value and the CIO book price). See table
below for information as of March 31, 2012 (including average traded prices on March 30, 2012):
15
JPM-CIO 0009738
COXNAHY 15-25% S11 05Y 83.108
COXNAHYIOXS1107Y 101.250
COXNAIG 0-3% S09 10Y 63.219
iTraxx.MainO-3% S09 10Y 66.202
iTraxx.Main lOX S09 07Y 129.000
iTraxx.Main IOXS09 10Y 149.000
May 10, 2012
83.685 83.375
101.866 101.750
62.869 63.250
65.993 66.313
122.657 129.000 *
144.250 149.000 *
The difference between the various data points (FO, Broker prices, and Totem) are relatively
insignificant on a price basis, when evaluated in context of:
o Daily price volatility - the following table shows that for most of the tested positions, the
price difference between the Totem price and the CIO book price is less than the average
daily price change during recent months.
COXIG Main Series 9 (7Yr) 2.00 2.85 2.00 1.98 2.06
COXIG Main Series 9 (10Yr) 2.25 2.87 1.73 2.00 2.26
COXHY 100 Series 11 (7Yr) 0.62 0.35 0.31 0.29 0.29
COXHY 100 Series 14 (5Yr) 0.25 0.30 0.30 0.28 0.28
COXHY 1 00 Series 15 (5Yr) 0.25 0.30 0.33 0.32 0.33
iTraxx.Main IOXS16 5Y 1.88 3.74 3.22 3.08 4.05
iTraxx.Main IOXS09 07Y 6.34 4.42 3.29 3.22 4.31
iTraxx.Main lOX S09 10Y 4.75 4.24 3.17 3.54 4.24
.. . . . u . ~ ~ ~ ~ ~ ., .,.,. r ... u.- .-..........., .................... ... . - . . ' . ~ ....... " .""... .......... ............ ....'.ro............ .--..n. ... .. .-...... "' ...'....... .... ,.... ..................n. ....-....................' ... . '..n ..u ......... ... .....'..............,..... ' .................
o Intraday price volatility - the following table shows three representative series and the
maximum, minimum and mean prices during the day on March 31, 2012.
COXHY Series 18 5Y
iTraxx.Main Series 17 5Y
97.188
127.625 122.750
96.950
125.115 4.875 3.9%
o Potential timing differences - CIO EMEA closes its books at the close of business in London,
while some of the comparative market data is as of the close of business in New York. This
timing difference may result in differences in reported prices.
For example, the market price on March 31, 2012 at 4 pm London time for the CDX
IG Series 185 year was 92.88, and the market price at 9 pm (NY close) was 91.25, a
1.75% difference from the London close.
16
JPM-CIO 0009739
May 10, 2012
COXNAHV1Q-15% S10 D7Y 9.763 10.625 8.125 9.625 11.125 9.583 10.572
COX.NA,HY15-25% S10 05Y 95.710 96.000 95.625, 95.875 99.125 95.708 95.951
CDx..NAHY15-25%S1105Y 85.350 85.500 84.750 85.500 86.250 65.375 85.435
COXNAHY35-1QO% S100SY 105.572 105.6S6 105.375 105.563 105.750 105.542 105.640
COXNAHYIDXS'1 DrY 101.506 101.500 10,.063 101.313 101.563 101.506 101.370
COX.NA.HYIOXS140SY 102.039 102.125 101.500 101.500 101,688 101.875 102,039 101.539
COx.NAHYIDXS150SY 101.060 101.093 100.625 1001)63 100.750 100.938 101.060 100.625
COX.NAIG 0-3% S090SY 14.846 14.813 14.625 14.813 15.000 14.733 1 785
10 CQX.NAIGOS%S0910Y 62.642 62.875 62.375 62.625 62.675 62.797 63.001
11 COx.NA.IGIOXSOQ07Y 91.956 91.750 91.000 90.500 92.000 93.500 91.958 94.650
12 COX-NAIGIOXS09 10Y 118.839 119.250 119.000 118.750 119.500 120.250 118.839 122.650
13 iTraxx.MainO--3% S0910Y 67.302 67.375 67,125 67.375 67.625 67.406 67.509
14 iTraxx..Mafn 22100% S09 OTY 19.292 18.250 17.500 18.500 19.500 18.750 22.o9B.
15 iTraxx.Main S09 10Y 46.083 45.000 44.000 45.000 <46,000 45.375 48.848
16 ITraxx.r...taInIOXS0907Y 148.682 146.000 143.000 145.000 147.000 148.682 149.528
17 iTraxx.MalnIOXS091OY 171.893 170.000 166.000 168.000 170i){)0 171.893 174.331
93.375 92.875 93.326
COX,NAHY1S25%S1105Y 83.108 83.750 82.875 83.313 83.750 83.313 83.685
COx.NAHY35100% S1005)' 105.628 106.000 105.625 105.813 106.000 105.813 105.953
COX.NAHYIOXS11 DTY
COx..NAHYJOXS14 D5Y
COx.NAHYtDXS1505)'
COX,NAIG ()..3% S09 05Y
10 COXNAIG (}-3% S0910Y
11 COXNAIG IOXS09 07Y
12 COx..NAIG IOXS09 10Y
101.250 102.000 101250 101,625 102.1)00 101.511 101.566
101.633 101.688 101,438 101A38 101.688 101.813 101.633 101.438
100.750 100.500 100.500 100.688 100,875 100.723 100.500
17.714 18.375 17.750 18,063 18.375 18M3 18.348
63.219 62.750 62.750 63.125 63.500 63.125 62.869
90.000 69.880 88.000 88.000 89.500 91.000 89.671 88.000
113.000 112.380 110.750 110.750 112.250 113.750 112.243 110.750
13 ITraxx.Maln 0-3% 509 i0Y 66.202 65.875 65.750 66.250 66.625 66.250 65.993
14 iTraxdv'lain S0907Y 12.000 12.000 13.300 14.500 13.333 15.848
15 S0910Y 33.000 33.000 34.700 36..750 34.708 36.848
16 iTraxx.MatnIDXS0907Y 129.000 119.750 123250 127.250 131.250 130.657 122.657
17 iTraxx.llAain IOXS0910Y
18 iTrax:x.Main IOXS16 05Y
COXNAHY1015% 510 C7Y
. COX.NAHY 1525% S10 05Y
COXNAHY1525% 511 OSY
149.000 150.500 144.250 144250 147,750 151.250 150.659 144.250
123.435 123,630 121.750 121.250 121.750 122.250 123,435 121.750
15.875
95.076
86.208
17.000 15.160 16.245 17.330 40.750 17.000
95.375 94.660 95.120 95.580 95.292 95.375
86.250 65.B60 85.330 87.000 86.333 86.250
CDX.NAHY35-100%S1005Y 106.188 106.000 106.145 106.290 107.792 106.188
COXNAHYIDXS11 07Y 101.495 102.000 101.063 101.563 102.063 101.495 102.000
COXNAHYIOXS140SY 101.427 101.594 101.375 101.250 101.500 101.750 101.427 101,375
COXNAHYIOXS1505Y
COX.NAIG 03% S09 05Y
10 COXNAIGO-3%S0910Y
11 COX.NAIG lOXS09 07Y
12 COXNAIG IOXSOQ 10Y
13 iTraxx.Main 0-3% 509 10Y
14 iTraxxMain S09 OTY
100,500
24.034
100.663 100.313 100.500 100.688 '00.503 100.563
24,188 23.830 24.050 24.290 24.063 24.188
59.871 59.875 59.625 59.853 60.080 59,854 59.875
94.756 95.610 92.000 89.813 91,813 93.813 93.756 92.000
114.987 115.750 112.500 111.063 113.313 115,563 113.987 112.500
65.918. 66.125 65.675 66.138 66.400 65.969 66.125
15.500 15250 16.125 17.000 15.750 15.500
15 ITraxx.Mal022100%S091oY 34.500 34.400 35.'15 35,830 84.938 34,500
16 ITraxx.MalnIOXS0907Y 136.475 131.750 130.750 132.750 134.750 135.476 131.750
17 iTraxx.Maln IOXS09 10Y 150.033 150.750 146.750 144.250 148.250 150.035 146.750
COXNAHY1525% S10 05Y
COXNAHY15--25% S11 05Y 86.392
93,375
86.250
92.875 93.313 93.750 103.792 93.375
85.438 86.063 86.688 00,063 86.250
CDXNAHY35--100%S1005Y 108.245 106.313 106.170 10S.315 106.460 106.300 106.313
COXNAHYIOXS1107Y 101.125 101,000 100..688 101.000 101.313 101.125 101.000
CDXNAHYIOXS1405Y 100.761 100.890 100.625 100.375 100.625 100.875 100.761 100.625
COX.NAHYIDXS1505Y 100.030 100.125 99.938 100.125 100.313 100,031 100.125
COXNAIGO3%S090SY 26.579 26.813 26.460 26.680 26.900 26.667 26.813
10 COXNAIG 0-3% S0910Y 60.901 60.750 60.563 60.813 61.063 60,792 60.750
l' COX.NAIG IOXS09 07Y 103.614 104.880 102.000 101,500 103.500 105.500 '03.614 102.000
12 CO>lNAIGIDXS0910Y 120.944 121250 119.500 119.000 120.750 122.500 120..944 119.500
13 iTraxx.Main 0-3% S09 10Y 66.673 66.563 66290 66.620 66.950 66.625 66.563
14 iTraxx.Main22100% S0907Y 19.750 18.160 19,495 20.B30 19.500 19.750
15 S0910Y 40.000 39.400 40.600 41.800 40.500 40.000
16 1Traxx.Ma!nIOXS0907Y 150.764 148.500 146.750 148.750 150.750 150.764 148.500
11 iTraxx.Ma\nlDXS0910Y 160.840 162.000 158.000 156.500 158.500 160.500 158.250 158.000
18 iTraxx./lAaln IOXS16 05Y 143.700 143.690 14$,000 "2.500 143.000 143.500 143.703 143.000
Data aourcedfrom CIO;validated byCIO"lK:GNew Yot1!.aod London
-4041
2083
.1015
...g905
-440.
12447

3570
2650
34193
60989

.14982
21841
7078
-17177
2063
1015
-3970
-440.
12447
9815
3570
2805
33847

14509
20948
-6680
17255
:18814
4041
1833
815
-3905
.... 308
12457
6215
2995
-3370
33546

.1445
..gS75
12070
4353
-'03-40

3633
11857
6915
2725
-3290
-28885
-54765

.6675
7775
-3837
10574
1387
long Price higher price
long Price hlgnar price
long Price hlgharprice
snort Price lower price
shOrl Price lower price
short Upfront higher price
long Up-frOnt lowar price
long Sp-nlad 10werspte3d
long Spread lower spread
long upfront lower price
lon9 Spre'ad !owerspread
long spread lowerspread
long Spr&ad lowerspre;ad
lOng
long
long
long
short
Price higher-price
Price higher price
Price higher price
Price higherprice'
Price lower price
short Price lownr price
short UpfroO! higher price
long UpfrOnt lower price
long Sp-re"ad lower spread
long Upfront lower price
long Spm'ad lower spread
long Spread lowefspreed
long Spr&ac1 lowerspread
loog Spread lowe(Spread
long Spread 10w$rSptead
loog
long
lOng
lOng
loog
short
Prico higher price
Price higher prieR
Price higher price
Prtce higher price
Price higher price
Price lower price
short Price IOW8rprice
short Upfron\ hightlr price
long Upfl'(Int lower price
long Spread lowerspr&ad
long Spread lowerspread
long Upironl lower price
long lower spread
long Spmad lower spread
long Spread lowerspread
long Spread lowerspntad
long
long
high&rprice
Price higher price
long Prtce higher price
short Price lower price
shOrt Price lower price
short Price lower price
.\ong Price higher price
long Spmad lowerspreact
long Sptead lower spread
long PriCe higher price
long Spread IOwerSprmld
long Spread lowerspmad
loog Sptead lowerspread
17
JPM-CIO 0009740
Appendix C - CIO Transaction Data
The following tables set out the following:
May 10, 2012
'SIZE (week ending)' - The average traded volume for the relevant week.
'AVG PRICE (week ending)' - The average price at which cia executed its transactions during the
relevant week.
For relevant observations, please refer to appendix B.
CDXNAJ-IY 1015% S10 DrY
CDXNAHY15-25% S1005Y
CDXNAHY15-25%S1105Y
CDXNAHY35-100% 510 05V
CD,X,NAHYOXS110TY
CDXNAHY OXS14 OS-V
COXNAHY DXS1s 05Y
CDXNAJG 0-3% S09 05V
10 CDXNAJGG--3%S0910Y
11 COXNAIG lOX $09 ON
12 COXNAIGIDXS0910Y
13 iTraxx.Main 0-3% S0910Y
14 orwedle!n 22-100% S0907Y
15 ITrwrx.Maln 22-100% S091 QY
16 iTrwrx.Wain IDXS0907Y
280
10
70
100
250
350
30
so
50.
5 ....
30
.0
110
300
2()0
165
2.120
10.226
100
1,.625

130
>s
725
450
958
20
50
135
300
30
2()
1,350
175
150
55
110
3.584
10.031
2()
631
10
70
os
300
10
30
.26
2,226
'0
15
25
200
150
300
120
374
2,399
10
500
2,645
1,980
20
175
225
625
75
2.799
1,041
1.925
250
1.094
325
140
20
65
550
90
2,421 1.965
4.633 11,666
500 975
1,275 21S
590 BSr
10
20
60
721
1,000
20
130
900
2.0
200
1,431
3,859
1,525
50
10
235
406
3 ....
20
250
1.000
153
30
20
100
25
200
145
130
10
641
155
125
125
363
55
3.
53
15
142
149
312
75
59
1,349
4.508
20
337
747
455
11 iTraxx.MainIDXS0910V 1.673 SA12 1,662 3.027 520 3,266 1.024 1,798 2,185 968 3,678 1.151 484 2,067
.. .., ... ....n.' .. ', , ...,6.339 ... _ . ....,,_.. _ ..!: ......., ....... .. .. __... ...___..__ ...........__.. .., ..._ ... ..._,.._ ... ....... .... ............. .... .., ..-.- ..__............................. .
COXNAHY10-15% S100rY
05Y
CDXNAHY 15-25% S11 Q5Y
COXNAHY35+100% S1005Y
COXNAHYDXS1107Y
COXNAHYDXS1405Y
COXNAHYDXS1505Y
Q CDXNA.lG 0-3'\(, S09 05Y
10 COXNAJG0-3% S09l0Y
11 COXNAIG lOX 509 OrY
12 CDXNNG IDXS0910Y
16.75
75.00
69.66
97.31
97.63
97.04
38.00
70.00
136.50
145.67
13 ITItlXl(.M!Jin 0-3% 809 10Y 69.96
14 ITf8XI(.Main 22-100% $09 D7Y
15 ITrw:x.Mlin22100%S0910Y
16 ITra:.Main IOXS09 07Y
17 ITmxx.Main IOXS0910Y 194.37
18 .. ........... __ .. .
82.31
74.28
97.58
96.89
32.67
124.05
138..25
36.75
59.86
1S9.50
195.71
175.04
Deta sourced from CIO:validatEidbyClOmkldkl Office
15.38
85.63
16.93
.925
.2.50
20.75
92.88
85.92
100.39 101.00
98.65
96.33
100.86
99.82
27.56
.2M
26.88
6125
110,16 106,44
133.75 125M 120.92
68.63 67.13 66.63
58.00
179.83 163.14
181A2 16827 159.79
1 ........ 1.47.32 ...
90.25
83.50
106.25
101.19
100.68
26,30
102.00
122.12
65.50
17.50
3BA.
136.18
150.26
131.11
93.00
85.25
100.63
99."
28.30
95.13
86.25
101.47
100.23 100.60
23.84
103M 96.51
92.50
82.50
24.33
106.90
123.60 120,45 115.89 119.33
20.16 17.63 17.85
40.50 37.93 37.6S
145.31 '38.60 137.13
157.94' 154.07 149.69
... ........ ... >
3525
152.57
136.75
93.1)0
83.67
100.57
22.11
62.31
9123
115,33
93.50
B3a3
60.74
MA2
106.70
63.13
15.00
34.13 31,45
113DO
147.16 136.30
... .. .......
92.58
63.36
11.31
92.88
83.25
101.75 101.51
101.88 101.63
100.94 100.72
17.18
62.53
17.88
63.31
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18
JPM..cIO 0009741
MARKET RISK LIMITS
March 2012
J.P.Morgan
BANK PROPRIETARY AND/OR TRADE INFORMATION OCC-SPI-OOlI7682
EXHIBIT #37
A: Market Risk Limits Overview
Multi-level limit framework
11
LOB level (eg IB,
CIO,RFS)
VaR and stress
105S, stop loss or
pal drawdown
Limit structure
Limits aligned with management risk
appetite
Limits are reviewed on an ongoing basis
Non-statlstica! limits are business-specific
Limit excession resolution
process
Daily monitoring of position vi. Umit
Daily excess and losti reporting to head
of relevant business level, depending on
exooss
Business in excesslon must
Reduce risk within limit, or
Agree. to action plan. or
One-ofl approvals may be granted to
accommodate large client tnlnsactions
or market conditions
J.P.Morgan
OCC-SPI-OO 117682
A: Market Risk Limits Control Structure
JPMC Level
LOB Level
Sub-LOB
Level
Desk Level
One-off approvals
Approval at one level up
Approval between Business and Market Risk Executive
Agreement between Businel'S and Market Risk Executive
12
BANK 'PROPRIETARY ANDIOR TRADE INFORMATION
J.P.Morgan
OCC-SPJ-001l7682
A: Market Risk Governance of Level 1 and 2 Limits and Thresholds
~
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"-
<:
Levels
Initial Limit Approval
Excession actions
Excession notification
Number in place
Levell limits
Firm, LOB, Sub-LOB
limit requestor and corresponding
Market Risk Executives, plus one
level up In organization approve;
approval documented
B u s i n ~ s s Unit must take immedtate
steps toward reducing its exposure 'to
be within the limit, unless a One-off
Approval Is granted by all Grantors '
and Grantees of limits
Reported in Foday Risk pack and
LimitlThreshold excession report, and
to all approvers via email
Approximately 100
BANK PROPRIETARY ANDIOR TRADE INFORMATION
Level 2 limits
LOB, SUb-LOB, Desk
Limit requestor and corresponding
Market Risk Executives approve;
approval documented
Business Unit must take immediate
steps toward reducing its exposure to
be within the hmit unless a One-<Jff
APproval is granted by all Granlors
and Grantees of limits
Reported in Friday Risk pack and
LimlVThreshold excession report, and
to all approvers via email
APproximately 270
13
Thresholds
LOB, Sub-LOB, Desk
Limit requestor and corresponding
Market Risk Executives agree; no
documented approval required '
Not required to take action to bring
utilization within Threshold, no
documenled one-<Jff approvals
required
Reported in limiVThreshold
excession report
Over4,2oo
J.P.Morgan
OCC-SPI-OOl17682
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sent 201210:27 PM
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TREATMENT REQUESTED BY
J.P. MORGAN CHASE & CO. .
i'tcim: .
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. To:
'StilSjeet: .
Il<sil, a..uno M .' .
2131202:37. .__',
:Matfitr'Amjo;J8liie(X; Per'l'yinail, MdrewX-;
.Grout, .'
. : hello ,io1JoWirfg QUr lastpnone'caIJ, 'laSt Weel<;
.' please haveasecorldJookio t'mspresentatioR'1
prepared 'VJItn
.' 23rd :F.Eib 2012

.. )mih!>.;the -Sfirn: slid eS :des-cr)be-yer)i well'the book. The slide;;>+ 'in 'particular'
.displa'{the anil gIVeS a clue'oftlle seale.OfthE! moves. This.shows
. quitklynow the btioktinactuaily 10se.200M and'p'o$ibl atlOther 200M
'while;beingr:ange'boun&The connection'With last.yeaJ.ga'ihis-reall,hl
.coincidenee : the.A:MR lnoVe.was t.eanY;(!Xc;e,otiooal and tlie sprt!Cid :moVes.

'a'dii'rtlmllwould'like to aild'anbther slide'to rlescr'ibehoWthe:1G9traae
retjiiif.espOSSloly 'c;apifalspot't-b'il1l6w 'fura 'quic'K& aJT(lsmolltljefcapita1
ihefotUs io!ildbe 0!i rerlianWhe-re'1'here.1S ai'isk -Should
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lrittiat,Gjl;ewe'.l;hoilIClrfght'oow li'oyprbteCti6n on IGgp:.31yrahCi IDyr,:and
sel'l.protettion '6rr741Y7Yf Ttlis rrilglrt:;nc:rt!ase :fueJj:WA
'tim llanO, tlot'Sllre about Var and StreSs.v.rr ,'As 'time"passesoy, the 'delta ,
'Worilil inCrease reduce-smotth1ttMnet lOng exposure.
'This'Would be the besrtrade-we 'Could dOas :ofro&iy :this-wlil :IlOt hnpai:t the
tarrY<ltflm f.inSteadwewOllld sell the'implied-longtemr yolatility), ..
but will reduce the pos'itlve'.:onvexilyaf the booK. tephis Win 'rilake:the
'profile;of core NdWtacticallsapprox lU to-1!! tl'me,i',smaller
t1rafi'oore"iiml has a "natural" P&Lnofse ol2:!3Mda1Jv. $0, we snoulo'e1tpei:t a .
10.core 'of m>tD-:iG-40NbNh\le'totdati'tismuch smaller' .. '
;out.d marlcet mtnles'destiibed ifi'tlre past.. "
JPM-CIO-PSI 0021902
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now; reailyt.fie m.aI'Ketpr.'iteso.defailltsQfthelrWe.'j
pttceS' Ii; 'isW:!iatlSiic.it yfit).. ThisWllli.)efp;UYldernaiio tlie'51ile:3,. fu<it;dmilsc .

i"hbwlGSi has rt)(;iMetiv.ei's\:is,aregressialllnodf:;tlei1 Spread'i::iirli'inifrom;. . . ..
'IG15, lint; and .Ra:dlaii syt CDS,tflis. w6t.ilii help and Whsfthe.16
moveis 50 peCIlIfiU', ,
.Let me know Your thoughts
BeSt regardS .

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:ONFIDENTIAL TREATMENT REQUESTED BY
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JPMCIO-PSI 0021903
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lniirderto hfghflght .dfft'erenton!er:6'rm'aii"iitude-s;Ttfiirikl should ildifiWo'"
-otlier,slides, '
i-how-reallv the 'to- tanre i '- '
yet}. 'This will he1p understand the snde:3 fhat-detafls
the breakdoWn ", '
'2"how 1i/l!rius a:iegresfton mocellea spread tomirig from;
lG15;HY:Jj, and Rirdiah:Sy'r CDS tJil!; would ;\le1p expiaih how whY the '16 '
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1K$'I1,Brimo1lll __ .
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Jks1i,.BnmoM
15.Mil.rdi201218:-45
Martiti-Alfajo, .JavierX .
Update on 'core .
The diver.gente llicreases betwe\:n .crude mid pd:tes -arrd 'our
.. :e'Stilllate. "ulien .will 'Send 'a 'SlII<Ill -spre-asheet rffi:.ol"dijl'g me
,brl=adawnof ti:Je diver-gence per bl'ocks,.
." " " .. . .
. T,tle igS toi,!ay.
to keep 'tile raily pacewfth 'J:;he is .now
. :nai; at (5Sp1:S Upfr.mit. :the eqt.i5.'ty-tf'antlles .are -I'plly _
. now. Yet li,y .int'lil::es :peffohning well,
;gree-ts.
i'traxx>and IlY .in ;c<lx M>.te .maiiitiritied :t:l1efr' i>.at% ':Versus ig
. rally. l'hatis 4bps :tighter -fgr bpsformatn s:U;.: 21
'bpsfoT' ",011121' ;arid '2&-:i5 '!5P'S .-j;df'.liy { H ..one adtls the loss in
-r-sc-$.'t!iai isj:ir'itl=S .as ;certa'in now 'i'e ll)pr.-ic:e,. Iil
'that regard, 1'Ie 'thl? 'ig9 119 cis l'eM'Gr.iI1iflg l'i1Gtne .
. b>:ta adjusted.
nre whci3.e ig9 :r:::OMi.esooU'ld haV'e .uutp-eridrmeo "dually i'f we'
Jook at 'the performan-ce . 'radian and .mbia or sfi. This is
'rmeded in tneig9 'Syr ttla-t .has 'tightened l.bps, but not
in ig9 that lias tiglrreiledles$ than:',1 bps by the quotes.
we 'rec-eive. ''What is really puzzling .lJere is that the
quotes have not Ctrao'ged'! ilie .cds 'GtItperformance Cind index
llnderpe'rf.oJiliartce slioulol1ave :1;i!5btenedtiie .
. ,/
'flli: lQOk 'tociia/do 'ttl.ffer"ence -wh':Lle
. .not .growiiig 'the fxrsition'S-e5'pei:iaU:iin ig9. -rite solutions
a'f'ie very 'some 'main s:9 trade's coul'!! 'help, -some hy .
but trre- ll'g '.is we ;QO .hot :want 'to
-ada.
JPMCIO-PSI0021905
.' .Wftatr I rio 'i-1g1it ifQW: i:s.buying :a.nct 'in. orner t'O .
/smcrotl! the .extinctIon p'f' the:' pook"Ttr.i:s win be ,may. be. the .
s'crll.lti:o-p ie"j:'. t'\'ie- boOk rOn 'off <, 50' I fol'titll .
Oiitc6me. So' iar I did nd:t iifiow u'p; i.n: tile ::index Just
,te:s;C5::rlg.: watEif's.. I may. not find -size pUt;. the, trad'i'l1g cost: is.
highl not 001y: the-b:i.;d (lsI( but the ;llmost'. il)-fi)1ij:eabUtty.
of t!:1e creal'e!". to' twis.t tf1jtir' rwis" ..
B'rilno
i
. ' , -
.:.
" .
;ONFIDENTIAL TREATMENT REQUESTED BY
J.P. MORGAN CHASE & CO .
. ,',
.,-:"-'
....
",.:",.
JPM-CIO-PSI0021906
What'! do '-:r-i:glit ;row :1:5. iliiyiil'g 7yf' .aliil Tayr iii omet- "to
'Smooth :the -e)('tan'c:ti-on of -the h<;l6k. This will be lIIay 'be the
let-the pook run off .Sol JrrejJar.e it 'for :tli{s
.. out:c;On1e .50 -$ar'! dil:lncit up in -the :lndexmarkEt. just-'
: festing waters. .! -may 'not "find Size but tJi:e is
:high, not only the -bid ask but the almo's1: infInite ability
of :rh-e. dealer.s to ndst .t:heil- 'r1lj1S.
: ,Best ..-
'Brutro
. ' .
-' ..
. -'
u:
/ .
/,
JPM-CIO-PSI 0021907
. /
From:
Sent:
To:
Cc: .

'i!<;sil, Bruno M
16 March'2012. 06:42
Maitir:loArtajo, .x '
,GroU\;, Jullen 6:; Hagan, CPainCk S
Woo Ideas on cOre
,ffhbrigliUhisnight that We corrsJdet tin
. 'both'1n 19!:fioyranll ,ftraxx.malhs"ln,{)'yi': . . .
.. ,we,toujd )oi;1<rocts.O\Ier:gooihize l::frnrik. ." : .
.. ihis'W6\ifd s:ii:)defa (ilt;iinpfove ihe'tlirfY .
1,ff;>etthe .losswe,l);l\1l!noW, . .
. " SA, tiesplte
the lag,ln 'the {G9 ':1Oyrindex, the 'skewh<is "barely,;iiangea,
me.a pezilingoostination 00 -dealer siaeto'f(eepit1iketna-t;
:Because thlsGilindt:be iii ifiF'tidldmg themai'keit-b'r{its'OWn .
alone. ' " ,
ruli-dff '
. ih:Jt !s:an1ntereSting crpt!on ..This,mrmey is
o15faift\t;d fro'rn a tloV.ingr<lrle inihe Iiquitilty'ofthe portTti1ia. Y-et,it lookS'a
m'uCh bett-er option than 'Colja'pSif!gDi" iill)Nindi
l1
g the trades Wltlr'the -stre'et
'blm'ktrarles .
TIfe tfaile:s.ooiJld .b'e hooked' tin i! stanaal9'ne lrilsis from one j:ash.1:lllote, ,so'
thls:waoidb-e l!asy"to mark '( with'an increasen issue here 1
me llqllidftyin}ed:ldrf.'wewouldt>perate mlght:also be" favorable for lis to
reduce some :tratlChE!lihes;speda1ly the '1Oyrln that'r-egarrl.
AS<a'Summary:
Negatives . '
" . . /
. ," -ifoWligratlet\prpfileMthe bo6k:remaiiiS'a:tailrlsk.booldil erecit"
. '(jenlliltives ..
operations ..
....
JPM-CIO-PSI0021908
'.; '.:
I . :.'
" !lanei:' '

,uoreairze:d:loss" " .
. "
, ... '
nave. trirded sizes ' :, .'.,' ' .
, - ORCE!' 1il"{sirnj:iiyto:tnai'K / "
-all6ws usto:pay'the trading CGst510 settfJe boQk forrun'offmoae
Ti-rareal choke book shb(ild be 'on FUn-off'mcide, ie
we;'lightly JJ\anage:'itwith.a longrfskbias :'.we would aliowTo-f.P&L:'SWlngs and
wewoiiltf t'i)'r default.nskfookillgforward. To besare, this is:t!le.
,case' already'but the .0061<: is nc>t 1n riJ'n 'ojf:mode .. lfthe .bCJok'ste.ps in':rufi-Otf;
tlie maKesense:be.tao.5.ewe:wouh1'r:lOi pfiin to' Unw.iRd,
.agressJllel!i'-aswe:dli:llastezif;
..,/
:>.:
.' ...
......
JPM-CIO-PSI0021909
.
- we;:may-have 10 increase
positiVes. . . .
- we lockjo'PlilL in 'roM ofcairyl'pi"Ward that ol'fsetsthe (:urrent
unrealized loss '. .
'liOE!5 :riot alter the
-likely helps ustediice some 'r-eimiihlilg fatgepoSitionli ooCe we
have trailed mes on skew .
'. onte booked,"Vef'simplytO m'arkiinll I'iliiiritain, .' .
,-a1iwsOs to pay the ttailmgcoststo,set:the-lio'okfOTTUn'off mode'

-we 'it witlill for P&UswingS:and .
. wewouldja:st prepare fur;t;'arit -r o':(ksure, t'ryis is the
bi-seaji:-eadybut.the Dook'ls notir'lTUti 'Ptf moile,]f thebookrteps'1nl1.ill'o'ff,
''l:he:s1<eW trade w6uld maKe.iehSe oetfausewifW6ula not :pran totrtiwli1d
. agresslvely cas we dfd last year.,
l.et "t'rie l<no'W
. ,.;."
....
;.-' .
TREATMENT REQUESTED BY
L"\
"'\."
...... '
- ....
JPM-CIO-PSI0021910
. '.,. ...
.. : '
... /
lkSll. Brunolil[ .
.1ksll,Brun6 Nt . :j::i'din!
.. $fllit:
To:
5.ubject;:
6 'iIIIarcn20i2" 1:5:37 '. ..'
JoilVier X; Groot, JUlie!) G
$trate.9Y 'for "ore
'we:have 3 bJ6tkS :.ltraidc,IGoo:d HV .:
'fG 'is'the'jargesf
trade :jdeas_... . .'. . .
--swa-pmoex rtisiO'ft-tot'slhiienam'es 'Wh1;fi:dl .
boy p'foteCtiof\.ln P-'3,seli proti:ction:ln j-'ltl"itrbotb 7'1t lIn'a 'royl
buy :b'UtngHt'ptotedlol1 in 7yr v5.se\1 ptOtect1dtfln on:the run fG
iheieastilifflcult
... ... ....:wi-'Sl16Ulil tff't1:adefaiihep'fobiem is$e-sarrie'
.. : __ :' .... ..... .--.' .'
;"1fu9' Hij,yi"l i.'$-15andiS-.IS ,si)elfer fron:J
ihe .... .' ..,
.. art! "<i'linrist celiited .. '
:. addS1lme jlattenel1i'm flV14 H'l'iS *16 Md tlW;a, tlme:passes by
tci trades willlrrrp'rove the Dtry, bit a sm6cith
rofl oownOThe target isl:b be bliyer of profectitln pnClii tranche'S': thus
the 'delat IntreasitigoVer t1me, the long pos"iticihWiilswitth'to netrttal fast
. mote. N6wi'he beSt profile lSto lIeep thelOng :risk-bias "t:-o
-start.
, .
/'/
th'e'!;ariie itheri-ll! 'a'S'IG'lNifh-:a.$ife .
fly Soifle ;a:hil; .
llr.leina'Jic{ TXU.and tIllnk il:tre -\1Umbet,,-(deraults htJnllte61h
.' AY,1{)l-w.he'r"!!'We ha\ie"th-e -rl0Wn'S1de tlti pefatiits.:TJ;e
i
JPMCIOPSI0021911
/flilfteiiers wiiiriee,a to be iG and '"
.*a!ri
b1bck5
:.. . . ' ' , - - ""
.. /
A.il thfs-woiiiil riot:cnange:\t'IaJtenailytne 'profile' hOO k:t)Verthe.'tesftlf
ftslife; we,woutdsiiiiplystick,ta,tlie?e tiWesaud:do flothiiigmore', vk flave_
to:6efihetnel>ptlqlal tiJ!posu,e in Jot)!friSitterms10 'have a aeeet'rt
carry,
.-,.".
:.. ':". ...... ....
:ONFIDENTIAL TREATMENT REQUESTED BY
J.P. MORGAN CHASE & CO. "
.. '
. ...... .
JPM-CIO-PSI0021912
--'flattenets*iil funded risk itll(ir:and
-_./ -
Afl 'tJ:ils -WQUld notiihaiJge m'ilte"r)aiiytiiepfcifile dfthe rest'oT
- si1ck:to tMse trades Il!i"d notnir)g iJltire-:Weha'Vt!
'to tloone ,the -opilitlffi exposure-in Ji:n'lgiisldet.tns;to-tmsur.e-we'1:ialie ill 'decent
carr-y.
./
...
JPM-CIO-PSI0021913
::;ONF1DENT1AL TREATMENT REQUESTED BY
.,/
.......
rl'9m:
sent:
Tfi:
,SUbject:
Iksil, anilo M '
16.1\11arch2012 j7;.3a
, MCJ!1in-:Artaio, Javier X
'update:on'Core,Pf\lL ,
, resc<ip neWs is pushlng {lie
,tf!lIlChes 'agaIQstllS: '
:l workeclonth'E JG9a'tlSmalnS9 a Iff\: There is :SOrrii :ilie:
,Blrt'ff i trade 2 I reckon"ihere wili 'tie size. ' ,
deipfte th'crugh. BIlt
"the hitssifow anywllere but tile spots I t1"ieii'to con-ed.
" :Since i'tll:i':5ti.rt!OT.the ye'ii( -<ind:the drJl:tk'eep;;:gi;lng.1
r.eck0nweget t6 400 :differeTI"(:e 'Vel')' fsbon, .
JPM-CIO-PSI 0021914
,;. ,
...
.... " .... /
--Fl"Om;
:Sent:
TO:
cc:
:Subject:
-Bookpbsiti6n
-Iksil. ,BronoM
MiirCl'i21J1211:.ti5 -
X
- i3roilt, .iUlien-e
:Cor!:llBodk ?nalysii>and _proposed -_/
c Th'!! boo1< has -an1r,-t>;&L upside-on defaults arid posItIve
:co'nvexity spreaos gapwider. It is reTilfWelyneutia;Lilitectianally overall at
-current f)1a'tketsJjtea<fJeve1S> - , -
- o'btajn,Hlis profile, :the- boo1c;r.etems-tne'rorW<lrd -c.r.edit spreadS:
Gl'ugb'tlrisque'eze1iRet'hisone,:fue .P&l. voUrtHlty can
. become very Jatge-; tlils -is sial;e'the oTthls
Vea'(in:COX -IG9imd M'<im n'AAXXS9 -series. The 5-10 Spslag
1n -
Xl'loss 'Of iOOm 'Os'hy frori1 KGDAK default
'lifrd REsCA'Palmost,C!rtafnoefaUli':'thfs weakness havebee.n corrected now
anti offers i::IeCenhipside in:aiiy'new ue't.iult 'iliHYindices
,Marketbehavl6Ur _
, 'tfre.6X:fG9 and Index -
/ 'traocl'\es still trade, Thls1s 'here 'the street owns soiT(e espeda1f<i
In'the longeneni:trs Tor.caj:lJful relief-reasdrrand uncetiaini1<1botit:the
llel'aultS. _ - _, '
- some largl"1edgeiUridshave:some "skeW:tt;ldef' 'Wl'reie:fuey :buy--
SE!nes.9 'lilyr'irrdites'vetsUs the ;Single 'names
, ,,':m tiie those -Series }wHete b66'k is'ldnifiSkand 1:he'.$tre:et
. _:is--;f\orfJisk)'ha'{ie lagged ,consiStentlY bv :tnl1:1ing:aijd
/ - 'lag, wec61.11d re'trlevei-:'2b):iS bu't'therlWemetstro\1g're5istance-efthetWitIl
,/ 5ire .. ' . __ - , _ _
,- - tfilsye<ir:t'he 'trilOCh-e :'W'e:can -trade'E;ut
small sIZe eaCh time withalyappetite from -.dealers 'to load 'protection -o-n'the
-'Ionge-st tenors.
. ,./
......
JPM-CIO-PSI 0021915
.......
. .. :IU. tJsi'ivj
.' ad\leitlzed by dea fer:ssaylrig :tli<it eitner have deWts o.rwe rallY.i!jti)er .
Waxs;ih.e cUfV'e wel:iavea Oi:t:'. . .
. . ... -as a .su.mmaty, t'he book \Savery lIisiofe plilyer and ilolds.a:trade:
thaHbe"street .hav.e.now ie'a ptoted:ioo agllillst unpreo'ictable .
oafiUlts' At the same time; ttiey5tilloi;wn .il)O'pefaii\t" t(ades'fl:Ofll
last year,S<> tbe.streets.ystematically stee'Aens:'t'i1e series'g curves (lnp:
. .
Pr()poSed. strategy; ..'
jUStirriairitaiiliiig,tl'ie:\iPSideotl:detaillts,1:lvei'tiine:'" .' .
-toXIG .and.!JRAlOC MAl N OV!'!t'tile":n-exr 1i:hflonti:is . ...... .
.
./
.' tne
{;afi;Y{5-10'Sllttvlain aniUGf . .
. -cox uS:H>f:o:v.et:th:e,nextlilifoiithS. ..,
. . we-
lWr\ tlie p:roted:iOl1On the.5yr'r(ow .
. -leHhe (onss in lrii6-fiyi1'.sei'ies:liVeaS'thiW i:laveloSt
n<imesil!Ut QflOO .Clnd \cjok-safer than hy:14 to hy'!7 sene, ..
tne-Joss is likely ,til 300m' .
lG'9
.secoriililextJs'cD1QI,{c;.t/je hit;isoanPtlie';1Jlirm'Sl,lt.eactwltbint'he
tea-Tithe :arid.iodex bi):!-ask; lypic:a!liereA'Olftiin1')'Ot tea1ry. trade :mUj
ir{S9 pilsRtns'tne .'
fOr.Wiinlback'-ap\f(tEiffe< tbe-otgei turveS. st:eepetred.l bp: iittiieta'ri;TI'it:H,ii:
.. .' .' ..' . '.. .. .' .
.. f .... . estfmated. Dook to
100m-for ItraXx-iilall1i ZOOm for COli; 'HYi. " ..
" I. .. . .
. c6ridtrliort. .. / .' ..... .... . > / '.. . . . ...
. ; i' ,. the: ,oemctlntained wftb'
defaults-Jis il:tiicf{a-sj5os'sible...
, ,
./
. :::.. : .... ... .,_ ... ,.".-.
J.P. CHASE & CO.
.. \'
.... .
some-of OUl:Jrades
t1iebill--a5t:'costand tfie' street0W!'!?
'the-.Iong-!ert)'l to coverthei( legjie'h Ie "no:lletau.li!'tra des'mOstly- , . .
heldiO fOlllJ ofsteiepenersafJd long'nsldnshciit .
. ' is a trap that Is bullairtg'.:' if we [fm/t the
d?k..iircreasrn,g:thf?nQb'b.nafsfurtlTer'and weaken'OUf" P05!tIOI\versus:tbe.fest.
oftliet\iarket Onesoltlti6ix woUld beto Ie');,tlj'e b06kbe realfy long
risk, 'I't"this"Wouijl' ri.ot'be. irt a mWKet-and may im:rease,the, P&l:ndlse.
espedalI in c.orrections. . / .' . . . . ".
. / - tiie.!>bfutiol)irop6setl iieiol)gei'TiSkand retthe.bodR
exp!reca'r:fil)!:fthe ;upside:lJDDefauTt: t he,e,<i very .gOod, .
fora / .SlgilifitaIlUlifs,watiId1\wpl'Ve.some-
ptit"ftattenets
'iir aUdsi::&:ptOtectig,ll,on 51'relid w&ilenihg. .
./
.....
./
.:
, ....
3
.-.- .... ......
JPM-CIO-PSI0021916
. . -in Us: H\" lo a'ilditiOn to the 2 defaults; 'we rac 'ii f1atrelling-trend
by rlealers saying that ;either'Weh'tl\leilefaUltstirweTa1iy; either
:tlie-curve:'flattens rand . . We
:.' '-as-:a sutimi'arV, the bOolds la ,veryisible p1ayer\:aho 'hbTds a trade
th'liUhe Str.eetjlil:aTits to have 'l;ovr!1e-a p-rotel:UOjI.aga1i!st lJfTpredkta'Ole
Af'i:hes,!rne'tlme;. ,they-still i>wn'iiuiir"no default" trades frOm .
last ,yeat, So Stt.eet:system'iltkally S'teepEms-ttie senes'g wnresaiJd
:m.a1!'ltain theJo't)gesttellorswider'than 'allfihli:!i: ;els-e .
: strylffigy-: . / .'
overtIme. . .,'
-'CD)(IG aiid rtRAXXiiJIiiMiJ ;oVertne nexti8' iTI'onths
- buy back 'the :Fm:ited:i6ri in {)-<3 l\lyrfo'relietSe tbe profile { .
'381n 111 main .. 6blli'in rGj
- buy some'D'-31n 7yi-tenors ( lbtn mairj-2l,lnin lGj
-sell-proti:ctior:fover time :onwidehihgsto maintain the
carty(5"iO Bln:f\;liain 'ahdlB)
. - d)X u'sfff nwetthenext iE ., .. _ ,/
:seneswliilewe
. i!i.1:he '.
o MYii):'hyli'sefiesojhre :arthey
. ,_ . liaTiies :O'Ut tiflUO ,affd 'jbii\{;safll'f\tlillnliy 14ttlh17 ,se.1'iies
.,
P&l pi:iSSio1e';a'nge;,1he J0"5515 dke1rt{; :tange hetween:toornt:o :ioom
;'ii1ajn reasoills tiie:CDXlG9.1ag.\ 2-"3bq5spr'lOb-150rri)
the hit is ili;\)tner 100m spread wlth1n:ttie .-
tra'nche:aM inClexhid-ask;,-ypica('her<!/youcahnoneally trade but-tile' mid
'!ioes nbtthange,
-third is Main 'ittaJO( :.the curve in 59 steepeneClby sbpqitlshingthe
hadlc up Whllethe other tUrves sti!ffpened 1 bp inthi! rally. The :hit .
nereis 30-1oom.
-the 'estlmatea6Id-asi<on batiK:gttlSSly amol.lntsta500m -all-In ('
:lOOril foflG,.ioomforiti'aXX:\ffiiih,.:iOOm .
et,nt1usioli: .' '. .' '.' ../. ...... 0 0" .'
. aodsi1'iruld ,v:,;lth .
. . 'it.silpSiOej:in .a-srtlUdrjl's"pd5s1cle. .
. . . . .
, -. ,'1":"
' ....
;ONFIDENTIAL TREATMENT REQUESTED BY
I.P. MORGAN CHASE & CO.
;,
"tlie mai'ketls'Vety:sma)lnowand we are'to'o 'l!iSiole with likel\i
" .sOtrle cif our trades.creatlng.a us'boiff'i'; .
.1'h!{bidilSk t:Dsti3no thE! Miirk':'::To_mar1<1:t be'6il'lsethe.stteej::owns
. the limIt l;e'tm .protectldtl to 'covertlleir legacy, ie "ob ':default' trades mostly
held In .al1d'long rjsk jnShortterm equ/tftr.amtres, .
. .'-1heteis;a ttr.it 'if we llii:llt'fhe1l1laii<.:rb...:Mar.ketwe
'fisk tiicte'asingtfre nd\1c5ba1s fUrther ,and WE! ..ikeii our positlofniersus the :reSt
:Pf'thermarke One sOlation woula btte iettn:e bOOK be -really Jong
liqui9'inart<erana fu:ily iiicreaseThe P&lnolse'
... :espeCiall.V"\ll'eorreGtlons, .... .'
'j:'tie saMionprO\io'sed l1moUn'i:s to letthebb6k .
-e'xpir.e-iilfry1iflftl1e upside6n thifik:we b'iillllierea;iery'gOocl
. position fon size tharis also . Sigiiificagt.This'W!:iuld invDlve some
mecharnoal '!'nioiffg,"iecuy:proleCtfof1;p-n ioyr:equtty tranche's,
il"l 'm 1.4-17 :ilhd'Srupfbt'tlctlon.on :!;pread wdioeniRg,
'. '.
'abtl tid-aSK WLll tome'.sduif..rltel'. Jtilren is'i:init. .
JPM-CIO-PSI0021917
Sent: Fri,04 May 2012 18:14:15 GMT
To:
Weiland, Peter <[email protected]>; Tocchio, Samantha X
<samantha.X:[email protected]>; Lee, Elizabeth M <[email protected]>
Subject: FW: Information needed
Importance: High
From: Nase, Angjela X
Sent: Thursday, May 03, 2012 11:54 AM
Cc: Surtani, Lavine; Lynch, Matthew A; Chen, Ted C; Doyle, Robin A.
Subject: RE: Information needed
Importance: High
Hi Irv,
Per your request to Matt, please find the CIO excessions attached. Please let us know if you need anything
else.
Regards,
Angjela
-----Origil1al Message-----
From: Lynch, Matthew A
Sent: Wednesday, May 02, 2012 9':56 PM
To: MRM External Reporting
Cc: Surtani, Lavine
Subject: Fw: Information needed
Fyi please see this high priority request from Irv. I committed to getting something to him by mid day
tomorrow. Given that we have sent several suchemails over the last few months with excession summaries
we should be able to pull this together.
~ . ; . ~ - : - - Original Message -----
Sent: Wednesday, May 02; 2012 06:44 PM
To: Lynch, Matthew A
Cc: Doyle
J
Robin A.
Subject: Information lieeded
MattI
I need a summary fora speCific workstream john hogan requested of all CIO excessions, breach's reported
by mrm from 9/30/2011 to today. This is high priority. Please let me know estimated delivery of request.
Thanks
Irv
CONFIDENTIAL TREATMENT REQUES1 ... __
E
.XH_.I.B.IT_#.3.9 __ __
c...(')
:.ao
'z LlmltlD Limit Description. COB Llmitleve1 VaR, Limit T Utlll;zation T EXcesslonT %
:="
0-
32404 CIQ - Global Equities -Infl- A99r - TQIiiI Net EquitY Vega, 101312011 Level 2 Limit 4,500,Qoo e;3ll:'l,('llI4 109
::o?il
32403 CIO - Global Equities",Int'I- Aggr.total Gross Equity Veoa 101312011 Other Threshcld 6,000,000 ..1 10;1)411.809..1 4,944.809..1 82
G')Z
40098 CIO -Int I -Global Equi)!" -Aggr - Top Tiar Vega 10/;3/2011 Level 2 L1nitt 2,000,000
:t>-I
40098 Clb -Int I-.Global Equities -Aggr - Top Tier Vega' '101412011 Level 2 Limit 2,000,000

32403 OlO - Global Equales - Infl Aggr Gross Equity Vega 101412011 Other Threshcld 6,000,000
'40097 CIOlht I Global Equities Agg' Top Tie, Della 10/4/2011 Level2liriitt 250;000,000
::J:-i
32404 CIO - Global Equities Infl Aggr Net Equity Vega 10/412011 Level 2 Lim. 4,500,000
:t>::o
32404 CIQ Global.EqUitiE).j;.Int:I. Aggr. Total Net Equity Vega 10/512011 Levill2Umlt 4.500,000
CJ)m
'40098 CIO Int I Global Equities. Aggr Top TlerVega 1015/2011 Level 2 Lim. 2,000,000 4,131,575 207

32403 CIQ GlobaIE91uities Infl - ilggr. Total Gross Vega 1.015120)1 OtherThreshold !l,ooo,ooO 40
32404 CIO Global Equfties' Int'l. Aggr. Total Net Equity Vega '10/612011 Level 2 Limit 4,500,000 6)84;,015 2,284,015 51
.120 3: 4CP9.8 010 In! 1(3lobel Eguities. Aggr Top Tier Vega 10id/QOlj Le"el2 Limit 2,000.000 6.l,Sf,51? 4,131,575 207
Om 32403 CIO - Global,Equftles.lrifl Aggr. Total Gross Equity Vega 101ll12011 Other Threshold 6,000,000 2,400,292 40
92 32404 cia - Global Equities 1nt'1- Aggr Tola! Net Equity Vega It)110f.2011 Level2Limit 4,500,000 9,1116;512 5,416,512 120
-I
40097 ClO -Inti Equities '')\99(- Top Tiet Pelta 10110/2011 Uilel2Limll 250.,000,000 :?>ll5,955,?12 115;955,712 46
."
40098 CIO lnt 1- Global Equities. Aogt Top Tier Vega 1011{)f2011 Level2Umi! 2,000,000 M6g,000 4,389;000 218
m 32403 CIQ Glob.I.Equit\es Int'I TQlaI Gross. Equity Vega 1011012011 Other Threshold
g
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cia Int 1GIObal Eaufties Aaar Top Tier Delta 101111201'1 Level 2 Limtt
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32403 CIO Global Infl Agsr TQlaI Gross Equity Vega 101131;1.011 Threshold 6.000,000 9;911\,235 165
3240J1 CIO Global Equfties' 101'1 Aggr" ctal Net Equity Vega 10mil2011 Level 2 Limft 4,500,000 $,889,307 131
40098 010 Im I Global Eguities .Aggr Top Tiel Vega 10/13/2011 Leilel1 Limit 2,000,000 6,ll4!/,1rI$ 4;849,919 242
40097 CIO Jnl I-Global - Aggr Top iier Delta 101131:2011 Level 2 Litriit 150,000,000 34iql7)l!):2' 1'6,317,852 39
40097 cIa Int 1- Global Equitieo-Aggr'op Tier Delta 10114f.Zdl1 Level 2 Limit 25OPOb,OOO 341:1;311,$52 96,317,852 39
4009B CIO Int 1- (3lobal Equit(es -Aggr Top Tiet Vega 1011412011 Uvel2 Limtt 2.000,000 6,849.$19 {849:919 242
32403
32404
32454
4009.8
32403
40000
32403 CIO Global Egufties Infl /lgg'. Total Gro.sEquity Vega 1011812011
32404 CIO Global Equities. Infl Aggr> TOI.!II Net Equity Vega 1011812011 Level 2 Limit 4,500,000 10;111.1130 6,211,e:30 138
32404 OlO GlobalEqUitieo .Ihtl Aligr. Total Net Equity Vega 10119/2011 'Level 2 limit 4,500,000 6229,493 138
40097 C1D.lnl I Global Equities. Aggr Top TierPeIl? 1011.912011 Level 2 Limit 250,000,000 476,143 a
3241)3 CIQ - GlobalEquities Infl Aggr Total Gross Equttv Vega 101191;<011 .Other Threshold !l,ooo,ooO 10,.623.938 177
40098 CIO - Int I Global Equities 'Aggr Top Tier Vega 1011912011 level2lirnit 2,000 .. 000 7;41l:!;$84 5,419,334 271
32404 010 - Global Equities Infl , Aggi T.O\el Net Eguity Vega 10000011 Level2lirhft 4,500,000 '!O;197,';i82 140
40098 CiO Int I (3lobal Equities. Aggr. Top Tier 1012012011 Level tlitnlt 2,000,000 5,5'17,794 2715
40097 cia -lilt 1- Global Equities Aggr TOil Tier Delia 10i2012011 Level 2 limit 250,000,000 25O,811,aDl 811.001 0
32403 0l0 Global Equities Infl- Aggr - Total'Gressi Equity 11"90. 10/2012011 Threshold 6,000,000 17,047,449 11,047,449 184
40098 CIO Inl 1- Global EqultlllS. Ails" Top Tier Vega 1012112011 Level 2 2,000000 7.5'12.$52 5512,352 276
<- 32404 CIQ Global Equities Infl Aggr TRlal Net Equity Vega 10121/2Q11 level2Lirtijt 4,500,000 HI;600;IJO;\. 6/,98,802 142
-0
.:;:
32403 cia Global Equitieslnt'l. Aggr,total Gross Equity Vega 1012112011 Other Threshold 6,000,000 11,205,881 '187
I 40097 CIQ Im I - Glob;31 Equities. Aggt Top Tier Delta 1012112011 Level 2 Umit 250,000,000 404,516,704 154,516,784 e1
0 40098 cia -Int I GlObal Equities -A99r- Top Tier Vega 101241201'1 level 2 Limit 2,000,000 5,209,023 280
(5 32404 Cia Global Equities 1nt'1 Aggr Total Net Equity Vega 10/2412011 Level 2 Lim. 4,500,000 10,250,009 5,750,009 128
I 32403 CIO GI6baIEquit1esInt'I. Al'lll'" Total Gross Equity Vega 10124/2011 Other Threshold 6,000,000 1.7,138,'102 11,13$,102 186
-0
40097 CIO Intl Global Equities" Agg" Top Tier Delt. 101241:2011 Level 2 Lim. :250;000,000 83,970,976 34
CJ)
;-
4009/3 ClQ Int I GIQbal EqUltillS - A99r - Top Tier Vega 1012512011 Leilel2Umtt 2.000,000 7.,I)11,0i'8 5,071,078 254
::J:
40097 CIOlntl Global EquiliesAggr Top TierO .. lt .. 1012512011 Level 2 Limit 250,000,000 13,380,999 5
0
32404 CIQ - Global EAuiQes Int'I Agor Total N<lt EquitY Vega 1012512011 Level 2 Limit 4,500,000 '10;995,418 M95,418 124
0 32403 CIO Global Equities" Int'l. Aggr. Total Gross Equity Vega. 10f25i2011 Other ThresJiold 6,000,000' 10,9:\9,228 182
0 40091 ClO I.mI 'GI",bal "'gUllies - Agg' Tap Tier Delta 10i2612011 Levell Limit 250,000;000 36,8.61,q46 15
0
.0) 32403 CIO .Cllobal Equities. Int'l. Asgr Tolal Gross EquitY Vega 1012012011 other Threshold 6,000,000 17;9Il2,55!i 11,98:;1,555 200
N 32404 OlD - Global - Int'I - Acar - Tota! Net Eouttv Veo .. 10/25/2011 Level 2 Limit 4.500,000 '10,9$6,061 6;458.007 143
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ClO -Int 1- <3IQbal Equlti\l5 - Aggr - Top TierVega
CIO.- GIob.1 Equities" Inri - Aggr,.Total Gross Equity Vega
CIQ - Int 1- Global - A99r - Top l)er
CIO Global Equaiss' Infl Aggr ' Total Net Equity Vega
ClO - Global EquitieS - .Ini'! - Agg; Total Gross Equity Vega
CIO -Inti Global Equities. Aggr. Top Tier Vega
clO - Global Equlties - Inri - Aggr - Total Net EqUity Vega
ClO - Global Equrties -lilfl Aggr - Total Net Equity Vega
CIO -Int 1- Global Equltles- Aggt- Top Tier Vega
Cia - GlobalEquiti.es - Inrl- - Total GrOss Equity V'Mia
CIO -Global,.Aggregate. Combined 010 & MSR VAR
Cia - QiIob?I-Aggregate - Compio_1! CIO & MSR VI',R
CIO -In!'l- Aggregate, Equity VAR
ClO -In!'l-loo -Equity VAR
CIO-Infl- - Equity VAR
CIO -Int'! - 100 ,Equity VAA
ClO -lnl'l-loo - Equity VAR
CIO.- Infl- Aggregate" Equity VAR
CIO - Infl- AggregatE>' Equity VAR
CIO -lnfl-1oo - EquityVAR
CIO - Global-Aooreaate - Combined CIO & MSR VAR
cia - -Combined CIO &MSR VAR
CIO-Global credit SPV - MTM- Total
cia - GlobalCredit - CredltSplead SPV - MTM - Total
ClO - Global Credft - Credit Spread SPV - MTM - Total
CIO - Global C.redit - Credit Spread Spy" MTM - Toful
CIO - Infl - 100 - CreditVAR
CIQ - Global -Credit Spread SpV - MTM - Tol<il
CIO.-lnternational-1OQ- Total VAR
CIO - Global credit - credit Spread SPV MTM - Total
CIO - Global, lroVAR
CIO -Infl- 100 -Credit VAR
CIO - Glob?l- 100 VAR
CIO - Global Credit - credit Spread SPV - MTM - Total
CIO - Global Gredft -Credit Spr,ead SPV " MTM - Toful
Clo.lnternational-loo- Total VAR
CIQ -Infl-loo - CieditVAR
CIO - Global, looVAR
ClO - Interriational Aggregate - Tolal VaR
CIO -lnft Aggregate CreditVAR
ClO - Global Credit - credit Spread SPV - Total
ClO 1nt'1- -Credlt VAR
CIO-Global,100VAR
CIO -lnr.l- 100 - CreditVAR
-International- Aggr<l9'1te' Total VaR
CIQ - Ii)t(lrnatlqnal - 100 r otal VAR
CIO - Global - BF>V' Total
CIO - GlobarCredit - Gredit Spread SPV - MTM - Total
CIO-Intl-lnternatiOnal- Aggregate - TGtaI V"R
CIO -.lf1fl Aggregate, Credit VAR
CIO -Glbb.1 Cradft -.Credit Spread SPV - MTM - Ti)fal
ClO.-lnfl-1oo CredltVAR
CIO lnternational-1oo - TotaiVAR
CIO -lnternational-1OQ - Total VAR
CIO - Infl-Aggregate - Credit VAR
CIO -Globa.1 Credit - Credn Spread SPY - MTM - Total
CIO Inti International- Aggregate - Total V"R
elo -Infl-loo -CreditVAR
CIO Global.100.VAR
CIQ Global Credit Credit Spread SPV - MTM - Total
CIO.-Infl_ ,CrediiVAR
CIQ - Global- Aggregate - Global VAR
CIO - -CreditSpread sPV - Total
1012612011 Level 2 Limit
1012712011 Other ThreShold
101271.2011 Level 2. Limit
10128/2011 OtherThres.Hold
1012812011 Le'lel2Limit
11)l28fZ011 Le1el2L1mit
10131/2011 Level2Limtt
1013112011 Lavel2 Limfi
OtherThieshold
1111412011 Levell Limit
11115/2011 Level1.Lirritt
11/$012011 Level 2 Lima
12111201.1 level 2 Lifuit
121112011 Lavel2Umft
121212011 Leifel2Umit
121212011 Level 2 UmJt
12/5/2011 le",,12 Limit
'121512011 Level 2 Limit
1217/2011 Levell
1218/20.11 Levell
116121)12 leVel 2 Lirri
1191201. L9vel2 Lirrilt
1110/2012 LoVel 2 Limit
1/11/2012 Lev.el2Umit
1/1212012 L"""12Limlt
1/12/2012 Leliel 2 Lim.1t
1/1612012 Level 2 limit
1/1612012 Levell limit
111712012 level 1 Limit
111712012 Lavel2
111812012 Level 2liinft
111812012 Level 2 Lim.
111.812012 Level1limrt:
1118/:20.12 Levell Limit
1/1llt2012 Level 2 litnit
111812012 Le.eI2L1mit
1/1912012 Lev.el 2 Lim.
1/1912012 Levell.Limit
1/1.912012 Level 2 Limit
1/1912012 Levell Limit
1119/2012 L_ll.Urtiit
1/1912012 Level2Umit
1119f.1012 Leve12 Limit
l/2of2012 LeVE!li Limit
1120/2012 Le"el2limtt
1/2012012 Level 2 Limit
1120/2012 Level1 limit
1123i2012 Levell Limit
1/;>3/2012 Level 2 Limit
112312012 Level2lim1t
111312012 Levelt limit
1123/2012 Level2Limft
112412012 Lavell Limit
1/2412))12 Level 2 Limit
1125/20.12 Levell Urtitt
il25/2012 Level 2 limit
.2,000,000 7 ;8411,<Hi9 5,848,400 292
6,000.,000 17,660;153 11,660,153 194
1,lle4,9'4i;l 5,864,020 293
4,500,OOa 10.115,0111 6,215,067 138
6,000,000 11,344,231 189
2,000,000 5;328,548 268
4,500,000 g,S64,208 5;364,208 119
4,500,000 6;701,231 4;201,231 93
2,000,000 4,155;448 208
6,000,000 16,0}4,376 187
145;000,000 145,'001 4$6 931,456 1
145,000,000 3,316,192 :a
12;000,000 13,208,411 1,208,411 10
12,000,000 13,208,411 1,208;411 10
12,000,0.0.0 12,817,700' 877,100 7
12,000,000 12,877,700 877,700 7
12,000,000 13;42$,,10$ 1,429,773 12
12,000,000 13,429,17'3 1,429,773 12
12,000,000 13,251,1117 1,251;517 10
12,000,000 1;251;517 10
165000000 170 OS5,i04 5()951b4 3
165000000 174,545921) 9545920 6
5,ooo,OOQ 767,8W 15
5,000,000 -6,540,484 1,540,.464 31
5,000,000 -7,i73,l}76 2,173,$76 43
5,000,000 -6,705,051 1,705,051 34.
95,000,000 96,814,688 1,814,688 :1
5,000,000 2,073,191 41
95,000,000 95,692,004 692,064 1
5,000,000 '6,:789,000 1,789;000 36
95,000,000 95,881,928 i
95,000,000 96,494,152 1,494,152 :2
95,000,000 95,6gg,1348 899;848 1
5,000,000 -S,fl23,171 3,623,171 72
5,000,000 -10;!101,91S, 5,501,915 110
95,000,000 100,778,448 5,778;448 6
95,000,000 98,016,.888 3,01&,888 3
95,000,000 102,385,400 7,385;400 8
100,000,000 104,252,784 4;252;784 4
100,000,000 100,427,112 42',112

12,000,000 '12,416,463 415,483 4
100,000000 100,1;17,712 137,712 0
95,000,000 99,936,344 4,936,344 5
95,000,000 99,976,1.92 4,976c192 5
100,000,000 100,226,928 228;928 0
95,000,000 4,576,968 5
12,000,000 242,682 2
5,000,000 .>l,038;065 4,036,065 81
100,000,000 100,349,216 849,216

100,000,000 100,691,064 69 ,004
,
5,000,000 -1iI,,,44,:{9(> 4,244;498 85.
95,000,000 100,207,568 5
95,000,000 99,800,376 4;800,.316 5
95,000,000 10t ,827,328 7
100,000;OOQ 102,249,6pcr 2,:24$,600 2
5,000,000 -S,18:>;0;\1 4,183,.631 64
100,000,000 102,966,082 2;966,032 3
95,000,000 101,721,928 6,721,928 '1
105,000,000 106,1310,296 1;610,298 2
5,000,000 "lJ,(I65,(>713 4,86S,67tl 97
110,000,000 110,314,224 514,224 0
110;000,000 115,473,248 5,473;248 5
12,000,000 -t',2,795,eOO. 795,698 7
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CIQ -lntl-lnternatipnal-';\(9gregaie- Tolar VaR
CIO - Glo.bal Credit -oredit Spreaq BPV MTM - Total
C1O-Global1OQVAR
CIO -lnt\:tnational-1OQ - T9lil1 VAR
CIO - GlobalCtedit- Credit Spread SPV - Total
ClQ - GIo.bal-Ag9regate - GIo.baIVAR
CI0-Global-l0QVAR
Cld - GlobalCredii - Credit Spread BPV - MTM - Total
CiO -Inll -lnterhatioMI- Aggrjlgate - TOfal VaR
CIO -lnternational-l0a- Total VAR
CIO -Infl- 100 - Credit VAR
Cl0 - Aggregate-.Credlt YAR
CIO -Global Cradd- Cte<ltt $ptead BPY- MTrv! - Total
CID - Global Credft- GreddSpread ElI'v, Total
Clb - Global Credit - Credit Spread BPV - MTM - Total
CIO - GIOPsI Credtt- Credit Spread BPV - TOI<\I
CIO ,Global Credd - Credit Spread BPV - MTM- T9lil[
ClO - Glo.bal Credit - Credit Spreat! BPV - Total
cn -Global Credit - Credit Spread SPV" MTM '" T 01<\1
CIO - Global credit -'Credit SPread SPV - TO!aI
10 - Global Credit - CredftSpread SPV' Total
biO - GIoPsI Credft$pread.BPV- MTM- T9lil1
CIO - .GlobaICr.edil- Credit Spread BPV - MJM - Total
CIO - Global Credi! - Credit Spread BPV - Tol<\l
CIO - GI<il>aI.Cre;fit -Oredlt Spiead BPV - Total
CID - Global Credit - Credit Spread BPV - MTM - Tolal
CIO - Global C.fe.dit -.credit Sp,re>j'd BPV - MTM - TOI<\I
CID, -'Global Credit - Credit Spread BPI!, T atal
ClO - GloPsI Gredit ' Credit BPY - Total
ClO - Global Credit - credit Spread BPY - MTM- T9lil1
010 - Global Credit - CredllSpread BPV - Total
CIO - GlObal Credit-CreaitSpread BPV - MTM - Total
C[O - Global Credit - Spread SPV - MTM - T ola[
CIO - Gtobal Credit - Credit Sptead BPV - Total
CIO .. Global Credit - Credit Spread BPV Total
CIO - Global credit - credit Sprei!d BPY - MTM - Total
CIO - Global Credit- CteditSpread BPV"M 1>\- Total
CiO - Global Gred't - credit SPread BPV - Total
CIO - Global Credit - CreoitSplliad BPV - MTM - Total
CIO - Global C,edii - Credit Spread SPV -Total
CIO -GI"baI.C.redit - Credit Sl'>iead SPY - MTM - Totial
CIO - GlObal Credit. Credit Spread BPV - T pta[
CIO - Global Credit - Credit Spreaq SPV - Total
CID -GlobaICredit.- Credit Spread SPV MTM,' Tol<\l
CIO -GloPsI credit $ptead SPV - MTM- TQjaI
Clb - Global Credit - Ctedit'Spread SPY - Total
010 - Global'Credtt - Ct'editSpread BPV - Total
CIO - Global Spread BPV - MTM - Total
CIO '. GlobalCredit - Credit Spread SPV - Total
CIO -Global Cred' - Credit BPV - MTM - Ti)t;il
CIO - GlobaIOredl!.- Credtt Spread BPV," MTM" Tol<\l
010 - Global cried. -Credl! SPread Spy - Total
CIO - Global oreiltt-'Gredrt'Spread SPV' Total
CIQ - Global Cre4it - Credit $pread. BPI! .. MTrvI - Tol<\l
C)O - GlobalCredtt - Credit Spread BPV - Total
CIO - Global Credi! - Credit Spread BPV - MTM - Toml
C[O - GlObalCredit -cre(llt Spread BPV - MTM - Toial
CID - Global Credit _ Credit Spread SPV - T61al
CIO - Global - Credit Spread SPV - MTM - TOI<\I
CIO - Global Credit Spread BPV," Total
CIO - Global Credit - Spre<id.BPV - Total
CIO - Global Gredit -Credit'Spread BPV - MTM- Total
blO - Global CredIt - CtedltSpread BPV - Total
1/2512012 level 1 Lima
11;15/2012 Level 2 Uirlit
112512D12 Levell Limit
112512012 levellUmit
1i21112012 Level 2 Limit
1/21l/2D.12 level 1 Limit
1/2612012 level i Limit
112612012 level 1 UiYlll
112612012 level 1 Limit
1/26/2012 Level 2. Limit
1127/20.12 Level 2 Umit
1/3012012 level 2 Limit
1130/2012 Level 2 limit
113112012 Level2Limft
1131J2012 Leitel2 Liirlit
21112012 level 2 limit
21112012 Leve! 2Umit
2t.1I2012 Level 2 limit
2t.1I2012 LevelZUmft
Leyel 2 Limft
21312012 Level 2 Limft
2/el2012 Level 2L!mft
21612012 Level2Umft
21712012. Level 2 Limit
217/2012 level 2 Limit
21812Q12 level2Umtt
2fBI2012 level 2 Limit
21912012 LevelZLimit
21101201'2 lev . 1
211012012 'Leyel2 Liirlit
2113/2012 Level '2 Limit
21141201:2
Level2 Limit
211512012 Leve1211rM
211612012
211612012 l""el2Umit
212012.012 Leyel2 Limit
212012012 leyel211mit
2121/20.12 Level2Lirtiit
:il2112012 Level2limrt
212212012 Level 2 limit
212212012 Leyel2 Limit
212312012
212312012
212412012 UN'el 2 Limit
212112012 LeyJ'l2limit
212712012 level2Umit
::iI2812012 level2Urtiit
m9/2012 level2IJmit
212912012 Leyel 2Limit
31112012. Leyel2Limit
31112012 Level 2 limit
m12012 level2Lirtiit
31212012 Level 2 Limtt
31512012 leve12Llmit
11O;ooO,{)oo 113,508,840 3,508,840 3
5,0Q0,000 AO,974;!l65 5,974,965 119
105;000,000 11\799,224 6,799,224 6
110,000,000 110,50M40 5OM40 0
12,000,000 .1$:57M89 1,579,489 13
110,000,000 123,il61,.184 1:},661 ,184 1.3
105,000;000 11.9,645,568 14,645,568 14
5,000,000 'l1ia45,l00 6,845,290 137
110,000,000 121,316,416 11,316,416 10
110;000;000 117,573,656 7,573,656 7
110,000,000 2,791,40Q 3
110,000,000 115,833,400 5,1133,400 5
5,0Q(),000 8,560,735 171
12,000,000 A5,875,1.0i $,675,701 31
5,000,000 c15,11l!i:691 10,169,691 203
12,000,000 -W;S47;1oe 5,347,706 45
5,000,000 '.14,701 ,978 9701,978 194
12,000,000 -16927997 4,927,997 41
5,000,000 '1Z,1>43i27S 7,943,275 159
12,000,000 C15;168947 3,1.68,947 26
12,000,000 -14;855;700 2,855,706 24
5,000,000 ,12,!;>9Bi6P1 7,596,1)01 152
5,000,000 .i4,OO<l;Il3<l 9;064,63a 181
12,000,000 ';16;331,486 4;S31,43fi 36
12,000,OQO -15.,&,7,140 3,877,140 32
5,000000 -13i6\144oo 8,624;400 172
5,000,000 10,371l,848 208
12,000,000 ,17;630494 5,630,494 47
12,000,000 6,677,782 56
5,000,000 16,4$5,554 11,435,554 229
12,000,000 ,21,391,OSS 9,391,OSS 78
5,000,000 .19,159,P19 14,159,019 283
'5,000,000 .;11;ae1,1l79 16,8al,3711
12,000,000 -24;093525 12,093,525 101
'12,000,000 -'25,.112,784 13,112,784 109
5,000,000 ,i?2,&72'fl97 17,872,697 357
5,000,000 1'8,535,870 371
12,000,000 -2.5,'6e).1'''f34 13,661,384 114
5,000,000 -25,212;7M 20,212,784 404
12,000,000 .21;353,401 15,353,401 126
5,000,000 -24:;15i\;9S6 19,254,996 385
12,000,000 14,386,765 120
12,000,000 -23;1133,748 11,5.33,748 96
5,000,000 748 16,442,748 369
5,oop,000 '24,4:1'1';186 19,227,186 3fi5
12,000,000 ;i6;!3tl5;094 ;4,365,094 120
12Sl00,000 ;28i731,594 16,731,594 139
5,000,000 -2$;500;566 21,59B,SSe 432
12,000,000 ;29,jl25;059 17,625,059 147
5,000,000 ;27,463iQS$ 22,463,055 450
5,000,000 ''28,241,(1<6 23,241,876 465
'2.000,000 ":'10,395,392 18,395,392 1'53
12,000,000 41,127,tl44 343
5,000,000 ,l18;721,:<82 23,721,282 474
12,000,000 20.,245,745 169
5,000,000 .-:211i682;913 24,662,913 494
6,000,000 ,$Q;511\,288 25,518;288 510
12,000,000 -$2i 735;265 20,735,265 173
5,000,Qoo 24,915,.662 498
12,000,000 ,l!iI,831}.(J5i 17,839,052 149
12,000,000 -.3.1 :901;S:1fi 19,901,835 166
.5,000,000 24,896,480 494
12,000,009 -31;7$2,12$ 19,752,125 165
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-00

-
38020 CIO Spread SF'\! MTM. Tolal
-
315/2012 tevel2limtt 5,006,dod 24,557863 491
::>6
48020 CIO .Glob.1 Oredft Credft Spread Spy" MTM Total 315/201.2 Leve! 2limtt 5,000,000 .;30,030;377 25,030,3]7 :501
:Om
38019 Cl0Global Credit. Credit Spread SPV" Total 31612012 Level 2 Limit 12,000,000 .32;205;522 20,205;522 158
G)Z
38019 CIO Globsl credit "Cradit Spread SPV, Total ;lI712012. Level 2 Limit 12,000,000 -31Q4P;890 19,Q45;!l9Q 166
l>-i
38020 CIO Global Credit CreditBpread SPV' MTM Total 3f712012 Level2Limft 5,000,000 24)71,114 495

38020 ClO Global Credft, CredftSprilad.SPV. MTM Total 31812012 Level 2 Urntt 5,000,00Q c30,562;041\ 2/;,562,00\ 5j1
38019 CIO - GlobalOradit -Cradi! Sp",ad SPV - Total 3/812012 level2limft 12;000,000 'r.l;67ll;S53 ;20,673,953 172
J:-i
38019 Cld GlobalCredft - etedttSpread SPV - Total 3/912012 Le,'.1 2 Limit 11,000,000 -'03,051;1$0 21,051;7$0 175
l>;;o
38020 CIO . Glrib.ICredit -credn Spread SPV, MTM, Tofai .3/912012 'Level 2liinit 5,000,000 25;920,234 51B
m.m
38019 CIO Global Credtt Credn Spread SPV - T olal 311212012 Level2Limtt 12;000,000 -$2;662;300 20,662390 172
m
38020 010 Global Credi! Spread Spy - MTM - Total 311212012 Level2,.Liintt 5,000,000 ,;30,493, ()V 20.493,077 510

38020 CIO Global C",dtt Credtt Spread SPV,' MTMe Total 3/1'3J2012 Level 2 Limit 5,000,000 -30580,771 25,580,777 512

38019 CIO Global Credtt ,Credit $pread. spy, - Tolal 3/1312012 Laval1liffitt 12,000,000 2,0,737;550 173
380.19 CIO - Global Credit -.etaditSpread SP\I' Total 31141'2012 Level 2 Limit 12,000,000 ..:l12,713;SJl'O 20,713,530 173
92 38020 CIO - GlobalCredit Credit Spreed SPV MTM - Total 311412012 level 2 Limit 5,000,000 25)578,413 512
-i
36020 CIO. GI6PaICraditCre\fttSpreadSPV MTM Total 3115/2012 Lev.el2Limit 5,000,000 e31,1'5$;063 26,158;063 523
;;0 38019 CIO - Global Credit - Credit Spread SPV - Total '3/1512012 Level2Limft 12,000,000 .3$,302,029 21,302,029 178
m 38020 CIO - Glob<>1 Credit Credit Spread ElPV, MTM - Total 3/1612012 .le ....el 2Liinlt 5,000,000 -,1,498,664 26,4!1B;q64 530
0 38019 CIO. GlobalCredit .. Credtt SpreadBPV . Total 311'612012 Level2Limft 12,000,000 -3;.';646;96Q. 21,548,966 180
C
38020 CIO, Global cre.dtt Credtt Spr .. ad SPV MTM TOtal 311912012 level2Liintt 5,000,000 "34;410;927 29,410;9.7 588
m
38019 CIO Global Credit - Credlt,Spread SPV' Total 311912012 Level2Limft 12,000,oo:'J 24,Mij,043 '205
en
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38019 CiO, Global Credit Credn Spread SPV Tolal 3I20I2012 Level2Umtt . 12,1JOO,oo:'J ,39,"92;2;400 27,912;466 233
m
38020 CIO .Gtoba.lCredit- SP\I, MTM - Total 3120/2012 Level2Limft 5,000,000 32;849,012 857
C 38019 CIO Global Credit - Ctedi! Spread SPV Total 312112012 Level 2 Limit 12,aoo,oo:'J -46,747,4$ 34,747,458 290
OJ
38020 CIO Spiead SPV - MTM Total 312112012 2 Liinit 5,000,000 -44,541,32ll' 39,541,329 791
-<
38016 CIO Glob<>Wredit -10% CSW, MTM -. Total (long/short) 312212012 Level 2Limft 200,000,000 -263,769;048 63,769,048 32
38019 CIO ' Global Credit Credit Spread SPV Tot;>i 3/2212012 Level 2 Liinft 12,000,000 -54,318;005 42,318,985 353
38020 CIO - Global Cradi! - Credtt Spread BPV, MTM - Total 312212012 Levet2Limit 5,000,000 -'54090;64.6 47,090,646 942
38019 CIO. Qlobal Cradi!, Gredit$pread SPV" Total 312312012 Level.2Umtt 12,000,000 ,54;540,9 42,540.,179 355
380.16 CIO - GlobaICredit-10% CSW' MTM Total (long/short) 3/2312012 Level2limtt 200,000,000 71,619.,248 36
38020 CIO Glob.ICredit, Cledit Spread SPV - MTM Total 31:13i1012 Level 2 Limit 5,000,000 ,$2,4;tJ,8:2:5 47,421,825 948
38020 CIO GI6l>a1 Credit Credit Spread SPV - MTM - Total 31'2612012 Level 2 Liintt 5,000,000 -?2iEl17;547 47,617,547 952
38019 Cia, Global Cradit. Credtt Spread SPV TOtal 312612012 Leve12Lim[ 12,000,.000 ..s4,41;1;6Qll 42,481,656 354
38016 CIO GIob<>1 Credit 10%'CSW- MTM l'Qlal 3126/2012 LeVel 2 Liinit 200,000,000 ,241740,172 41,740.172 21
38016 CIO Global Credit 10%.CSW MTM'' Total Qonglshort) 3127/2012 Level 2 Limtt 200,000,000 -247.,67;',260 47,672:260 24
3801Q CIO, "Creelit Spread SPV Total :)12712012 Level 2 Limit 12,000,000 ,54:!l4Q,621 42,840,621 387
38020 CIO - Global Credit, Cl'editSpraad SPV, MrM' Total 3i27!2012 Level :2 Limit 5,000,000 ,52,602,9::13 47,602,933 '952
38016 CIO Global Credit -10% CSW, MTM Total (Ionglshort) 3I2W2012 Level 2 Llffitt 200,000,000 .264,OQ6;2'1'6 6>I,056,27e 32
38019 CIO GlobalCradtt - Credit Sprea.d I3PV Total 31261201.2 Level1Uintt 12,000,000 .$)1, 1.98 43,371;,198 381
38iJ2O CIO Global Credit Cr;,dft Spread SPV, MTM, Total ;li2812011 L.vel2 Umit 5,000,000 -53;MI5,l\:!2' 4S,4e5,422 969
38020 00 - Gitil>l!I.Credft -Credit Spread SPlI, MTM Total :)12912012 'Lev!>1 2 Limit $,000,000 -54,645,71.2 47,845,712 957
38019 CIO Global credit Credit Spread BPV - Total 312912012 Level 2 Limit 12,000,000 43,085171' 359
38016 CIO GlobaIC.re;lit-10% CSW, MTM Tolal (.longlshpr1:) :)12912012 Level 2 Limit 200,000,000 26&,0\ll14!i!l 6Q,065;459 34
38019 CIO Global Credit Credit Spread BPV", Total 313012012 Level2Liintt 12,000,000 '64,1:;14,151 42,124,151 '351
38016 CIO Glo.PaI Credit - 10% f;.SW - MTM- Total QOhglishort) 3/3OIl20.12 Level2Uffiit 200,000;000 4,,3$4,55;1 22
=20 CIO Global Credit ,.CiedItBpread SPV, MTM, Total 313012012 Level 2 Limit 5,000,000 "s1.62$,S15 4&,629,81;; 937
380111' CIO - Globarer.dtt eradttSpread SPV Total 4/212012 Level2liintt 12,000,000 c54,ll9O,12' 42,990,121 358
CIO - Glob<>l Credit ,10% csw' MTM - Total Gongl.hort) 4i2f1012 Lev.el2Uintt 200,000,000 59,934;802 30
38020 cia Glob.ICred. ,Credit Spread SPV MTM ' Total 41212012 lev,,12Limit 5,000,000 47,945;857 959
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38016 CIO - Global erectit lO%'CSW' MTM - Total (longf$hott) 413/2012 Level 2.Umit 200,000,000 -282,W4;7.$7 62,574,737 31
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38019 CIO.- Glob.1 Credit. Credit SpreadSPV" Total '/\1312012 Level2liintt 12,000,000 ,54,&43;350 42,843;350 357
3:
38020 CIO Global credit Credit Spread SPV, MTM - Total 41'312012 Lilvel2.Liffiit 5,000,000 -52; 786' 393 47,786;393 956
I
(") 38020 CIO - Global Credit - creditBpread BPV ' MTM ' Total 41412012 Level 2 Umit 5,000,000 -53,217: 49'5 48,::1.77,496 966
(5 CIO - G 10p.1 Credit. 1 O%CSW - MTM ' Total (Ionglshort) 4/412012 Level 2 Limit 200,000,000 ,275,111,4!l3. 75,111.,493 ;:18
I 36019 CIO Globa.l:Credit, Credit Spread SP\I- Total Level2Umi! 12,000,000 .,55;213;944 43,213,944 '360
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380113 CIO - Global Credit 10%' CSW, MTM - Tot;>i (IongfshOrt) 41512012 Level2.Limit 200;000,000 ,200,300,$19 69,3110,519 35
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38020 CIO Glob.l.Gredll Cradlt Spiead Spy - MTM Total 413/2012 L.".el 2L1init 5,000,000 -52,3Il6,2Q1l 47,386,228 948
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38019 Cld Global Gredit - Credit Spread SPV Total 4/5/1012 12,000,000 ,54448;605 42,448605 354
0
36020 CIO - Glob<>1 C.redit- Credit Spfead SPV, MTM Total '41612012. Level 2 Liinit 5,000,000 "li2;386228 47,;3&6,;22& 948
0 38016 CID - Global MTM'TOtal Qofl1llshort) .41612012 Level2Liintt 200,000,000 ze\l;300;51S 69,390;519 35
0
38019 CIO - Global Credit, Credit $jlread SP\I, T ofal 4!6I2012 Level 2 Limit 12,000,000 ,54,'!4lt6Q1i. 42,448,605 354
0
38010 CIO - Global Credit - CradlfSpread BPV - MTM Total 419/2012 Level 2 Limit '5,000,000 :52i414,;211 47;414;217 948
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W '38019 CIO GlobarCr.dit Cledn Spread sPV Total 419/2012 Level2Liintt 12,OOO,OO:'J 41,157,226 343
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Stop LosS Advisories
Id Descrllitl"n
32139 GlO - NA - MTM - T warily Dav SIDp Adv
32139 CIO - NA - MTM - Twenty Dav $top Loss Ady
32114 CIO "' GI!>b.J - MTM. Five Day Stop Loss Adv
33002 elo -Infr ,MTM - FiVe Day Stop LOss'Adv
32154 , CIQ - lrifl- Aggregiite. - Five Day stOj> Loss Adv
321t4 GIO-'Global- MTM- Five' Day Stop LOss Adv
$2154 010 - Inff - Aggregate - FiVe Day StoP U:>ss Adv
33002 C10 - Inti MTM Five Day'Stop Loss Adv
32114 CIO -'Giobal- MTM - Five Day'Stop Los Adv
32154 CIO Infl - Aggregatll - FiVe Day' Stop Loss Adv
33002 CIO - Inri MTM-Fiv" Day Stop 'Loss Adv
33002 elo ',111ft - MTM'" Five Dsystop'loss Adv
3'2111 CIO -,Global- Aggreg,aie - Five Day sto,p Loss AdV
32154 elo - Inri ,Aggregate - Five DaY Stop Loss Adv
32114 CIO "Global- MTM - FIVe Day.stop Loss, Adv
321114 GlO .Glo,bel- MTM - FiVe Day,stop Lass Adv
32998 ClO' Inri 'MTM"One DayS!()pLossAdv
32153 CIO - Intl- Aggregate, - One Day Stop LQSS,Adv
32113 CIC Global- MTM One Day Stop LossAdy
32154 CIO Infl- Aggregate - Fr,eDay Stop Loss Adv
32110 CIQ -'Globl!I-'Aggregate 'One Day Stop l.oss Adv
32111 C,IO - Glopal - Aggiegete Five Day Staplos. Adv
33002 010 -Infl, MTM-Five Day, Stop LossAdv
33002 ClO - Infl. MTM- FiVe DaySIDp Less AM
32111 CIO - Global- - Five Day stop Lass Adv
32114 CIO - Global- MTM -FiVe Day Stop Loss Ad"
32154 CIO -Inti' Aggregate Five Day Stop L<>ssAdv
33002 GlO -lntI-MTM''Five DaySIDpLossAdv
32154 CIO - Inti' Aggregate -Fiv,e Day Stop L<>ssAdv
32114 CIO - Global- MTM -FiVe Day Stop Lo Adv
Cab TVne
101312011 Level1 Limit
1014120t1 Levell Umit
312612012 OtherTnTesho,1d
312612012 Other Threshold
<lJ26f,2012 Other Thlashold
31'2712012 Other Threshold
312712012 .other Threshold
312,812012 Oth:er Threshoj;d
312812012 other THreshold
,Other Threshold
3/2912012 Other Th'reshold
312912012 OtherThreshold
3129/2012 orn", Threshold
31301201'2 OtherThTeshOld
'313012012 other Threshold
313012012 Other ThreshOld
313012012 OthetThreshoid
3130120'12 Other Threshold
313012012 Other Thieshold
313012012 OtheiThreshoid
313012012 Other Thteshold
41212D.12 Other Threshold
4/212012 Other Threshold
412J2012 Other Threshold
4J3i20,12 Other Threshold
4/3120,12 Other Threshold
413l20,12 Other Threshold
Value Utilization - Excessl6n
25,QOQOO() 14340 873 57
25,000000 '29132808 4132855 17
60,000;000 .79,OO8.J11 19:655.111 33
70,000,000 <73;51a,oOO 3,518,000 5
70,000,000 .70,009,000 9,000

60,000,000 S:t.g;S5;27Q 22,935,270 38
70,000,000 ;"Z.76li,Ooo 2,785,000 4
70,000:000 .7'3,465, QO() 3,465,000 5
60,000,000 ',30;310,910 117
70,000,000 ",126,298;ilQf;t 56,298,000 80
70,000;QO() .'t28,g,45:,00Q 58.945,000 84
70,000;000' -'11\2;009:00,0 112,659,000 151
150,000,000 -1IlJ;25e;804 41,256,804 28
7<\,000,000 ' 18<!-,268.ooo 113,288,000 162
60,000;000 ',1 all,!t7ll,233 128;976,233 215
6O,boO,000 -11l5;3f.'l8;0!iS 125,398,055 209
70,000,000 "t4, ;956,,000 71,958,000 103
10,000;000 -1<l6,:'l1QilClO 00,310,000 95
6O,\l00,OOO' ,.13l:i;z74;11!i .75;774,116 126
70,000,000 110,703,000 15&
100,OOO,CQO .129:070;618 29,0'70,618 29
160,000,000 - 35,092,4p.3 23
70,000,000 AOO,266.000 110,266,000 158
70,000':000 '1All,352,ooo, 76,352,000 109
150, 000,000 547,365

60,000:000' 92,919,659 155
70,000,000 74,745,000 107
70,000;000 117,:'l!)3,000 47,393,000 68
70,000',000 .i14;849;000 44,849,000 64
60,000,000 -1oo;ill'1;5(j7 49,897,50'7 83
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32138
32110
32138
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33003
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32112
33002
3211.4
32154
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33002
32154
32114
32112
3211.4
33002
32154
32114
32112
32154
3S002
32114
32113
32110
32154
32112
CIO - Infl- MTM - Five bay SlopLo"" Adv
CIO - Global-.MTM Five Day Stop LassAdy
CIO - Global - MTM 'Five Day Stop Loss Adv
CIO - Global- MTM - One Day'Stop Loss Ad"
CIO - Int'l - MTM - Cine bay Stop Loss Adv
CIO - Global- MTM Five Day Stop Loss Adv
CIO - Int'! - - One Day'Stop LossAdv
CIO - NA MTM - Five' Pay.,stop Loss Ad.
CIO - Global- 'l\9gregate -.One pay,stop loss Ad.
CIO - NA. MTM - Five Pay Stop lGSS Ady
CIO - Int'l- . rwentyPay Stop lossAdv
CIO - Global- MiM' .Five Day'SIop loss Adv
CIO - Inl'l- MTM - Twenty Day'Stop Loss Adv
CIO - Global- MTM Five Day'Stop LossAdv
CIO - Int'l- Day Stop LassAdv
10 - Global-Aggregate - Twenty Pay Stop. Loss Adv
CIO -Inl'l- MTM- Fille Day Stop lees Adv
CIO - Global- MTM -.Five Day Slop loss Adv
CIO - Infl- Aggr,\gate -Five Day Slop Loss Adv
CIO - Infl - MTM - Five bay Stop Loss Adv
CIO - Global-Aggregate - Twenty Day Stop Loss Adv
CIO -lnl'J- MTM - Five Day Slop loss Adv
CIO -Inn - Aggre,llate. - Five Pay\",op Loss Adv
CIO - Global- MTM- F'ive Day Stop loss Adv
CIO - Global-'A,ggregate - Twenty Day stop Loss Adv
10 - Global - MTM' Five Day Slop Lees Adv
CIO - Inri - MTM - Five bay Slop loss Adv
CIO - Infl - Aggresate -Five Day Stop Loss .Adv
CIO - Global- MTM-Five Day Stop loss Mv
CIO - Global- 'Aggregate - Twenty Pay stop Loss Adv
CIO - Infl - Aggregate. - Five Day Stop LossAdv
CIO -Infl - MTM- Five bey Stop lossAdv
CIO - Global- MTM- Five Day Stop loss Adv
CIO - Global- MTM -One bey Stop los, Ad"
CIO - Glopal- - One Day Stop Loss Adv
CIO - 11'11'1' - Aggregate c FillePay Stop Lost; Adv
ClO - Glopal-.Aggril9ate - Twenty Pay Adv
41412012 Other Thresnold 70,000,000
41412012 other Threshold 00,000,000
4i9J2012 other Threshold 00,000,000
4It012012 other Threshold 00;000,000
4110/2012 other Threshold 70,000,000
4/1.012012 other Thresl\old 00,000,000
411012012 Other Threshold 70,000,000
4/1.012012 other Threshold 25,000,000
411012012 Other Tht9Shoid 100,000,000
411112012 Other Threshold 25,000,000
411312012 other Threshold 70,000,000
4/13i2012 Other Threstiold 00,000,000
4/1312012 Other Threshold 70,000,000
411612012 Other Threshold 00,000,000
4/1612012 Other Thr:eshold 70,000,000
411612012 Other Threshold 150,000;000
4/1612012 Other Threshold 70,000,000
4/17/2012 Other Threshold 60,000,000
4/1712012 Other Threshold 70,000,000
4117/2012 Other Threshold 70,000,000
4118/2012 Other Thr.esnokl 150,000;000
411812012 other Th,esnold 70,000,000
4/1812012 Other Thresl'1old 70,000,0.00
411lli2012 Other Tht:eshold 60,000,0.00
4i19i2012 Other Threshold 150,000,000
4119/2012 Other Threshold 60,000,000
4/1912012 Other Threshold 70,000,000
4119/2012 Other Threshold 70,000,000
412012012 Other Threshold 60,0.00,000
4/2b12012 Other Threshold 150,000,000
4/20/2012 other Tht:eshold 70,000,0.00
412012012 Other Threshold 70,000,0.00
412Y2012 Other TlwesJ\old 60,000,000
4/2312012 Other Th'esho.1d 60,000,000
412312012 other Thrsshokl 100,000,000
412312012 other Threshold 70,000.000
4/2312012 150,000,000
.71;3IiJ,dOO 1,397,000 2
.&l;3li5;S!iS, 8,395,399 14
..'61,273,253. 1;273,253 2
360,458,051 601
-411;252;000 347,252.000 496
-'61;783;<[1:$ 1,783,416 3
-402;581>;000 332,586,000 475
->3I3,.g7B;467 8,978,467 36
-40!'i,.1!lil,051 305,792,051 SOB
-28,82.1,1.15, $,521;415 14
-77;7i!18,ooo 7,768,.000 11
-'68,761;'182 $,761,162 15
-'68;3:1;\,000 16,322,000 23
38,721,319 65
4i3,li7!\,ooo 23,91Moo 34
-178,2$8;289 28,23$,289 11
418,354,000 28,354.,000 41
..'64,251,692' 40
-81;il5ii,ooo 12.658,.000 1S
:.:s5,'l52,ooo 15,152,000 22
c155,$1l1,34ll 5,591,$46 4
.104,()1il;000 49
,100,;470,000 30,470,000 44
-10tj;009;09? 46,009,097 78
36
-13O;!l\l1;1$9 70,967,139 11'8
56,811,000 81
68,440,000 98
110;13OO,34ll 50,806,346 85
-232,212,264 82,212,284 55
.121>;400,000 55,400,000 79.
;100,7'. $;000 39,715,000 51
;e9;S70, S91 9,570,691 16
-100;11l1;902 100,191,902 187
56,582.902 57
18,$89,000 26
.282:212;284 82;212,264 55
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32110
32113
3215,3
32996
32113
32110
32998
32153
CIO -lnt'l- Aggregate -.Orie DaYst"", Loss Acf.I 41231;2012 Threshold
CIO -Infl - MTM - One Day Stop Loss Adv 412312012 Other Threshold
010 - Inf.! - MTM - Fili!' Dl!Yst<:>p Loss Ad'! 412312P12 OtherThresho!d
CIO -Global,Aggregate - Pive Day ,stoP Loss Adv 412412012 Other Threshold
CIO - Infl- MTM - Five Day stop LoSS Ad. 4124120.12 OtherThreshold
CIO - GlobalMTM One Day Slop LossAdv 4124/2012 Other Threshold
CIO -Infl- MiM - One Day stop Loss Acf.I 412412012 ()ther Thr""hold
Cl0-lnfl- Aggregate- Olie DSystop Loss Acf.I 412412012 DlMr Tljreshold
CIO - Infl- Aggregate - FIv" Day stop Loss AcN 412412012 Other Threshold
CIQ - Glo""I-MTM - Five Day Stop LOI;SApiI 41241;2012 Other Ttiresholcl
Clo.-Global Aggregate - One Day ,stop L<>ss Acf.I '412512012 Other Threshold
GIQ - Infl- Aggregate -. On;, Oay stop LossAcN, 4125120)2 OtheiTh(eShold,
CIO -Infl- Mill! - One Day stop Loss Adv 412512012 Other Threshold
CiO - GIo,bal- N1fM - One Day Slop LoSS 4125/20.12 Other
CIO - GIo""I- Aggtegate, - FiYe Day stop LoSs A<lv 4125/2012 Other ThreShold
ClO -Infl- 'Aggregate - Five Oay stop lO$SAd:! 412512012 Other Thresho,ld
ClO - Global- ,Aggregate -,On" Day Stbp L* Ad" 412612012 Othllr ThrE\Shold
CIO - Global- MTII! -On" Day stop Less Ad" 4128/2012 Other Threshold
CIO - InfJ - Aggregate - One Dl!y Stop LOsSArN 4/28/2912 OtheiTh,.sho!d
CIO - IntI - MTM - One Day Stop Loss A,N 412812012 Other Threshold
CIC -Global- MiM - One Day Slop LoS!i 4130/2012 Other ThreShold
CIO - Global.Aggregate - OM Oay stop Loos AdV 413012012 Other Threshold
CIO -Int'l, MTM - One Day Stop LOGS AdV 413012012 other Threshold
ClO - Infl,- A9gregati> - One Day stop Loss Acf.I 413012012 Other THreshold
70.000.000 -1,55,Q47.0tJ0 85,547.000 122
70.000,000 89.15() 000 127
70.000,000 640,QOO 1
150,000.000 30,804;474 21
70.000.000 -83.1142;000 13.842.0 20
80'000.000 ,78,615.156 18.61lj;156 31
70,000.000 -80,472,000 10,472,000 15
70;000,000 '!l2;l511iOO() 12,759.000 18
70.000,000 cOO;701l;OOO 29.709,000 42
00.000.000 -(!4'O34,3111 24.034;318 40
100,000,000 -175;965,311' 75,965,311 76
70,000,000 10.6;715.000 152
70.000,000 107.627,000 154
80;000.000 .176.817;311 11&.817;311 195
150;000.000 2,144,116 1
70.000,000 ,71 :891;000 1;397,000 2
100.000,000 -166;519,106 88.510,106 67
80.000.000 108,914,106 178
70.000,000 1134;524;000 1)4.1124.000 135
70.000.000 9'1.927;000 136
6Q.PDD.OOO .21M4ili442 158,143;442 264
100,000.000 119;2$'1,442 mi,
70,000.000 -219,'240;000 14M40,OOO 213
10,000,000 -Z1D;OO1,()OO 150.391,000 21'S
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From:
Sent:
To:
cc:
Thu, 12 Jan 2012 15:42:54 GMT
Weiland, Peter <[email protected]>
Iksil, Bruno M <[email protected]>i Hagan, Patrick 5
<[email protected]>
Subject: RE: JPMC Firmwide VaR - Daily Update - COB 01/09/2012
No , in terms of VAR . Will come back to you with a better explanation .From our point' of view We did not have any P/L vol to
increase the avera.!1 VAR so much. Pat's model is in line with the 70 VAR and has a much better explanation for these changes
. we get this approved as we speak.
in terms of book pOSitioning as I explained th,e book is long risk now but has increased the short in HY and rebalanced on the
rest. This should not have had a great increase in the VAR of our postions.
From: Weiland, Peter
Sent: 12 Janua", 2012 14:45
To': MartinArtajo, Javier X
Subject: Fw: JPMC Rrmwide VaR - Dally Update - COB 01/09/2012
IS this not correct?
Peter Weiland
JPMorgaw
__ Red ... ed by Ihe rermanenl .
_Subcommittee on Jnvestigatio-:as
0: +1 212 834 5549
m:+l
From: Stephan, Keith
Sent: Wednesday, Januaiy 11, 201207:29 AM
To: Weiland, Peter
Subject: RE: JPMC Armwlde VaR - Daily Update - COB 01/09/2012
This is what I sent to Javier and bruno vest
Sent: 10 Janua", 201217:17
To: Iks11, Bruno M; Grout; Julien G
Cc: Chandna, Sameer X; D'costa, Karolyn K; Lee, Janet X; Kalimtgis, Evan; Martln-Artajo, Javier X
Subject: FW: Core Qedit Var Summary 06 January
Below are the major drivers in' the Increase in VAR since mid December for Credit Tranche portfolios - since 21 December,
the book var has moved from $76mm to 93mm, nearly +25% increase driven by position changes and through the indus ion of
mkt data in the last week of 2001 with rally in OTR HY indices.
The big drivers, are increases in notional of HY orR short risk in indices +2.6bio not'l, +14MM VAR. At the same timethe
increase in index short risk (and long HYlO 7Y reduct ion) has driven and increase in the positive benefit in the credit crisis
stress 1055 scenario from 1.1bio to +$l.Sblo.
Confidential Treatment Requested by J. L __ .E .. XHIB;';;;iiiiiiii
I
T
;.;;,#.4.0 ___ JPM-CIO-PSI 0000093
In Marginal terms, the $17mm move since Dec 21 is driven by:
1) Stg 150 $14mm (increased short risk positions across HYI4HY17 by $2.65bn)
2) Stg 18US $lmm
3) Stg 270 $2mm (reduced Long risk pos in HYlO 7Y + Price changessee e t a l ~ below)
4) Note: 14EU does have a net increase in X016 pos by $260mm but increase in MN16 long risk pas by $2.0bn more
than offsets the var moves from XO.
Details:
Main days of big moves in Var:
Dec19 Var of $70.0mm
Dec21 Varof$75.8mm
Deci2 Var of $78.4mm
Dec30 Var of $82.7mm
Jan06 Var of $92.9mm
1)Changes from Dec19 to Dec21 of $5.8mm mainly driven by Stg15D. Increased Short Risk position by $lbn across HYI4HYI7
indices.
2)Changes from Oec21 to Dec22 of $2.6mm mainly driven by Stg150: Increased Short Risk position by $600mm in HY15 and
HY17 indices.
3 )Changes from Oec30 to Jan06 of $10.7mm mainly driven by
Stg 14 EU t1.8mm X016 5Y Increased short risk position by 150mm. Spread tightening of 16bps.
Stg 15B +1.2mm - Price widening of +0.875pts in HY10 7Y short risk Index position of $4.46 and short risk
position SSnrT.rn 35100 of $3.76
Stg 270 +2.7mm - shorter risk by $950mm across HY9 and HYI0 7Y
Stg lSO +3.3mm - shorter risk by $43Bmm across HYl6 and HY17 - Price improvement across most HY Indices
(HY15 tD.875pt, HY16 +lpt, HY17 +1.l25pt)
To: Stephan, Keith
Subject: FW: JPMC Finmwide VaR - Daily Update COB 01/09/2012
fyi
Peter Weiland
Tel: tl 2128345549
Mob: +1
Sent: Tuesday, January 10, 2012 9:38 PM
To: Drew, Ina
Ct: Wilmot, John
Subject: Re: JPMC Rnmwide VaR - Daily Update COB 01/09/2012
_ = Redacicc.J o ~ ,Ill" !"l'/'r,,:iI" -it
SubCommittee on In\"esugatwns
Yes, I have detai ls and can give you tomorrow. Short story is that the increase in VaR corresponds to increased credit
protection on HY, in particular trades executed betWeen Dec. 19 and Jan. 6.
This has been obviously a Significant increase and I sent Javier an email today to highlight the RWA implications.
Confidential Treatment Requested by J.P. Morgan & Co. JPMCIO-PSI 0000094
Pete
Peter Weiland
JPMorgan
0: +1 212 834 5549
m:+l
From: Drew, Ina
Sent: Tuesday, January 10, 2012 07:36PM
To: Weiland, Peter .
Ce: Wilmot, John
- - Redacted bv the Permanent
on Investigations
Subject: Fw: JPMC Firmwide VaR - Daily Update - CDB 01/09/2012
This says cia var still 88? can u give me breakdown tomorrow
From: Market Risk "Management - Reporting
To: Market Risk Management - Reporting; Dimo.n, Jamie; Zubrow, Barry l; Staley, Jes; Drew, Ina; Rauchenberger, louis; Lake,
Marianne; Hogan, John J.; Weiland, Peter; Weisbrod, David A.; Bacon, .A.shley; Beck, David J: Braunstein, Douglas; Morzaria, Tushar
R; Wilmot, John; Deliosso, Donna; Bisignano, Frank)
Cc: Doyle, Robin A.; Waring, Micki Market Risk Reporting; Sreckovic, Steven; McCaffrey, Lauren A; Tocchio, Samantha X;
Chiavenato, Ricardo S,; Chen, Dan .
Sent: Tue Jan 10 19:32:44 2012
Subject: JPMC Firmwlde VaR - Daily Update - COB 01/09/2012
Firmwld 95% 100 VaR
The Firm's 95% 10Q VaR as of cob 01/09/2012 is $123mm or 98% of the $125mmlimit, an increase of $5mm from the
prior day's revised VaR.
The increase in the Firm's VaR is primarily driven by IS
VaR (as shown by marginal VaR) are:
($67mm mVaR, 01

lQO Externally Disclosed VaR
The below table shows the 95% 10Q VaR forthe current quarter compared with the prior quarter and the corresponding
quarter of prior year.
Confidential Treatment Requested by J.P. Morgan & Co. JPMCIOPSI 0000095
cid:[email protected]
Please contact the MRM External Reporting team with any questions.
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.Fi'5d:jnc.Qme 49,
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Eqllilie.s 24
&.other. 2j
Diversification benefitto IB trading VaR (57).
IB Trading VoR 54
.epG 35
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From: Goldman, Irvin J <[email protected]>
Sent: Fri, 20 Jan 2012 13:08:35 GMT
To: Wilmot, John <[email protected]>
Subject: FW: Breach offirm var
FYI
-----Original Message--
Sent:. Friday, January 20, 2012 07:01 AM Eastern Standard Time
To: Goldman, Irvin J; Weiland, Peter
Cc: Martin-Ar4ljo, Javier X; Macris, Achilles 0; Kalimtgis, Evan
Subject: FW: Breach of firm var
Irv & Pete
Below please find details of the Va.R limit breach. The VaR Increase is driven by Core Credit (tranche) in EMEA. The VaR has
increased steadily since the end of December as positions in CDX.HY on-thE-run indices have been added to the portfoliO to
balance the book, which has been taken longer risk since the expiry of COx..HY.113Y pOSitions which matured 21 Dec 2011..
Key Points:
1. T.he increase in VaR is largely attributed to increased short risk positions in CDX.HY indlces.- which we have discussed
wi t he desk and which were added specifocally to reduce the outright long CS01 profile o!the book (as we are
additionally over the MtM CS01limit and actively reducing this risk to move within the $5MM CS01 threshold)
2. We are reviewing the details of the current VaR number and working with the desk to reduce" the current V.aR
based on current marginais, while continuing to address the CSOl as above; N.B. the action taken thus far has further
corrtributed to the Positive Sfress benefit in the Credit Crisis (Lame Flattening Sell-off) for this portfolio which has
increased from +$l.4bio to +$1.6bio from 17-19 Jan.
3. are in late stages of model approval for fun revaluation which will have the effect reducing the standalone VaR for
Core Credit from circa $95MM to approx.$70MM - impact analysis on the marginal contribution to the Firm is ongoing
. and will be distributed later today. .
I expect that we will resolve through active risk management the breach of VaR limit using current method over the next tW9
trading sessions, depending on liqUidity.
Furthermore, I believethat the process of model approval is completion and this will be implemented in the next
1-2wks in. production.
My recommendation therefore is that we do not address, nor upsizethe'limit for Cl0 - but that we continue to work in
partnership th,e deSk to manage to the current $9Smm limit over the next two to three trading sessions - and that w.e
discuss further with the model review group (MRG) today the schedulefor completion of approval olthe new model with a
view toward implementation next week if possible. My team and I are disaggregating strategy level marginal VaR (reported
daily) to the level of position I instnument level marginal VaR to' provide the desk with precise list of actions that can be taken
to most effectively reduce VaR while maintaining balance of other risk measures. This will be complete by mid-afternoon
Confidential Treatment By
EXHIBIT #41
Confidential Treatment Requested .by J .. ___ iiiiiiiiiiiiiii _______ .1
JPMCIO 0000141
JPM-CIO-PSI0000141
london time today.
Evolution of Current Va'R using production model:
The details of the drivers of the VaR in'creases, current model for measurement are as follows:
Jqn18 to Jqo19 (from 594 Zmm to $98 6mml +13 8mm move' "
1) +4mm from S.tg 150 -Increased HY14 - HY1G short risk position by $1.07Sbn
10017 to 'go18 ffrom $91 8mw to $94 Zmm) +S3mm mOVe"
1) +2mmfrom Stg 1aUS -Increpsed IG17 5Y short risk positton by $2.25bn
2) +1mm from Stg 14EU - Increased Itraxx MN16 long risk positIon by $78Smm "
Jim 16 m moll (from $96mm to $91 Bmml- /$4mml move "
1) -4mm from Stg.lS0 : Redtn:ed HY17 Index short risk position by $1.3bn
JaoOfi to Ign16 {from $93mm ta $96roml_ -I-$'imm wove
"I) +3mm from 150
Increase in HY Index short risk positions of $li"bn (HYI4$'300mm. HY1S $250mm, HY1G $4S0mm, HYl7 $SOmm)
. 2) +2mm from Stg laUS "
Increase in 169 lOY Index .Iong risk by $6.7bn
Increase In IG17 SY short risk position by $3,Obn diversification
3) +Immfrom Stg I4EU
"Decrease in MN9 5Y Index long risk position by $7.25bn
Decrease In MN Outright Index short. positions provide diversification {SlSSI6 5/i0Y - net decrease of
$77Smm
4) "3mm from worst day falloffs (Sth, 19
th
and days)
Dec 21 tp JqoOfiftrom $75mm to $93mm! +$I7mm move'
I} Stg 15D $14mm (increased short. risk positions across HY14-HY11 by $2.6Sbn)
2} Stg 18US $lmm
3) Stg 21.D $2mm {reduced long risk.pos in HYI0 7Y + Price tightening In recent weeks meant that this position
delivered positive offset on worst days
4) Note: I4EU does have a net increase in XOI6 pes by" $260mm but increase MNI6 long rIsk pas by $2.0bn more
Confidential Treatment Requested by J.P. Morgan' & Co.
JPMCIO 0000142
JPM-CIO-PSI0000142
than offsets the var moves from Xo.
To! Stephan, Keithi Weiland, Peter
Cc: Macris
l
Achilles 0; Javier Xi Kalimtgis, Evan
Subject: Breach of firm var
All,
This is the third consecutive breach notice ( below) that has gone to Jamie and OC members. We need to get Ina "
specific answers to the cause of the breach, how it will be resolved and by when. She requested the answers today -
Friday and would like Achilles and Javier to vett the international credit explanations.
lrv
Firmwide 95% 10Q VaR
. _ = Redacted b.y the Permanent
Subcommittee on In\'estigations
The Firm's 95% 10Q VaR as of cob 01/18/2012 has increased by $5mm from the prior day's'VaR to $138mm and
has breached the $125mm Firm VaR limit for the third consecutive day. "
CIO's 95% 10Q VaR as of cob 01/1812012 has increaSed by $7mm from the prior day's VaR to $1 02mm and has"
breached the $95mm CTO VaR limit for the third consecutive day.
The increase in the Firm's VaR is primarily driven by an overall reduction in diversification benefit across the Firm
and. position changes in CIO and MSR.
Each LOB's contribution to the Finn's $138mm VaR
Equity
10Q Externally Disclosed VaR
The below table shows the 95% 10Q VaR for the current quarter compared with the prior quarter and"the
corresponding quarter of prior year. . .
Please contact the MRM External Reporting team with any questions.
JPMCIO 0000143
JPM-ClO-PSI0000143
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From: Martin-Artajo, Javier X <[email protected]>
Sent: Mon, 23 Jan 2012 09:58:33 GMT
To: Hagan, Patrick 5 <[email protected]>
Subject: CIO VaR
FYI. Dual plan . as discussed keep the pressure on our friends in Model Validation and QR .
From: Hogan, John J.
Cc: Drew, Ina; Macris, Achilles a
SUbject: Be: 00 VaB
OK thx Irv. Good weekend!
To: Hogan, John J.
Cc; Drew, Ina; Macris, Achilles a
Sent: Fri Jan 20 17:27:09 2012
Subject: ao VaR
John,
Achilles and I have reviewed the CIO limit breach for the past four days. CIO has been managing a dual
process of increasing overall credit spread protection while managing Basel III RWA targets. The action taken thus far has
further contributed to the Positive Stress benefit in the Credit Crisis (large Flattening Sell-off) for this portfolio which has
increased from +$l.4bio to +$1.6bio and created higher VaR resulting in the breach period.
Two important remedies are being taking to reduce VAR and have ClO get well within its limits while continuing to manage for
Basel III RWA.
1. position offsets to reduce Var are happening daily.
2. Most importantly, a new improved Var model that CIO has been developing is in
the near term process of getting approved by MRG and is expected to be implemented by the end of the
January ..
The estimated impact of the new VaR model based on Jan 18 data will be a ClO VAB reduction
in the tranche book by 44% to 57mm. with CIO being well under its oyeralllimits.
Irv
Irvin Goldman I J.P.Morgan I ChieflnveSlment Ol1ice 1270 Park Ave. i 'if Tel: + I 2128342331 1 GJ [email protected]
Confidential Treatment Requested by J.P ... __ .E.XH_.IB ... IT_#.4.2 ___ JPM-CIO-PSI 0000151
Sent: Sat, 28 Jan 2012 16:19:28 GMT
To' Bacon, Ashley <[email protected]>; Goldman, Irvin J
<[email protected]>
Subject: C10 VaR heads up and update
Thx and can you guys compare notes on any methodology difference btwn 18 and CIO and let me know what you find? Thx, John
From: Bacon, Ashley
To: Hogan, John J.j Goldman, Irvin J
Sent: Sat Jan 28 11:15:122012
Subject: Re: 00 VaR heads up and update
If this change is what I think it is (full reval credit p&1 calculation for the shocks derived from the VaR days, instead of
sensitivities times shocks), then the IB is already on the new methodology so no change for us.
I will confirm, and let you know if not.
Sent: Saturday, January 28, 2012 03:43 PM
To: Goldman, Irvin J; Bacon; Ashley
Subject: Re: 00 VaR heads up and update
Is this change in methodology applicable to IS's VaR as well. What was the primary change that we made? Thx, John
To: Hogan, John J.; Drew, Ina
Sent: Fri Jan 27 13:35:40 2012
Subject: 00 VaR heads up and update
Sent: Friday, January 27, 2012 1:30 PM
To: Goldman, Irvin J; Weiland, Peter
Cc: Kalimtgis, Evan; Martin-Artajo, Javier Xj Macris, Achilles OJ Lee, Janet X; Chandna, Sameer X
Subject: Update on *old/current methodology VaR* increase for COB 27 Jan
Importance: High
Final VaR vectors globally
. ... .. ... ... <J\""M':'<""'""" .. . _. ___ .._
have not been processed yet for COB 26 Jan, however CIO is over its temporary limit, and could cause the Firm to do the
same. As such I wanted to communicate this to you to ensure we are all on the same page about what is happening.
The *old methodology* currently in production: VaR has increased by +$3mm, to $107.6mm driven by increase in COX 16 S9
lOY index long risk (+1.8bio notional), This is consistent wI the VaR increases of the last several days, under the old
methodology, wherein the VaR increases approx Imm per billion of notional in 169 lOy. I estimate this will put CIO Global
over its temporary $110mm limit and probably closer to $115mm-note: not all vectors globally are loaded yet for the 26 Jan
Confidential Treatment Requested by J.F 1. __ .E.XHiiiiiiii.IBiiiiiiiiiiIT .... #.4.3 ___ JPM-CIO-PSI 0000177
cob - so I'm estimating here. This means that the formal notification of limit excess will be generated and distributed to you
for approval.
Importantly, for the same COB 26 January, the *new I full revaluation methoclology* shows VaR decreased ($1.3MM) from
70.8mm to 69.Smm. I estimate that this would make cia globalVAR closer to $76MM vs. the currently reported number
>$l1S.
We have completed all technology changes to support the daily production of the VaR under new methodology beginning
from Monday.
Thanks and please let me know if you have any questions.
Keith
Keith Stephan
JPMorgan Chase
100 Wood Street, London, EC2V 7AN
Tel 2: +44(0)2073258812
Mob '!if: +44(0)759 592 1539
Email l2l:[email protected]
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From: Dev, Ashish K <[email protected]>
Sent: Mon, 30 Jan 2012 16:50:13 GMT
To: Weiland, Peter <[email protected]>
cc: Rajesh, Govindan X <[email protected]>
Subject: RE: draft of the MRG review of the HVAR methodology for the C10 core credit books
Pete - I talked 'to Rajesh and we agree that the new VaR is a clear improvement over the production version.
, Please go ahead with the implementation of the new HVaR methodology for the CIQ credit books. Best regards!
Ashish.
Sent: Monday, January 30,201211:40 AM
To: Dev, Ashlsh K
Cc: Rajesh, Govindan X; Stephan, Keith; Goldman, Irvin J; Lee, Janet X; Olandna, Sameer X
Subject: RE: draft of the MRG review of the HVAR methodology for the ao core credit books
I just sat with Rajesh to discuss. Ashish we tried to call you but I guess you were away from your desk.
We are going to proceed with the new VaR vector. Rajesh will endeavor to distribute a new version of the approval
document, but he has gotten some comfort from the data that he received from Pat this morning that Numerix and West End
agree.
In any event the new VaR is a clear improvement over the production version, which helps to make us comfortable with the
decision.
Best,
Pete
Peter Weiland
Tel: +1212 834 5549
Mob: +1
From: Dev, Ashlsh K
Sent: Monday, January 30, 2012 10:43 AM
To: WeUand, Peter
Cc: Rajesh, Govindan X
__ Redacted by the Permanent
.Subcommittee on Investigations
Subject: RE: draft of the MRG review of the HVAR methodology for the ao core credit books
Pete - I believe you have been looking for me. I am sorry I had a 8:30AM meeting outside the office which went on
past the 10AM end. I did not get a chance to talk to Rajesh either. But my view is that if January tests look all right,
we should go ahead and implement the new model even before the MRG review is completed. Regards! Ashish.
Sent: Monday, January 30, 2012 7:40 AM
To: Dev, Ashish K .
Subject: FW: draft of the MRG review of the HVAR methodology for the ao core credit books
HiAshish-
Confidential Treatment Requested by J
EXHIBIT #44
JPM-CIO-PSI 0000187
Do you have any thoughts on this matter? I don't know how material the requested testing note is to the validity of the VaR,
but if possible we would like to move forward with the new VaR, which is a significant improvement on the production
version.
I have reminded Pat of the urgency of producing the testing note.
Please let me know if we can proceed with this important upgrade.
Thanks:
Pete
Peter Weiland
Tel: +1 212 834 5549 _
sa Mob: +1 2
From: Rajesh, Govindan X
Sene Friday, January 27, 2012 10:59 AM
To: Weiland, Peter; Dev, Ashlsh K
_.. Redaeted by the Permanent
Subject: RE: draft of the MRG review of the HV AR methodology for the CIO Cllre credit books
Pete,
I guess this is a question for Ashish.
Ashish,
We've circulated a draft of the review, but it will take another couple of days to publish, since we are waiting for one
additional testing note from Pat. Do you think It is.OK for ao to go live tOday?
Rajesh
Sent: Friday, January 27, 2012 10:48 AM
To: Rajesh, Govindan X
Subject: Re: draft of the MRG review of the HVAR methodology fOr the CIO Cllre credit books
Can we start using today?
Peter Weiland
JPMorgan
0: +1 2128345549
m:+1 ___ _
To: Stephan, Keith; Pirjol, Dan
Cc: Weiland, Peter; Hagan, Pabick S
-= Redacted by the Permanent
Subcommittee on Investiglltions
Subject: RE: draft of the MRG review of the HVAR methodology for the CIO CllTe credit books .
ps: we're still waiting for the testing note showing that the pricer used for VaR matches the Nunierix model. Of course, we'l!
update the review to make it dear that an in-depth review of that will be done separately.
Rajesh
To: Stephan, Keith; Pirjol, Dan
Cc: Weiland, Peter; Hagan, Patrick S; Martin-Artajo, Javier X; Shen, Charles; Bangia, AnH K; Christory, Jean-Francois A; Scott, Brian
GO
Subject: RE: draft of the MRG review of the HVAR methodology for the 00 core credit books
Thanks Keith. The last 3 were actually recommendations, not action plans, but it is good to have committed timelines on
them.
Regarding the second AP, could you confirm that for illiquid series with material exposures, you will use the Credit Hybrids
risk mapping tool to map them to the on-the-runs?
Thanks,
Rajesh
To: Pirjol, Dani. Rajesh, Govindan X
Cc: Weiland, Peter; Hagan, Patrick S; Martin-Artajo, Javier X; Shen, Charles; Bangia, Anil K; Christory, Jean-Francois A; Scott, Brian
GO . .
Subject: FW: draft of the MRG review of the HVAR methodology for the 00 core credit books
Importance: High
Hi Dan and Rajesh
Please can you review the below action plan responses which I hope will satisfy final approval of the model? Importantly, I
anticipate that point one (automation I industrialization) will be delivered by Monday a.m. as the team are well ahead of
schedule - this work has been happening in the background through the testing phase. I've tried to put reasonable estimates
around each of the points below - and given the priority of this initiative, I would suggest that each will be completed with
dedicated focus, and I would envision that we will deliver more quickly than the (worst-case) timelines I've provided below.
Happy to discuss if you need further information.
Thanks
Keith
o Operational risk The VaR computation is currently done off spreadsheets using a manual process. Thus
it is error prone, and not easily scalable.
o ACTION PLAN: CIO should upgrade the infiastructure to enable the VaR calculation to be automated,
and less subject to operational errors. Item Owner: Patrick Hagan, Completion Date: TBD
o
The MRM coverage team, technology and QR resources have identified an implementation pia n, and will be working through
the weekend of 29 Jan 2012 to complete automation required to run the VaR simulation daily, and to store results and vectors
in a database. The MRM coverage team has agreed and SLA (service-level agreement) with the analytics team to produce the
vector by 10hoo GMT daily, to provide time to analyse results and to ensure quality control before upload to MaRRS.
Estimated completion: Tuesday 31 January 2012. (Owner: Samir Patel, Patrick Hagan)
o ACTION PLAN: CIO should establish a process to monitor the size of the positions with exposure to the
illiquid time series, and if the exposures are material should risk map the positions to on-the-run time
series. Item Owner: Patrick Hagan, Completion Date: TBD
The MRM coverage team, and QR resources have agreed an action plan to 1) define 'illiquid instruments' and 2) to monitor
size of exposures to illiquid instruments on the basis of CSOl and Corrl% sensitivies. Where exposures to illiquid instruments
exceed agreed thresholds, instruments will be mapped to 'on-the-run (correlation) series' instruments' time-series (currently
ITX.MN 59, CDX.lG S9, and CDX.HY 59) consistent with market convention, and the IB Credit Hybrids business. Estimated
completion: Friday 24 February 2012. (Owl)er: Julien Grout, Sameer Chanda)
o ACTION PLAN: CIO should re-eXaniine the data quality and explore alternative data sources. For days
with large discrepancies between dealer marks and IB marks, the integrity of the data used for HV AR
calculation should be verified.
The MRM coverage team, and QR resources will compare market data time-series history vs. DataQuery, and dealer-marks.
This process has been conducted previously, and will be re-visited to ensure the integrity of time-series. Given illiquidity of
certain instrumentation, and especially in cases where CIO maintains positions in instruments where IB Credit Hybrids may
not, we have found irregular patterns in DataQuery data, and amended our market data I time-series to reflect Dealer mid
marks. An action plan to perform periodic review of time-series vs. DataQuery and dealer-marks has been agreed, to ensure
on-going continuity of time-series history. The team will conduct a regular, 1x monthly review of time-series, attended by
Front Office, MRM coverage. and QR resources to discuss discrepancies. DiscrepanCies which cannot be resolved will be
escalated to the CIO Valuation Control Group for independent verification of prices I spreads. Further. In cases where time-
series have been overridden -by committee or by Valuation Control Group, the team will put forward an action plan to ensure
adequate control. record-keeping and audit trail for time-series amendments which deviate from DataQuery. Estimated
completion: Friday 24 February 2012. (Owner: Keith Stephan, Julien Grout)
o ACTION PLAN: For the purpose of capital calculation at firm-wide level, the CIO risk measures
including VaR will have to aggregated with the risk metrics of the IB portfolio.For consistency the
VaR methodologies used by the two groups must be reasonably similar. We recommend that CIO
investigates usingabso)ute daily changes for the base correlations, similar to the methodology adopted
in IB.
The MRM coverage team, and QR resources will compare the current relative shifts in base correlation vs. the absolute shifts.
This is a medium-term action plan target, and given estimated work-load may require a number weeks to complete. An action
plan toreview the results will be agreed between MRM coverage, OR resources and Front Office. The findings of that study
will be published to Model Review Group, and will form the basis of further discussion, related to course of action,
practicability, and resonableness of a move toward absolute base correlation shifts. If it is determined at the conclusion of
the study, that a move to absolute correlation shifts is required, a further action plan will be established to commence the
project to make this variation in computation and market data-collection. Estimated completion: Friday 27 April 2012.
(Owner: Patrick Hagan, Keith Stephan, Julien Grout)
From: Pirjol, Dan
Sent: 2S Jal)uary 2012 19:33
To: Hagan, Patrick S; Weiland, Peter; Stephan, Keith; Bangia, Anil K; Bessin, Jean-Francois X
Cc Rajesh, Govindan X; Shen, Charles; Scott, Brian GO
Subject: draft of the MRG review of the HVAR methodology for the CIO core credit books
All,
please find attached a first draft of the MRG review of the HVAR methodology for the 00 core credit books. Please send me
your comments and suggestions by the end of the
. day Friday Jan.27.
Pat, please let me know if you agree with the formulation of the action plans, and what are your suggested completion dates.
Best regards,
Dan
Sent: Wed, 18 Apr 2012 21:51:26 GMT
To: Hagan, Patrick S <[email protected]>
Fw: CIO VaR
What happened here?
Sent: Wednesday, April1B, 2012 08:03 PM
To: Macris, Achilles 0; Martin-Artajo, Javier X
Cc: Weiland, Peter
Subject: FW: CIO VaR
FYI-we discovered an issue related to the VAR market data used in the calculation which we need to discuss. This means
our reported standalone var for the five business days in the period 10-16th April was understated by apprx $10mm. This
increases our marginal contribution to the Firm by $3.5mm. The unfortunate part is the firm is running close to its limit (CiO
is within it's limit as it stands) and this will put the firm over. Which is something Pete is going to explain to Irv, Ashley, et
al. as it will require approval/one-off limit extension / or permanent var limit increase for the Firm.
The market data used by Pat I Samir in the methodology for revaluation of the VAR_w'<Js of the major moves of
10 april that caused the reaiized pnl of -39Smm. We have corrected this - and I'm investigating how I why this happened.
Standalone Synthetic Credit VaR 10/0412012 1110412012 1210412012 1310412012 16/04/2012 1710412012
HVaR-95 Uploaded 55,840,398 55,058,312 55,180,605 58,812,234 59,120,659 64,146,238
15 Restated by QR 66,598,296 66,502,483 64,193,746 68,404,469 68,853,160
Va" ...11ft 10,757,898 11,444,171 9,013,141 9,592,2359,732,501
Thanks
Keith
Sent: 18 April 2012 18:02
To: Weiland, Peter
Cc: Man, George KB
Subject: FW: CIO VaR
Hi Pete - we have been going through the market data related to the realized pnl of 10 april (-$39Smm) as this was not
properly reflected in our market data environment for the VaR historical simulation. We have corrected the simulated pnl
for the 10th April to be consistent with the mkt moves that drove the Pnl on that date. The restated P&L vector for cob 10-
Apr was included in today's cob 17-Apr VaR submission.
This loss increased Synthetic Credit / CIO Var by $Smm and marginal VaR contribution to Firm by $3.7mm assuming all VaR
feeds are now in the latest snapshot.
r oiclure (Device Independent Bitmap)
..
Confidential Treatment Requested by .. __ .E.XH_.I.B.I.T_#.4.5 ___ .. JPM-CIO-PSI 0001205
_.. Redacted by tbe Permanent
From: Hagan, Patrick S
Sent: Thu, 22 Dec 2011 13:39:05 GMT
To: Grout, Julien G <[email protected]>
Subject: FW: RWA - Tranche Book
----Original Message---
From: Drew, Ina
Sent: Thursday, December 22,2011 1:06PM
To: Martin-Artajo, Javier X; Wilmot, John
Cc: Macris, Achilles 0; macris@ Iksil, Bruno M; Hagan, Patrick S
Subject: RE: RW A - Tranche Book
Can you break out the cost again please of each
13 bil .
1 bil hg
1 bil clomtm
----Original Message----
Sent: Thursday, December 22, 20118:00 AM
To: Drew, Ina; Wilmot, John
Cc: Macris, Achilles 0; macris@ ; Iksil, Bruno M; Hagan, Patrick S
Subj ect: RE: RW A - Tranche Book
CLOs and Tranches MTM SAA . HG Mandate AFS SAA .
Will come back with total cost under normal trading and 90 days window.
---Original Message----
From: Drew, Ina
Sent: 22 December 2011 12:49
To: Marti n-Artaj 0, Javier X; Wilmot, John
Cc: Macris, Achilles 0; macris@ llksiJ,BrunoM;Hagan,PatrickS
Subject: Re: RWA - Tranche Book
Total cost including hg and clo. (All in trading not saa, correct?)
---- Original Message -----
To: Drew, Ina; Wilmot, John
Cc: Macris, Achilles 0; macris@ Iksil, Bruno M; Hagan, Patrick S
Sent: Thu Dec 2207:46:3620] 1
Subject: RWA - Tranche Book
EXHffiIT#46 Confidential Treatment Requested by .,;
.. - - - - - - - - - - - - - ~
JPM.,CIO-PSI 0000032
Ina/John
Weare in a position to reduce 15 Bln by end of Q 1 by :
- Reducing Tranche Book 13 BIn
- Reducing CLO Book 1 BIn ( as per the CLO conversation)
- Reducing HG Book 1 BIn ( as per our HG Bank conversation)
Tranche Book
Under normal circumstances the Credit Derivatives Book will reduce three months of duration,
expire the March rolls, improve both the Capital CRM and V ARlStress numbers, and will
require some further reductions and optimization in the actual position ratios.
The estimates of reductions will be :
Model reduction QR CRM (acknoledged already) 5 (Pat estimate)
Model reduction QR V AR 0.5 (Pat estimate)
Model Reduction QR Stress 1.5 (pat estimate)
Reduction for duration shortening 1 Actual
Book Optimization 3 Estimate
Book Reduction 2 Trading reduction
TOTAL 13 Billion RWA end Ql 2012
The actual cost for these reductions will probably lower than 100 MM if the Book Reduction
needed and is limited to reducing the Book after all the previous changes in three Strategies ( See
attachment if needed) .
This does not incJude the challenging but benefit of getting the actual diversification value that
currently QR is not asigning to CIO and will be part of our effort to convince QRJRisk/CFO of
the merits of this benefit. We will need to plan for a New York deep dive coordination with Risk
Management, Finance and QR for end of January/Beginning of February .
Regards
Javier
---Original Message-----
From:J)revv,Ina
Sent: 22 J)ecember 2011 00:55
To: Martin-Artajo, Javier X; macris@
Cc; Wilmot, John
Subject: Rvva
_ == Redacted by the
Subcommittee on InvestIgatIons
We are running an additional rwa reduction scenario. Can u send John and I a scenario whereby
the tranche book and other trading assets are reduced by an incremental 15 bi! in the first
. quarter? Not a stress scenario, so assuming normal (vvhatever that is novv - not year end)
liquidity. PIs list by trading strategy, ie: credit tranche, other trading positions, vvith cost estimate
- (background: trying to work with ccar submission for firm that is acceptable for an increased
buyback plan), Need in early ny morning -
From: Weiland, Peter <[email protected]>
Sent: Fri, 02 Mar 2012 21:31:43 GMT
Goldman, Irvin J <[email protected]>;Enfield, Keith .
CC: <[email protected]>; Stephan, Keith <[email protected]>; Hagan,
Patrick S <[email protected]>; Wilmot, John
Subject: Fw: CIO CRM results
Javier -
We got some CRM numbers and they look like garbage as faras I can tell, 2-3x what we saw before. They came from the
technology guy running the process, so probably QR has not even reviewed the results.
Obviously a lot of work to be done here.
Pete
Peter Weiland
JPMorgan
0: +1212 834 5549
m:+1 ___ a
Sent: Friday, March 02, 2012 03:50 PM
To: Krug, Kevin
Cc: Bangia; Ani! K; Kabia,Amy Ai Enfield, Keith
Subject: RE: 00 CRM results
Thanks Kevin. We will definitely need to look carefully into these numbers.
These results, if I understand them, suggest that there are scenarios where the CIO tranche book could lose $68 in one year.
That would be very difficult for us to imagine given our own analysis of the portfolio.
Pete
Peter Weiland
Tel: +1212 834 5549
Mob: +1
From: Krug, Kevin
To: Weiland, Peter
Subcommittee on Investiglltions
Ce: Bangia, Anil K; Kabia, Amy Ai Enfield, Keith
Subject: 00 CRM results
Hi Pete,
Sorry for the late response, but I wanted to be able to provide some additional information with the numbers, which took
some time to gather. As you can see your CRM numbers have increased significantly with the new hierarchy runs. It looks like
there was already a trend upward that the new numbers are consistent with, although I'm sure that's not the right way to
look at it. QR is investigating the drivers of the change and will provide further information as it becomes available. The tables
below show the product counts for the 18
th
of Jan (last day of old hierarchy) and the 22
0d
of Feb (last completed run with the
new hierarchy), There were also 4 positions rejected due to missing ccy's on 1/18 and 6 positions rejected on 2/22 due to
Confidential Treatment Requested by
..
EXHffiIT#47 JPM-CIO-PSI 0000338
missing spread curves. These positions can be seen by filtering on the last column of the attached file. You should at least
make sure that we have all of your positions.
Regards,
Kevin
CIOCRM
($MM)
Date Old Hierarchy
Jan 4th 1,966
Jan 11th 2,344
Jan 18th 3,154
Jan 25th
Feb 1st
Feb 8th
Feb 15th
Feb22nd
Count of PCM Product
Jan 18,2012 CDS
XJCFADXfEUR INDX
CRD
Count of PCM Product
Feb 22, 2012 CDS
Synthetic Credit
New Hierarchy
N/A
5,732
Needs Re-run
Needs Re-run
6,301
CDSINDEX TRANCHE
13 16833
CDSINDEX TRANCHE
9 19160
Grand Total
8445 25291
Grand Total
7758 26927
JPM-CIO-PSI 0000339
From: Vigneron, Olivier X <olivier.x,[email protected]>
Sent: Wed, 07 Mar 201217:08:15 GMT
To: Venkatakrishnan, CS <[email protected]>
Subject: RE: New CRM numbers ...
great thanks
From: Venkatakrishnan, CS
Sent: 07 March 2012 16:57
To: Vigneron, Olivier X
I will ask if you and I can see him on Friday. Venkat
From: Vigneron, Olivier X
Sent: 07 March 2012 16:56
To: Venkatakrishnan, CS; Christory, Jean-Francois A
I know of him but have not yet met him ...
Sent: 07 March 2012 16:48
To: Vigneron, Olivier X; Christory, Jean-Francois A
Ashley has invited Javier to my meeting with him. I will tell him that this is a priority and mention you, Olivier. Do you
know Javier?
From: Vigneron, Olivier X
Sent: 07 March 2012 16:47
To: Venkatakrishnan, CS; Christory, Jean-Francois A
meeting this guy is one of my top priority on CIO side. I need to sharpen my tools before hand but I am comfortable to
face Kim ...
Sent: 07 March 2012 16:35
To: Christory, Jean-Francois A
Cc: Vigneron, Olivier X
Subject: FW: New CRM numbers ...
I am cc'ing the firepower ;-)
We obviously need to address his issues. Has the model been discussed with him? Has he raised this with us before? Or
is that an example of "institutional inertia" also? ;-)
CONFIDENTIAL TREATMENT REQUES ... __ E.XHIB __ I.T.#.4.8 __ _
I P MnR(';AN ~ H A S E & CO.
JPM-CIO-PSI 0036342
From: Christory, Jean-Francois A
Sent: 07 March 2012 16:19
To: Venkatakrishnan, CS
Subject: FW: New CRM numbers ...
FYI. Historically we have not replied to this type of e-mails and worked our way through Pete Weiland on the risk side to
get comfortable with the positions. We can obviously decide to change the strategy now if we are going to have more
firepower on the frontlines.
JF
From: Hagan, Patrick S
Sent: Wednesday, March 07, 2012 11:12 AM
To: Martin-Artajo, Javier X; Weiland, Peter; Iksil, Bruno M; Grout, Julien G
Cc: Bangia, Anil K; Christory, Jean-Francois A; Stephan, Keith; Broder, Bruce
Subject: New CRM numbers ...
The CRM represents the worst loss over a 12m horizon at the 99.9% confidence level. With their new model, QR is
reporting that we have a stand alone CRM of roughly 6bn. This is radically higher than the worst loss we see at the same
confidence level; the loss we see is far below 2bn.
The worst case scenario as identified by QR at the 1 in a 1000 level is
COX HY spreads widen by a factor of 2.02
COX IG spreads widen by a factor of 2.37
Itraxx MN spreads widen by a factor of 3.46
There are also 3HY defaults, 2 IG defaults, and 41traxx defaults
Using a top down, full repricing approach, we calculate the 12 month loss in this case as between 2.54bn and 2.78bn,
depending on various assumptions about the full scenario. Note that QR does not construct the full 12m profit/loss
under each scenario; instead QR "re-centers" the results. This neglects carry, a key feature of our books. Also, even
though our book benefits from defaults, by subtracting the mean outcome fromthe P/L, their calculation gives us event
risk to defaults. This is why we prefer our approach.
We see the bad scenarios generated by QR as being much much rarer than indicated in their model. For example, in our
model, the probability of the spreads widening as in the QR scenario is much less than 1 part in 1000. Under our model,
the QR scenario is at
3.76 standard deviations (probability: 0.000084) if we do not include mean reversion in our model
4.93 standard deviations (probability: 0.000000416) if we do include mean reversion in our model
Moreover, including the probabities of realizing the defaults indicated in the QR scenario would greatly lower these
probabilities further.
Suppose we construct the scenario by going in the same direction as the QR scenario, but stopping at the 0.001
probability level. If we did not model mean reversion, this would yield the scenario
COX HY spreads widen by a factor of 1.79, and there are 3 HY defaults
COX IG spreads widen by a factor of 2.05, and there are 2 IG defaults
Itraxx MN spreads widen by a factor of 2.79, and there are 4 Itraxx defaults
This scenario would result in a 12month loss of around 1.28bn.
Moreover, if we model mean reversion, then going in the same direction as the QR scenario, but stopping at the 0.001
probability level would yield the scenario
COX HY spreads widen by a factor of 1.57, and there are 3 HY defaults
COX IG spreads widen by a factor of 1.73, and there are 2 IG defaults
Itraxx MN spreads widen by a factor of 2.20, and there are 4 Itraxx defaults
This is not a particularly bad scenario for us, with the damage caused by the Itraxx widening being offset by positive
default payments and CDX widening. It yields a 12m loss of 0.14bn.
Examination of the path by path data provided by QR makes it appear that QR is using a Gaussian copula model, or some
variant. This is distrubing. The Gaussian copula model, along with the popular variants, has been thoroughly discredited.
Reasons cited are:
* it has no physical or economic basis or justification,
* it is mathematically inconsistent,
* it is not arbitrage free,
* it is a static model, neglecting the dominant risk of the credit markets,
* it has failed in practice, being commonly cited a one of the proximate causes of hundreds of billions USD losses in the
industry.
Let us be clear here: Using the Gaussian copula model for hedging and trading purposes, requires fidelity between the
model and the market place for relatively small market moves. The Gaussian copula model failed at this task. Hoping
that the model is somehow valid for extrapolating down to the 0.001 level risks is madness. The only conceivable excuse
for it is institutional inertia.
Patrick S. Hagan
Chief Investment Office,
J.P. Morgan
100 Wood Street
London EC2V 7 AN
United Kingdom
+44 (0)20 7777 1563
[email protected]
From:
Sent:
To:
cc:
. Thu, 08Mar201212:10:08 GMT
Drew, Ina <[email protected]>; Macris, Achilles 0
<[email protected]>
Goldman, Ilvin J <[email protected]>; Weiland, Peter
<peter. [email protected]>
Subject: RE: eIO CRM results
Ina,
I have a full presentation to explain the issues at SAA today .
The change in notional Is not correct and the CRM is therefore too high. We need to understand better the way
they are looking at the scenario that creates the CRM and we also disagree with them on this. More work In
progress until we can understand how to improve the number but the if the result of an increase is due to an
increase in the long index but not on the tranches this makes no sense since this is not part of the CRM measure
and once we reconcile the portfolio this should be very clear of what we would do . First, go back to the results
of end of year so that we go to a more neutral position before trying to do what we have done with the
reduction of RWA dueto VAR and StressVAR. (We are getting positive results here In line with expectations).
regards
From: Drew, Ina
Sent: 08 March 2012 00:29
To: Macris, Achilles 0; Martin-Artajo, Javier X
Cc: Goldman, Irvin J; Weiland, Peter
Subject: Fw: CIa CRM results
Not consistant with your take. Let's discuss thurs.
To: Drew, Ina; Hogan, John J.; Bacon, Asbley; Goldman, Irvin J; Weiland, Peter
Sent: Wed Mar 0719:12:25 2012
Subject: Fw: CIa CRM results
Ina,
There are two related issues. The first is the $3bn increase in CRM RWA between Jan and Feb, from $3.1bn to
$6.3bn. The second is that your group believes that the absolute level of CRM RWA we calculate was high to
begin with In Jan. The second question requires us to explain our models to the satisfaction of your team. I am in
l,.ondon and spoke with Javier today and we will make this an urgent matter.
Based on our models, though, we believe that the $3bn increase in RWA is entirely explained by a $33bn
notional increase in short protection (long risk) in your portfolio between Jan and Feb. See table below.
Peter Weiland and your mid-office confirm this $33bn notional increase in long index risk. Further we both agree
that this position change results in a change of about $150mm (a decrease) in lOo/oCSW. Per our models, a
Confidential Treatment Requested by J.P. EXHIBIT #49 JPM-CIO-PSI 0000371
roughly 10% capital charge ($3bnl on this $33bn increase in risk is reasonable.
Also, to be clear, there has been no model change on our end; the change in RWA fortranches has hardly
changed over the month. .
I understand that we need to build your confidence In our models themselves but, given our models, we believe
the increase in RWA is well explained by the build up in your risk positions.
I will call you tomorrow from London to follow up, but you can reach me at 917 ......
Thanks,
-=
Redacted by the Permanent
Subcommittee on Investigations Venkat
From: Bangia, Anil K
Sent: Wednesday, March 07, 2012 06:35 PM
Subject: 00 CRM resulls
Standalone CRM
($MM)
J/Jn 18th Feb22nd
All CIO Positions 3,154 6,301
Indell CDS: AU Positions 2,043 6,224
Index CDS: Common Positions 651 646
Index CDS: Rollolf Positions" 4.037
Index CDS: New Positions 9 ~ 7 9
Index Tranche: All Positions 2,814 2,816
Index Tranche: Common Positions 1,972 2.174
Index Tranche: Rollolf Positions' 1,464
Index Tranche: New Positions 1,416
Net Notional(SMM)
Jan 18th Feb22nd Position
fncrease
55.091
88,618 33,527
Indudes 421 Dummy PCM Trades that were removed from PCM feed (4 CDSI227 Index CDSI190 Tranches)
Position Count
Jan 18th Feb22n.
25,291 26,9<
16,833 19,1E
15817 1581
1.016
3,34
8,445 7,7e
7.334 7 , 3 ~
1,111
4 ~
JPM-CIQ-PSI 0000372
From:
Sent:
To:
cc:
Hagan, Patrick S <[email protected]>
Wed, 21 Mar 201212:10:40 GMT
Goldman, Irvin J <[email protected]>; Stephan, Keith <[email protected]>;
Venkatakrishnan, CS <[email protected]>; Christory, Jean-Francois A <jean-
[email protected]>; Bangia, Anil K <[email protected]>; Broder, Bruce
<bruce. [email protected]>; Enfield, Keith <[email protected]>
Martin-ArtajQ, Javier X <[email protected]>; Weiland, Peter
<[email protected]>; Pat Hagan <[email protected]>
Subject: Optimizing regulatory capital
To optimize the firm-wide capital charge, I believe we should optimize the split between the tranche and index books.
The bank as a whole may be leaving $6.3bn on the table, much of which may be recoverable.
Here is the situaton:
Alternative CRM floor:
Model CRM:
Effective CRM
IRC
total
$41.7bn
$35.4bn
$41.7bn .
IB
$28.3
$18.3
$28.3
CIO
$13.4
$15.6
$13.5
$18.75
Note that the effective CRM is currently controlled by the Alternative CRM floor. We should be able to move some
directional trades out of the index book (to lower the IRC charge), and into the tianch book. This should increase the
model CRM, but not the alternative CRM. Intuitively, the optimum split would have the Model CRM and Floor CRM
nearly equal.
I think QR is in a unique position to perform this optimization. Here's what I think can be done.
a) the split between the index book (subject to IRe) and the tranch book (subject to CRM) should be a theoretical split, a
matter of labeling for the capital calculations. If there is a natural split which helps us think about the positions, that's
different, but for the purposes of the capital calculation, the books should be combined and split on the optimal basis;
b) If X our suggested index-only portfolio that is split off the combined book, then the theoretical split would be
New tranch + hedge book = Old combined book - aX, .
New index book = aX,
where "a" would be 100% if we'd guessed the correct amount of directional hedges to remove from the combined book.
But the idea would be for QR to find the value of "a" which results in the minimum post-diversification captial charge for
the bank as a whole. With the capabilities shown to me by QR, I believe that they can accomplish this quite readily. The
idea would be for them to do the optimization every week when they calculate the charges. (Who gets the savings is a
different discussion.) QR may have the capacity to put this in place by quarter end.
c) Our book has four main axes. The eventual aim would be to provide QR with four index-only portfolios U, V, X, Yand
create the theoretical portfolios:
New tranch + hedge book = Old combined book - aU - bV - cX - dY
New index book = aU + bV + cX.+ dY
Each week when QR calculates the firm's regulatory capital, they would have the additional task of determining the
optimum coefficients a, b, c, and d which results in the minimum RWA for IRC + CRM. The other components of
regulatory capital, historical Var and stress Var, aren't affected by the split, so this would be the optimal capital charge.
EXHmIT#50
CONFIDENTIAL TREATMENT REQUESTI ... ---------.
JPM-CIO-PSI0011025
The new rules have too many arbitrary factors of three for the regulatory capital to rationally reflect our risks. I don't
think we should treat this as regulatory arbitrage. Instead we should treat the regulatory capital calculation as an
exercise of automatically finding the best results of an immensely arbitrary and complicated formula.
Patrick S. Hagan
Chief Investment Office,
J.P. Morgan
100 Wood Street
London EC2V 7 AN
United Kingdom
+44 (0)20 7777 1563
patrick. [email protected]
EXCERPTS FROM
TO THE PERMANENT SUBCOMMITTEE ON INVESTIGATIONS
Date: March 21,2012 Telephone Call
Parties: Anil Bangia, Patrick Hagan
Bates Number: JPM-CIO-PSI-A 0000089
Mr. Bangia: I think, the, the email that you sent out, I think there is a, just FYI, there is a
bit of sensitivity around this topic. So--
Mr. Hagan: There, there is a lot of sensitivity.
Mr. Bangia: Exactly, so I think what I would do is not put these things in email.
Mr. Hagan: That's exactly what I was told. Javier, Javier is the guy that asked me to
send out the email this morning. And then he found out from, from Pete and - yeah, and
he found out from some -- and Irv that this is ...
Mr. Bangia: Yeah, yeah, I wouldn't put this you know in ....
EXHIBIT #51a
EXCERPTS FROM
Date: March 21,2012 Telephone Call
Parties: Patrick Hagan, Anil Bangia
Mr. Hagan: Hi Anil, this is Pat.
Mr. Bangia: Hi Pat.
Mr. Hagan: Urn, you know that email that I should not have sent?
Mr. Bangia: Urn hum.
Mr. Hagan: Have you read it? Is that a feasible thing to do or is that impossible? .
Mr. Bangia: Well it's, in some ways it's somewhat feasible, once we have a bit more of
[indecipherable] development. So, a lot of the IRC tools that I was showing you are
really based on a new model that is not in production yet. There is an old model that
Bruce [Broder] has run, so that's the official model. So that has a very different offline
manual process that complicates things.
Mr. Hagan: I see.
Mr. Bangia: And beyond that it's a matter of also, how much you guys should do it
independently versus what, how much we can actually do on optimizing it, right, so,
there's that side ofthat as well.
Mr. Hagan: Yeah, I mean, the feeling from the risk managers was that '" treating the
capital charge is this incredibly complicated mathematical function that we're, of course,
going to optimize. And uh, they were less concerned about physically moving things
from one physical book to another physical book.
Mr. Bangia: Yeah. Yeah. I think we should also make sure we don't oversell this in the
sense that the stability of this, we have to see over time. So I, I would also not quote any
numbers on how much we think we can save, right?
Mr. Hagan: Yeah, the thing is I was hoping we could save about half that and that's got
to be split between the investment bank and us, so '"
Mr. Bangia: Hmm.
Mr. Hagan: It's not clear, it's not clear.
EXHIBIT #51b
Mr. Bangia: Yeah, yeah, it's not clear.
2
EXCERPTS FROM
Date: March 21, 2012 Telephone Call
Parties: Peter Weiland, Patrick Hagan
Mr. Weiland: I keep getting banged up .... I know you've had some emails back and
forth with Venkat and Anil or whoever on the optimization of the IRC and CRM and
everything else. Everyone is very, very - I told this to Javier the other day but maybe he
didn't mention it to you -everyone is very, very sensitive about the idea- writing emails
about the idea of optimizing -
Mr. Hagan: I got that sort of mentioned. I'd say it was mentioned to me [laughter].
Mr. Weiland: OK, so, I don't know, Irv just came by again and said, "Oh, Venkat was
telling me he got another email from Pat you know -"
Mr. Hagan: From me?
Mr. Weiland: Maybe it's from a couple of days ago, I don't know, but .... if you're
sensitive to it, that's all I wanted to know.
Mr. Hagan: Okay.
Mr. Weiland: So I think we can talk about, you know, allocation
Mr. Hagan: Okay, so nothing about allocation, I understand-
Mr. Weiland: - Uh, you see, the work of the risk manager has very broad and unclear
borders sometimes. Anyway -
Mr. Hagan: - Okay. I did write an email message. I didn't realize it was sensitive to
that extent .... Ah, it's all mathematics.
Mr. Weiland: - Yeah, well that's, you know, the funniest thing is, the first time that
someone mentioned it to me I said, you know, 'I'm sure that Pat just sees this as like a
math problem, an interesting and a complicated math problem. And all this other crap
that goes on about, like, the implications of regulatory arbitrage and stuff like that is like,
completely boring' [laughter].
Mr. Hagan: - No it's not that. I just get annoyed when I see us creating risks when
there were no risks -
EXHIBIT #51c
Mr. Weiland: Yeah, I know.
Mr. Hagan: -- that's annoying. Ok, I understand the sensitivity. Tell Irv I'm sorry.
2
From:
Sent:
Wilmot, John <[email protected]>
Tue, 03 Apr 2012 11:45:24 GMT
Subject: RE:
Here is my general reaction to this andto the document circulated last night:
If,
1. I don't get the sense of clarity that we know what is driving the RWA (economic risk versus VaR, stress VaR, CRM and IRC) or
the p&l'- or more importantly that either will be manageable going forward
2. We are a significant player in a market that is less liquid, hence any attempt to manage p&1 or capital away from an "as is"
approach will either result in p&1 dislocation or RWA constraints (a la 4Q11/1Q12)
3. We haven't made the case of how this book runs off and whether risk can be managed effectively within a fixed maturity, is
that we can de-risk without creating continual tail risk further out past tranche maturities. This plane will never land.
4. We also haven't made the case of what it costs to significantly decrease the size of the book (in my mind the only certain way
to reduce RWA)
I profess to probably being the least knowledgeable about this book amongst the senior team, so that leads me to be skeptical when we aren't
directly answering questions. I think we have moved beyond the commercial utilization of this book in some jump-to-default capacity as it
exhibits neither acceptable risk/return profiles nor market liquidity characteristics to justify capital.
John C. Wilmot I Chief Investment Office I [email protected] I Work: (212) 834-5452 I Cell:
-----Original Message----
From: Drew, Ina
Sent: Tuesday, April 03, 2012 6:52 AM
To: Wilmot, John
Subeommittee on Investiglltions
Subject: Fw:
Read before the meeting
----- Original Message -----
Sent: Tuesday, April 03, 2012 06:27 AM
To: Drew, Ina
Subject: RE:
OK -- maybe to follow-up the "background" that I send to John when we asked him for Olivier's help?
The situation is as follows:
- Javier and team believe that the book is currently balanced for rIsk and P+L.
- Clearly maintaining this "neutrality" will be resulting in higher RWA than we originally anticipated.
- Olivier is now in our office and he is 100% involved with the RWA projections of our book and ways to bringing it lower. Nevertheless, I don't
believe that we will able to be precise in our RWA targeting as there are still several moving pieces in methodology etc. The best we can do for
the next week(s) is to operate with RWA ranges as opposed to exact targets.
Javier believes that retaining the existing book "as is'' will generate no less than $750m in P+L until the end of the year and clearly much more
if we experience defaults and the value reversal on IG forwards.
- Unfortunately, the above "as is" approach will likely result in a minimum of $45b RWA at the end of the year and likely in a $46-52b range.
- If we can't allocate these levels of RWA, and we must reduce it, then the pace of the reduction would be very relevant for the P+L. In order to
maintain, risk neutrality in the book, we will need to be reducing the liquid on the run IG, parallel to reducing the short HY. The luck of liquidity
Confidential Treatment Requested by J ... __ .E.XHIB_IiIiiI.I ... T_#.5.2 ___ .. JPM-CIO-PSI 0000497
in HY, would likely delay the pace of IG liquidation and thus RWA reduction. Projecting a 50% reduction of the IG/HY by the end of the year, will
be reducing RWA to the mid $30s. An orderly reduction will preserve over 60% of the P+L of the "as is" scenario above. Specifically, this
approach would retain the jump to default but it will realize less curry than the over $2m daily, as of now.
My recommendation is the gradual reduction to a $35b RWA target by year-end. I realize that this is higher than what we have all hoped for. 1
am very concerned by over-acting in the market relative to our size and poor liquidity. We really need to minimize our market involvement and
focus our activity to certain RWA reduction plans (pre-priced by Olivier) while utilizing liquidity in an orderly way.
Best,
Achilles
From: Drew, Ina
Sent: 03 April 2012 00:39
To: Macris, Achilles 0
Subject:
After we finish our review tomorrow, I will need you to prepare a short summary for hogan and jamie. We can talk about how to best present
the gameplan.
F r o m ~ Iksil, Bruno M <[email protected]>
Sent: Mon, 30 Jan 2012 21:02:17 GMT
To: Nartin-Artajo, Javier X <[email protected]>
Subject: there is more loss coming in core credit book
I reckon we have another SOM coming from CDX IG9 exposure. The guys have a huge skew trade on and they will defend it as
much as we do. I think I should take the pain fast over to next month. I hav tried but it will ot move: they have moved some
of those trades out at BOA but BNP, CSFB and BARCLAYS go for the fight. It is pointless in my view to go for a fight. We will roll
. down and recover the loss. But i hi,:lVe to let it go . The day when either we have a panic or names like Radian, MBIA recover,
the position will be at profit because the forwards will collapse. Now I just grow the exposure and the CSOl moves up.
EXHIBIT #53
Confidential Treatment Requested by .. ____________ ..
JPM-CIO-PSI 0001225
From:
Sent:
Goldman, Irvin J
Tue,14Feb201201:22:17GMT
Subject: Re: Csbpv limit- please read
yes to all.
- Original Message ----
From: Drew, Ina
Sent: Mon Feb 13 20:21:04 2012
Subject: Re: Csbpv limit- please read
I have no memory of this limit. In any case it need to be recast with other limits. Its old and outdated
---- Original Message ---
To: Drew, Ina
Sent: MonFeb 13 20:18:382012
Subject: Csbpv limit- please read
Ina,
I will review thoroughly tomorrow as pete emailed me tonight. Not sure why it did not come u.p before.
Wanted to give you heads up.
I copied below from his email:
We have a global credit csbpv limit. It was set up at the initiation of the credit book, Unfortunately we
have been breaching for most of the year. Lavine's team is going to send out a notification Oust within
em) probably tomorrow.
the big portfolio changes they made in the tranche book in DedJan. caused the increase.
We will need a one off limit increase.
Confidential Treatment Requested by JPMORGAN CHASE & CO.
CONFIDENTIAL TREATMENT REQUESTED BY J Permanent Subcommittee on Investigations
EXHIBIT #54
JPM-CIO 0003758
~ . Redacted by the Permanent
From: Keith Stephan <[email protected]> Subcommittee on Imestigotions
Sent: Fri, 17 Feb 2012 14: 11 :26 GMT
To: BRUNO IKSn.. BRUNO IKSn.. <[email protected]>
Subject: FW: CIa Global Credit spread BPV limit breach- COB 02/09/2012
Bruno - can you read the below draft and let me know if you agree Iw the points - think we need to get Javier on
board wi this before we send out formal limit request.
Sent: 16 February 2012 17:09
To: Weiland, Peter
Cc: Lee, Janet X; Chandna, Sameer X
Subject: RE: CIa Global Credit spread BPV limit breach- COB 02/0912012
Since mid-January C10 has been in breach of its global csbpv limits, driven primarily by position changes in the
tranche book.
The csbpv methodology adds the csbpv sensitivities of all the credit products, unadjusted for correlations. As IG
and HY positions have been added in January (with a hedge ratio of roughly 5x) the net csbpv prints a positive
number even though on a beta-adjusted basis the book is relatively flat.
Market Risk is currently reviewing all limits and most likely will remove the csbpv limit to be replaced with a
set of credit-spread-widening (CSW) limits to better reflect the risk of the portfolio in material market moves.
Until the new limits are implemented we will propose a one-off to the csbpv, up to $20mm, as we find that the
stress arid csw measures are more appropriate indicators ofthe risk of the portfolio.
As you can see below - the CSBPV measure vs. 10% CSW shows that the book has been reasonably balanced
despite the headline bpv looking much longer. This is not the case in the 50% CSW measure, as the parallel
relative shifts of 50pc have the effect of steepening the already upward sloping credit curves, hence makes
losses look higher when compared with the IOpc measure. This can be seen clearly in comparison of the 50%
CSW measure vs. the Large Flattening Selloff I Credit Crisis scenario P&L, which simulates more realistic (i .e.
flattening) curve dynamics in the large (circa 50%) selloff The book, in this case, benefits, given that in
CDX.IG, long forward risk is achieved via flattener positions, i.e. the stress loss for the IG strategies in the large
flattening selloff is -I OOmm vs. -1 bn in the 50% parallel move.
50% vsLFS: .
ITX XO +0.5 vs +0.65 Diff$+0.15bn
ITX MN -lB vs -1.3B Diff $-0.3bn
CDX HY + I.4B vs + 1.8B Diff $+O.4bn
Cbx IG -IB vs -O. lB Diff$+lbn
[cid:image002.png@01 CCECCD.B941 A680]
50% parallel shock vs. Large Flattening Selloff:
.... -----..
EXHmIT#55
CONFIDENTIAL TREATMENT REQUESl JPM-CIOPSI0001823
[cid:image003. png@Ol CCECCD .B941 A680]
50% vsLFS:
ITX XO +0.5 vs +0.65 Diff $+0. 15bn
ITX MN -lB vs -l.3B Diff$-O.3bn
CDXHY +1.4B vs +1.8B Diff$+0.4bn
CDX IG -lB vs -O.lB Diff$+lbn
Sent: 15 February 2012 23:39
To: Stephan, Keith
Cc: Lee, Janet X
Subject: FW: CIO Global Credit spread BPV limit breach- COB 02/09/2012
How about this? Maybe you can edit and add your graphs if you think it would help.
Since mid-January CIO has been in breach of its global csbpv limits, driven primarily by position changes in the
tranche book.
The csbpv methodology adds the csbpv sensitivities of all the credit products, unadjusted for correlations. AsIG
and HY positions have been added in January (with a hedge ratio of roughly 5x) the net csbpv prints a positive
number even though on a beta-adjusted basis the book is relatively flat.
Market Risk is currently reviewing all limits and most likely will remove the csbpv limit to be replaced with a
set of credit-spread-widening (CSW) limits to better reflect the risk of the portfolio in material market moves.
Until the new limits are implemented we will propose a one-off to the csbpv, as we find that the stress and csw
measures are more appropriate indicators of the risk of the portfolio.
Pete
Peter Weiland
Tel: + 1 2128345549
Mob: _
From: Hassan, Syed S
Sent: Wednesday, February 15,20123:51 PM
To: Hassan, Syed S; Lee, Janet X; Stephan, Keith; D'costa, Karolyn K; Xiong, Bo
Cc: MRM CIONA; MRM External Reporting; Weiland, Peter
Subject: RE: CIO Global Credit spread BPV limit breach- COB 02/0912012
Hi Janet & Keith
Can you please advise on the below request? We'd like to get the notification out as the excession has been
ongoing for a while now. Thanks.
Regards,
CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPMCIOPSI0001824
Hassan-
From: Hassan, Syed S
Sent: Monday, February 13,20122:37 PM
To: Lee, Janet X; Stephan, Keith; D'costa, Karolyn K; Xiong, Bo
Cc: MRM CIa NA; MRM External Reporting
Subject: CIa Global Credit spread BPV limit breach- COB 02/09/2012
Hi Janet & Keith,
The following CIa Global Credit Spread BPV limits have been breaching since the aforementioned period.
Can you please examine and confirm the breaches as valid? If so, please also provide some commentary
surrounding the breaches? Thanks.
[cid:imageOO 1. png@Ol CCECCC.BD81DDBO]
Regards,
Syed Hassan 1 Market Risk Management & Reporting 1 ChiefInvestment Office 1 J.P. Morgan 1 2nd floor, 277
Park Avenue, NY 1212.270.25621 [email protected].
This email is confidential and subject to important disclaimers and
conditions including on offers for the purchase or sale of
securities, accuracy and completeness of information, viruses,
confidentiality, legal privilege, and legal entity disclaimers,
available at http://www.jpmorgan. com/pages/ disclosures/email.
"''''''I''",nr=IUTIAI TDCI\TIIIICII.IT RV J P MORGAN CHASE & CO.
JPM-CIO-PSI0001825
From: Venkatakrishnan, CS <[email protected]>
Sent: Mon,.02 Apr 201221:53:53 GMT
To:
Hogan, John J. <[email protected]>i Goldman, Irvin J
<[email protected]>; Bacon, Ashley <[email protected]>
CC: Vigneron, Olivier X <[email protected]>
Subject: FW: CIO DAY 1
John/Ashley/lrv: Below is an update from Olivier. One source of model difference is that the capital models operate at the
level of individual names but the ClO's desk models operate atthe level of indices -- so the effect of name concentrations
may be captured differently. We are pursuing the impact and further modeling of this. Venkat
From: Vigneron, OIMer X
Sent: MondaYi April 02, 2012 3:15 PM
subject: 00 DAY 1
HI Venkat,
Main takeaways;
Book comprises index trades only (tranches+ plain Indices). All modelling done on the index spread, single names are
assumed homogeneous and homogeneous pool model is then used to price tranches and generate index delta.
Historical regression also gives them a beta adjusted delta for HY vs IG.
Key takeaway 1: approximation around the dispersion of single names a key source of discrepancies when submitting
portfolio to large single name shocks (as does IRC/CRM). More work to quantify impact of this approximation.
Key takeaway 2: we need to load the book on a "bottom UpH Single name modelling approach that can give single
name default exposures, as well as a CSW computation that is comparable to the Credit Trading e s k for example.
ActiOn points:
To discuss modelfing merits of CIO and its feedback on our IRC spread modelling with the model research group (will
start with Matthias A. who has been involved by Anil).
To model in Lynx (tool developed by credit trading team) the CIO portfolio. Preliminary dummy trades loaded. Tool is
ring fenced (j.e. only I will have access). However I will check with Javier before loading the real notionals tomorrow
that he is fine for me to go ahead with this.
Risk update:
On my CSW estimate sent yesterday for March 7
th
position, I missed the Xover trades, here is the updated estimate when
including them:
Estimated All Tranches:
Estimated CDX indices:
Estimated ITRX indices:
Estimated HY COX:
Estimated FinSub + Xover:
-45m CSW
-35OmCSW
-280mCSW
+400m CSW
. +lS0mCSW
Confidential Treatment Requested by .. __ .E.XH __ IB_IT_#.5.6 ___ .. JPM-CIO-PSI 0000449
Total: -125m CSW long (March 7
th
)
Face notional by maturity buckets and 16/HY split.
2Sbn short in 1Y 16
1Sbn short in 2Y HY,
17bn short 5Y HY
13Sbn long in 5Y 16
Olivier
Sent: 30 March 2012 22:30
To: Vigneron, Olivier X
Subject: FW: ao 10% CS'N
Please see below and let's make sure we speak daily on this! Merci, Venkat
To: Venkatakrishnan, CS .
Subject: RE: ao 10% CS'N
OK thanks Venkat-keep me posted please
To: Hogan, John J
. Subject: ao 10% CS'N
John: ao's 10% CSW by my group's model estimate Is long 245rnm of risk; their own models (run by Weiland) quote $145mm. I
don't understand the difference in the models and don't know how good a measure of risk 100/0CSW is for their book. But I spoke
to Ashley and we agree that 10%CS'N has been trending up for ao, by either their model or ours. Once Olivier spends time In the
portfolio, we should get a better idea: I also sense from speaking with Javier that CIO are worried that they may now have to shed
tranche risk in a tight market. I don't know how real this worry is but I wanted to make you aware. I will get a daily download
from O l i v ~ r ' and keep you and Ashley posted (Ashley is out next week). I may myself go to London mid-week. Venkat
Please see the CSW10 results for original CIO portfolio and the split portfolio for March 21st.
Corp Portfolio
COB 10-Jan-12 18-Jan-12 25-Jan-12
80.6 CSW10 (MM) -7.2 73.7
21Mar-12
Corp CIO Index Combined
Portfolio .Portfolio Portfolio
CSW10 (MM) 245.2 252.8 -7.6
31-Jan12 28Feb12 21Mar12
62.2 150.1 245.2
.'
".
This following is based on the latest split I received .from Patrick Hagan this morning.
21-Mar-12
Corp CIO Index
Portfolio Portfolio
CSW10 (MM) 245.2 213.5
From: Huang, Yuan X
Sent: Friday, March 30, 2012 10:02 AM
To: Venkatakrishnari, CS
Ccl ]a, Keith
Combined
Portfolio
31.7
Subject: FW: Mar-21 risk report for CIO and benchmark indices
We have the CSW10 results for a few days (see row 24 "Spread...,lOPcntUp"). If the date you are interested is not included (ex,
Mar-7
th
), we can generate the results in about half an hour.
Regards,
Yuan
From: Jia, Keith
Sent: Thursday, March'29, 2012 11:46 AM
To: Huang, Yuan X
eel Bangia, Anil K
Subject: RE: Mar-21 risk report for CIO and benchmark indices
6-day risk report.
From: Huang, Yuan X
Sent: Wednesday, March 28, 2012 2:56 PM
To: Jia, Keith
Cc: Bangia, Ani! K
Subject: Mar-21 risk report for CIO and benchmark indices
From: Weiland/ Peter <[email protected]>
Sent: Mon, 07 May 2012 15:32:57 GMT
To! Drew, Ina <[email protected]>
CC: Goldman, Irvin J <[email protected]>
Subject: CSBPV History
Hi
irv said you need some background on tne CSBPYJimit history. I created the attached slide for your feferelice(this has not
gone to anyoneelseJ.
I also attach the Hmitmemo from Brian Roseboro ba(:k in 20Q8 in case you need it.
I'm not sure what else you may need - I will be at the phone jf there are other spedfic data that would help.
Pete
Peter Weiland I J.P.Morganl ChiefInvestment Oft"ice I 270 Pa:ik Ave. I II Tel: + 1 212834 554911iCell:
peter
_..:. Redaeted by the
Subcommittee on InvestigatIons
CONFIDENTIAL TREATMENT REQUEST __ .E.XH_.IB_IT_#.5.7 __ ...
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CIO Grobal Credit CSBP" Limits
CIOGlbbal Credit CSBPV Limit has been in place since 2007
-Composed of both synthetic credit and cashcr!2ldit (mostly collateraHzed securities)
-Net slim of CSElPVs for all credit underlyings r--------------------------,
-Spot quarterly history of Global Credit CSBPV exposure at right
CSBPV ih 2012
-Early in 2012 net CSBPV increased dramatically as IG positions
were added and offset between HYand IG grew
-Given that a beta adjusted credit spread-oeutralpositioninduding
HY and IG requireS as much IG as HY, deCision was taken at
that time that theCSBPV IImitshoiJld be changed to account better
for the increased activity
-Written notificatibnof limit breach from MRM Reporting included
the following commentary: "current measurement of raw CSBPVis
not normalized for the level of spreads,nor does It capture
convexity as represented In CSW10 (and Stress Loss) measures, Full
limit review is underway for the CIO business,anda proposal is
expected to address this issue."
-The limit usage was calculated correctly; the issue was simply that
we decided that given the mix of underlyings it would be better to
look at the sensitivities iii a moregtahulatWay.
-New limits for Synthetic Credit were implemented according to
underlying index as of May 1
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Confidential- Privileged Attorney Client Work Product
Berg, Jaymin ... .
From: .
To: <Crumlish, Fred>;<Fursa, Thomas>;<Kirk, Mike>;<Hohl, James>;<Wong, Elwyn>;<Kamath, Jairam>;
<Monroe, Christopher>;<Tornese, Doug>;<McLaughlin. Doug>
:tent: 1/31/20126:17:33 PM
. Subject: CIO Quarter1y Meeting
Financial
CIO finished 4th quarter with $785mm of
o MTM gains totaled $330mm of which $250mm of the gains originated from the credit tranche portfolio.
The CIO was short credit, and a bankruptcy by AMR caused a large gain in CDSs.
Securities losses totaled $ 14mni forthe quarter primarily driven by losses on EMEA government
guaranteed debt.
Investments
in the international SAA book is due to building out the team in EMEA and opportunistic
purchases. It's expected to .see more growth in the international portfolio going forwa rd.
CIO is investing less in rates products and focusing on more credit productS due to low interest rates and
MBS prepayment concerns from government programs (i.e. HARP 2).
The rates products most attractive to the CIO are munis because oftheir longer duration.
SAA had a negative DOE in 2011 but is expected to move to a positive DOE by the end of 2012.
Management's view of investments is changing to a Structural Book and an MTM Book, although the
Structuri:ll Book will include bank Pf and CDS that are MTM accounting.
The MTM Book!s decreasing in size in 2012. It's expected that RWA will decrease from $70B to $4OB.
The Structural Book RWA is expected to be flatish year over year.
MSR
The 3Q and 4Q hedging volatility was attributed to anticipated changes to the MSR model. The MSR
asset continued to have a longer average life than the old modelcould account for. The MSR model has now been
updated and hedging returns normalized. .
Jaymin T. Berg
u.s. Department of tha Treasury
Office of 1I1e Comptroller of 1I1e Currency
Large Bank Supervision - Capital Markets
Tel: (212) 899-1395 I Fax: (301) 433-6183
88:(202)_
_ = Redacted by the
This message is interdad for designsted reciplnts only. I you have received th s message in error. plaase notify the sender immediately and delete origiral and all
copies. Federal Jaw prohlbltl; 1I1e disclosure or other usa of this Informatlcn.
BANK PROPRIETARY AND/OR TRADE SECRE ... __ E.X_H.m ... IT ... #.5.8 __ ..
INFORMATION
OCC-SPI-00004695
From:
To:
Sent:
Subject:
Fursa, Thomas
<Hohl, J.ames>
4/13/2012 3:55:30 PM
Re: CIO deck
Thanks. I couldn't rerreni>er the guys name
---- Original Message -----
From: Hohl, JaJ:i:es
Sen: Friday, ApriIl3, 2012 11:53 AM
To: Fursa, Thomas .'
S ~ i ect: RE: CIO deck
Just e-mailed the guy who sent the report before getting this, Jf 1 don't hear backfromhim, I'll e-mail Ed.
--Original Message---
From: Fursa, Thomas
Sen: Friday, April 13, 201211.51 AM
To: Hohl. Jarres .
Subject: Re: CIO deck .
Tfthat's the last one - can youe-Iffiil Ed Kastl fOT the latest?
From: HohI, Jarres
Sen: Friday, April 13, 201211:31 AM
To: Fursa, Thorms
S u ~ i c c t : RE: CIO dcck
'lie lalesl ore tllal I gol was Jallumy .. rll check WISDM
~ --Original Message---
From: Fursa,Tbornas .
Sen: Friday, April 13, 20ll 11.31 AM
To: Hohl, Janes
S u ~ i ect: . CIO deck
James - have you still been getting the CIO deck? I don't recall seeing it lately. Canyou check WISDM to see what the last ore is?
TIlanks,
Tom
INFORJ\1ATTON
EXHIBIT #59
OCC-00004720
From:
To:
cc:
.ient:
, Subject:
, ,Attachments:
Sabatini, Joseph
lacucci(Regulator), Anna; Crumlish (Regulator), Fred X; Dillon(Regulator), Donald
Wilmot, John
4/16/20122:54:36 PM
FVIi: materials forPed/OCC/FDIC can at noon today
synthetic c r e d ~ book_J'ed_OCC-pdf,zip
This time v.nth the attactment !
From: Wilmot, John
Sent: Monday, April 16,2012 10:44 AM
To: Sabatini, Joseph
Subject: materials for Fed/Occ/FDIC call at ncion today
, Joe - here are the materials for the noon call today on the Synthetic Credit Book, John
John C. Wiinot I Chief Investment Office \ .+ [email protected] I (Work: (212) 834-5452 I (Cell:
_ _ Redacted by the Permanent
.Subcommittee on Investigations
BANK PROPRIETARY AND/OR TRADE SECRE' .. __ E_XH_m...,I .. T.#.6.0 __ ...
lNFORMATION
OCC-SPI-00009712
Synthetic Credit Book Review
!.
This: information is confidential or proprietary and constitutes confidential supervisory information and confidential commercial information. Disclosure or distribuUo.n of the
confidential' information to any person without the prior written consent of JPMorgan is prohibited. Any examiner ' to whom JPMorga'n has furnished this confidential
information may disclose the,cOrlfidential information to anY'other employees of the Federal Reserve or ace who have a mied to know the confidentlaf information or as
permitted by law.
BANK PROPRIETARY AND/OR TRADE SECRETINFORMATIbN
I
OCC-SPI-00009713
I
. Core Credit Book
I
I
II Objective since inception (2007) has been to manage a profile that would protect against a significant .
downturn in credit, offsetting 'natural credit exposures in CIO and the firm . .
.. The strategy can be divided into four main components
II Investment grade
- US (CDX . .IG)
- Europe (iTraxx Main)
III High Yield
- US (CDX.HY)
I
- Europe (iTraxx XO)
I .
II On a very generalized basis' ithe combined strategies provide the following risK profile .
. II Short HY risk (long protee1lion) against long IG risk (Ion! risk) . . ..
II Short short-duration IG risk (long protection until YE12) against long long-duration IG risk (ie a credit
curve flattener) i
. II The IG9 Series includes 5falien angel names included in the HYindex
. I
ill Radian
.. MBIA
II Sprint .
II RR Donnelly
.. iStar Financial
2
JPMORGAN CHASE &Co.
BANK PROPRIETARY AND/OR TRADE SECRET INFO/TION
OCC-SPI-00009714
Rebalancing Activity
!
Market Back-drop
iii Nov 29 AMRbankruptcyfiling ~ a r l i e r than expected
II First European announcement of LTRO on December 8!h 2011
II COX High Yield series 11 matured December 20!h 2011
I
iii January 18 Kodak files for bankruptcy; rumored for weeks ahead.
Risk Management Activity
III CIO decides to reduce the HY protection which was providing stress loss protection for both credit spread widening
and systematic risk
III Post AMR default, HY index exhibits limited liquidity, exacerbated by expectations of Kodak event ..
11\ Difficult to hedge the book with HY indexes that matched the underlying risk of the protection
III Best available hedge was to use the IG g index that had the special feature of being both an instrument with
liquidity of IG but with a HY component that aJlowed a hedge fora good part of the HY position
II .After analyzing the economics of the hedge and the behavior of VaR and stress VaR, CIO increased the IG9 long
forward position
3
JPMORGAN OHASE & 00.
BANK PROPRJETARY AND/OR TRADE SECRET INFORMATION
OCCSPI00009715
Synthetic Credit Summary: Notional Exposure
posIti on.
,
BANK PROPRlETARY AND/OR TRADE SECRET INFolTION
j ,
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II Gross external (to CIO, including IS)
notional is $836bio long risk vs. $678bio
short risk across all index and tranche
products
I'J External index notional faces
Intercontinental Exchange (ICE) is net
$9.6.7bio, 97% of total riet external index
exposure
II Tranche products are not elig,ible fot ICE
clearing and are bflateral counterparty ,
exposures
JPMORGAN CHASE &CO .
OCC-SPI-00009716
" . : '
i
. j
I
Synthetic Credit . Profile
.,. ...
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.. Top table shows gross nationals across indices and tranches by underlying index family (simply adds nationals of indices and
tranches)
., Bottom table shows the 10% creqit spreaq widening (P/L $MMs) to 10% widening of credit spreads
II Largest short risk exposures in investment grade mature in Dec-12 for CDX.IG.9 and Jun-13for iTraxx S9
.. Largest short risk exposures in high yield are concentrated in Dec-iS to Jun-16 for CDX.HY and Dec-16 for iTraxx.Crossover
.. One particular item to note is the iTraxx Main 20Jun13 which appears long given positive notional, but which is in fact short, as
reflected in 10%csw,as a result of equity tranche protection which is a significant part of the position
5
BANKPROPRJETARY AND/OR TRADE SECRET INFORMATION
OCC-SPI -00009717
Synthetic Credit Summary: Risk Summary
II Total Synthetic Credit VaR 59.2mm
1810% Credit Spread Widening
1/ The position, beta-adjusted has net directionality of -$163MM in 10% parallel move. in spreads
II This is equivalent of $34,5bio of lonq risk in 5y IG equivalents
II Rel.ative value Risk Exposures
III IG9 5/1 Os curve position $46MM/bps of risk if curve steepens 1bps
II ITX9 5/1 Os curve position $19MM/bps if curvestee.pens 1 bps
iii IG vs, HY $27mm/bpsof risk if IG underperforms HY by 1bps
.. xa YS, ITX $34mm/bps of risk if ITX underperforms XaVER by 1 bps
. . I ' .
Seta-Adj.
Illdex CS01 CS01 CSW 10% HYvs. IG Steepen01
CDXHY 8.5.1, 42.55 478.40
COXLCDX 0.09 0.45 1.40
CDXIG -35.12 -453:12

fTraxx MN
maxx )I)
ITraxx Flnsub
-22.06
3.00
.{JC58
-22.06
1224
'2.24
lTraxx Finsen -0.03 -0.13
S.OVXVVE -0.02 -0.02 :
-344.04
178.20
-23.05
.{J,n
.{J,44
,',. J':.
Total Synlhetlc CredIt -46. 1'3 4.3-1 I -163,38
I
-27,24 -45,08
-;
-34.26 -19.07
,','.
(mmUSD)
Mar 2012
Feb 2012
Jap.2012
Dec 2011
Nov 2011
Oct 2011
Sep 2011
Aug 2011
Jul2011
Jun 2011
May' 2011
Apr2011
Mar 2011
Feb 2011
Jan 2011
Credit Cnsls SynthetiC
Stress VaR
434
1,552 50
1,284 62
1,446 80
1,380 00
1,165 65
002 54
392 51
859 27
795 31
.195 40
278 55
(39) 59
148 63
248 67
Synthetic SynthetiC
CSW10% CSBPV
(163) (46)
(127) (31)
(144) (15)
91 {3)
44 (1)
27 (1)
(29) 2
(O7) (2)
(69) (2)
(46) 1
(128) (4)
(107) (3)
{115) (4)
(78) (4)
(100) (6)
6
]PMORGAN CHASE & CO.
,
BANK PROPRIETARY ANDIOR TRADE SECRET INFORMATION
OCC-SPI-00009(l8
Synthetic Credit Summary: Exposure to COX IG 9 Curve
II On a simple basis, curve couiO.
steepen by 20 bps more (on historical
basis)
II Loss approx $1 billion .
.. With hedges currently in place, we
could steepen by 10bps approx
.. Loss approx $550mm
II Bottom graph shows the behaviour of
the slope of IG 9 1 yr versus IG 9 5
Yr that we have in our portfolio
.. . This shows the relationship between
the slope of our position in the index
versus the actual hedge that we have
II Bounding the relationship is the 5 Yr
short that we have on the run five
year IG and the short that we have in
the HYOTR .
BANK PROPRIETARY AND/OR TRADE SECRET INFORMATION
!
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JPMORGAN CHASE&CO.
OCC-SPI-00009719
Single Name Risk & Forward Jump to Default Risk
Table 1: default profile today and post December 2012
# of narnes Average P&L
Max P&L # of names Average Max
Portfolio # of Names with delault given Defaul!
given with Gain given given
loss risk ($mm)
Default default Default Default
($mm) gain ($rnm) ($mm)
Total portfoli a today 588 62 -67 -205 526 133 600
Total po rlfoli a post Dec
2012 585 228 '336 -716 357 133 600
IG 9 only today 121. 0 0 0 121 146 417
IG9 post Dec 2012 121 121 -572 -716 0 0 0
orrthe-run
IG9 Hedge options IG1S covers 89 names out of 121
on-the-run
. post Dec 2012 HY18 COl.e1S 13 out of the remaining 32 names unhedged with IG18
.. Today there is considerable protection coming from IG9 tranches.
Across the 1.21 names in IG9, .Ihe Jump-To-Default at Market Recovery goes from a current gain of +146m on average per name to a lo.ss of-
. 572m per name post December 2012.
II This is be.cause of the roll-off of two fofms of protection: on 20
th
Dec 2012
II The first ls the 32bn of short-dated Index protection.
Importantly, the second is the roll-off of nearly $4bn long protection on IG9 equity tranches. The equity tranche gives protection
at an approximate ratio of 30 to 1, so the $4bn of equity tranche protection is equivalent to $120bn of index protection .in terms of
pure default risk.
.. Post 20th December 2012, we would be able to partially hedge this exposure with the current on-the-run' index but the overlap is 89 names out
ofthe 121 in IG9.
.. On the 32 remaining names we have a Jump-to-Default loss of $500mm on average per name that would need to be hedged by other means
(HY on the run index; single name CDS, index tranches etc)
8
JPMORGANCHASE&CO.
OCC-SPI-00009720
Single Name Risk - Default Protection in Current Portfolio
" Current partfo/iapravides Jump-Ta-Defaun pratectian an
526 names
" TheAverage gain given default is +$133MM, with the max
+$600MM
" The Top 20 names positive Jump-To.-Default at Market
Recovery are shown in the table to. the right; these are
driven primarily by JTD protection afforded by ITraxx 0-3%
equny tranches
.. Across the 121 names In IG9, the Jump-Ta-DefauH at
Maiket Recovery displays current gain of +146m
BANK PROPRIETARY AND/ORTRAPE SECRET INFORMATION
Potential Top Default Prateciian Current Portfolio
ICOMPANY NAME JTDI
GAS NATURAL SDG, SA _ .
GDF SUEZ
Ebp -ENERGIAS bE PORTUGAL, SA
PORTUGAL TELECOM INTERNATIONAL FINANCE B.V:
PEUGEOTSA
LAFARGE .
RENAULT .
1HYSSENKRUP'P AC;
DIXONS RETAIL PLC
HELLENIC TELECOMMUNICA TOINS:
CLARIANTAG
DEUTSCHE POST AG
ARCELORMITTAL
FINMEccANICA S.P.A.
BANCO ESPIRITO SANTO:S.A: .
DEuTsCHE LUFTHANSA AKTIENGELSELLSCHAFT
GKN HOLDINGS PLC' .. . . ._ ...
BANCA MONTE' DEI pAs CHI DI SIENA S.P.S. '
BANCO BILBAo illicAy A' ARGENTARIA,' s' oCiEbAbANONIMA '.
BANCO SANTANDER;SA. ' .. .

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9
JP.MORGAN CHASE & Co.
aCC,SPI -00009721
Single Name Risk - Default Risk and Default Protection Post December 2012
II Post expiry of COXIG.9 O.75y instruments, across the 121 names in IG9, the at Market
Recovery goes from a current gain of +146m on average per name to a loss of -572m per name post December
2012 as shown in the table
Among other names, the portfOliO retains its pro-default characteristics, as befo're
Potential Top 09faull ExpoSure Post oe'cember 2012 .
J1'D1
BAXfE:R INTERNAllONAL INC
BRISTOL:rviVERS'SQUIBBcoMpANY
CAprrAL ONE BANK (USA) NA
CENlEX CORPORA llON
COMCAST CABLE'COMMUNICAllONS, LLC
DUKE ENERGY CAROLINAS, LLC
EMBARQCQRPORAllON " .. .. . .
.. ,
GOoDRiCHCORPoRA'iioN ' .. ............ . . .
HONEYWEll INlERNAllONAL INC
INGERSOLLRAND COMPANY
INTERNAllONAL BUSINESS MACHINES CORP i
INTERVAL AcciLIiSIllON CORP ' .. . ... . . - .
MCOONACDS CORPORA llON
MCKESSON CORPORAllON
MEADvVESlVACO'CORPORA llON'
RIO llNTO ALCAN INC .
ROHl'v1 AND HAAS COMPANY .
THE WALT DiSNEY COMPANY
WELLS FARGO'&COMPANY
wYETHLLC
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. Top' Default Prote'cti-on'Exposures Curro'rit Portfol'io
COMPANY NAME
GAS NAWRAL SDG, SA
GDF'SUEZ '
-
EDP - ENERGIAS DE POR'T\JGAI... sA '
PORWGALlELECOMINlERNAllONAL FINANCE B.v . ..
PEUGEOT SA '" .... . ".
LAFARGE
RENAULT
1HYSSENKRUPpAG
DIXONS RETAil Pl..C
HELLENIC lELECOMMUNICATOINS
CLARIANTAG
DEUTSCHE POST AG
ARCELORMITIAL .
FINMECCANICA S.P.A.
BANco ESPIRITO 'SANTO, S.A: .
DEUTSCHE LUFTHANSA AKllENGELSELLSCHAFT
GKN HOLDINGS PLC . .
BANCA MONlE DEI PASCHI 01 SIENA S.P.S:
BANCO BILBAO VIZCAY A ARGENtARIA . .. SOCiEDAD ANoi\illV1A
BANco SANTANDER. S.A. ' .... -- ... .
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10
JPMORGAN CHASE & Co.
OCC-SPI-00009722
Synthetic Credit Summary: Portfolio Effects in Adverse Scenario
.. Stress Loss Protection .
In an environment of significant credit deterioration and the occurrence hard default events or perception of imminimt defaults, the
Portfolio provides stress loss protection
" This is due to the spread convexity of the portfolio to major market disJocation, during which curves may reprice Significantly,
. flattening as hedgers rush to buy protecfion in short dated indices
In addition to the 'static' default profile shown in preceding slides, we simulate the portfolio behaviour (see scenario 10 below) by
widening credit spreads by average 75%, and through flattening curves (for reference, above depkts -50bps curve flattening in 18.9
O.7Sy /S.7Sy curve, a move which is extrapolated throughout the portfolio
II In this c a ~ e we envision the portfolio would produce substantial protection, circa .$1,72SMM driven by HY shorts and ffatteriing of
investment grade curves
11
BANK PROPRIETARY AND/OR TRADE SECRET INFORMATION OCC-SPl-00009723
Synthetic Credit Summary: Risk & P/L Scenarios
Realised P&lln Q1
Q1 Realised P&L -$580, driven by losses in short risk HY (670MM), S. +128MM In CDX.lG, and -30MM in iTraxx
The IG component has been the main P&L driver of underperformance In Q1 , as forward long risk positions did ,not deliver anticipated profits gIven steepening of the
curve. Current is overall risk balance.d, given the cross-market long/short and has positive carry of $2MMlday, whlle retaining upside on
Q2 P&L Es,lmates - thes,e scenarios do not Include 10 April P&L.which would accrete back Into each scenario +$400MM, If for tod!ilYs market moves
-$250MM (New Financial Crisis) implJes an average spread widening of 1'"25%, driven by banksffinanclals undergoing stress. In this case, the portfolio P&L Is driven by:
+250MM carry . . .
-fOOMM given relative underperformance of IG vs. HY (compression, ledby banksffinancials widening)
-$300MM due to 'duration extension' as we project thallhe short-dated short risk duration in IG will contract as expiry approaches
-$100MM due to spread widening, not offset in this case by curve flattening (we assume here that curves remain 43bps steep in IG equivalents)
iii -$.150MM (Status Quo) In.thls -case we assume that market levels and curves 'freeze' at current- levels; il") this scenario CIG would delta hedge around volatility throughout

the quarter
+200MM carry .
-$300MM due to 'duration eXtension' as we project thai the short-dated short risk duration in IG will contract as expiry approaches
-$50MM due to long-dated tranche underperformance as observed in Q1 .
+$350MM (Central ScenariO) in this case bull steepening of IG curves (+4bps), more than offset by outperformance.of [G.9 curve vs. on the run
+170MM carTY
-$200MM due to 'duration extension' aswe project that the sl"Prt-dated short risk duration in 1G wiil contract as expiry approaches
+$11 OMM due to rally in credit spreads -15%
+$2QOMM due to rela[ive outperformance of IG 9 curve vs. on the run IG curves (while counter-intuitive, the effect of IG.g \'S. on the run IG complex is .
driver of performance)
+$150MM due to long-dated eqUity tranche oulperformance
In the section "10% Op.timistic" the convexity of the portfolio in a highly positive or a highly negative market outcome is demonstrated.
+$702MM in the event of -20% tightening of spreads, decompression of HY vs. IG credit, and 10.9 forward outperformance (rolling down the cUNe)
$1,126 "End of QE" refers to a scenario of slrong growth led by U.S., spreads avg. -50% tighter .
+1,725MM in "Many means wave of defaults among widest spread names (incl. MalA, Radian, iStar) curve flattening, and +75% spread Widening, driven
by performance of HY shorts, IG flatteners and long protection positions in the. portfolio
In the section 0% it is estimated that the book would range -$355MM to -$650MM.
-$355MM in the event of bear steepening of curves, spreads wider by avg +10%
-$650MM in the event of hull steepening of curves, spreads tighter by avg -25%, driven by underperformance of IG.g (forwards do not roll down curve in rally)
12
OCC-SPI-00009724
From:
To:
CC:
:ent:
Subject:
Hi James - .
Beltando, John W <[email protected]>
<Hohl, James>
<Fursa, Thomas>
4/16/20123:26:41 PM
RE: CIO January 201.2 valua1ion memo and metrics
. l1;rust you are well. With regards to CSBPVyou are correct.
Thanks,
.John
From: [email protected]
Sent: Monday, April 16, 2012 10:46 AM
To: Bellando, John W
Cc: [email protected]
Subject: RE: CIa January 2012 valuation memo and metrics
Thanks very much. I do have olie quick question. For the credit derivatives risk measure (CSBPV). I'd assume that
stands for credit spread basis point value and that the exposure is to a 1 bpv widening of credit spreads. Please let
me know whether that's correct or if it's something else. Thanks'agaio, Jam.es
From: Bellarido, JohnW [mailto:[email protected]]
. s.ent: Friday, April 13, 2012 5.58 PM
To: Hohl, James . .
<:iubject: RE: 00 January 2012 valuation memo and metrics
Hi James-
Apologies for not distributing the February valuation work. I just sent the February and March reports.
Fleaselet me know if you have any questions .
. Thanks, .
John
From: [email protected]
Sent: Friday, April 13, 201211:49 AM
To: Bellando, John W
Subject: RE:OO January 2012 valuation memo and metrics
Hi, I don't think that I received a report since this one, have they been distributed? Thanks, James
From: Bellando, John W [mailto:[email protected]]
Sent: Monday, February 13, 2012 1.13 PM
To: Fursa, Thomas; Hohl, James; McManus, William K; Hawkins, Kimberly A
Cc: m,[email protected]; [email protected]'; '[email protected]'; 'philip.t.mijares@us,pwc.com'; Kastl,
Edward R; Alexander, David M; Burke, Alethea X
Subject: FW: 00 January 2012 valuation memo metrics
Pis find attached our January valuation summary memo and results.
Thanks,
BANK PROPRIETARY AND/OR TRADE SECRE .. __ E.XH_.ffi_IT_#.6.1 __ ..
. OCC-0000473 5
n.. TTU'YOl.. K It.
John
. from: Bellando, John W
Monday, February 13, 2012 1:07 PM
,0: Wilmot, John; Alexander, David M; Weiner, Pamela; Giovannetti, Alison C; Lee, Colvis :
Cc: Kastl, Edward R; Shuja, Amir; 8jamason, David; HugheS, Jason LDN; Uu, Dorris X; Laskis, Adam; Burke, Alethea X
Subject: CIO January 2012 valuation memo and metries
AII-
Attached are two files for your review of the January 2012 CIO independent valuation results:
1) Global summary level VCG memo - January 2Q12 Valuation Summary
2) Global valuation summary with price testing results and coverage metrics - Global Valuation Summary Metrics
January 2012
Please let me know if you have any questions.
Thanks,
John
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This email is confidential and subject to important disclaimers and conditions including on offers for the purchase or
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BANK PROPRIETARY AND/OR TRADE SECRET OCC-00004736
Th.TR(YRU !;. 'T'T(Y"T
From:
To:
Sent:
3ubject:
Hi James,
Wilmot, John
Hohl (Regulator), James X
4/17/201212:24:59 PM
RE: Quick questions pp 4 and 5 of yesterday's presentation
Your notes and understanding are correct. Pages 4 and 5 reflect the entire synthetic credit portfOliO, long (long credit
risk) and short (short credit risk - ie long credit protection).
With respect to the grand total net position, the portfolio is measured as long credit risk under a 10% credit spread
widening scenario: As you'll note on 6, this is equivalent to $34.5bn of 1009 risk in 5y IG equivalents. Having said that,
the portfono as we describe it on page 2 has two general positions (short HY risk vs long IG risk and an IG curve
flattener). These risk exposures are also outlined on page 6 and give you a sense of the sensitivity to relative spreads
and curve .. So while directionally (to a csw scenario) the portfolio positions are long risk there are 2
nd
and Srd order -
sensitivities that need to be considered.
Having said all of tnat I befieve there is a modest long credit risk sensitivity to the portfolio now.
Let me know if you have any further questions.
Regards,
John
John C. Wilmot I Chief Investment Office I + john.wilmotjpmorgan.com -I (Work: (212) 834-5452 I (Cell:
From: Hohl (Regulator), James X
ent: Tuesday, April 17, 20127:48 AM
To: Wilmot, John
Subject: Quick questions pp 4 and 5 of yesterday's presentation
Hi John,
I wanted to check my understanding of the synthetic credit summaries on pp 4 & 5, and ask a follow-up
question. I wrote down during the meeting that the tables reflect credit risk positions long or short, so
that the CDS positions would be the opposite, e.g. looking at the top of p 4, the $836.1 long gross
external trades results from CIO selling $836.1 notional COSs and the $-678.8 short arises from CIO
purchasing COSs. I believe that the chart on p 5 is similarly constructed. I also wrote down that the
chart on p 5 reflects the entire synthetic credit portfoliO. Can you please let me know if I've
misunderstood any of this.
My follow-up question is from the grand total net position on p 5 and my understanding of the tables
outlined above. Does CIO management view the $-163 million as basically flat or is the synthetic credit
portfolio going to be taking on additional credit risk?
Thanks, James
BANK PROPRIETARY AND/OR TRADE SECR ... __ E.XHI ...... B.I.T.#.6.2 __ ..
OCC-SPI-00023815.
n.=AD1. ... A 'T'TA1o.T
From:
TOI
Cc::
Crumlisb, Fred
Brosnan, Mike: Belshaw, Sally; Pflnsgr.aff, Martin; Waterhouse, Scott .
Wilhelm, Kurt: BankS, George; Fursa, Thomas: Hob!. James: Kamath, Jairam: Kirk. Mike: Monroe, 'Chrjstopher;
Swank. T9dd: Wong, Elwyn
Subject: JPM CIO I IG9 "whale" trade
Date: Tuesday, April 17, 20 124:33:00 PM
On Monday 4/16 OCC and FRB examiners met with Ina Drew and several members of CIO staff and
risk management to discuss the JPM synthetic credit book in view of recent press reporting. This
message provides a summary of our discussion, followed by a more the detailed summary. It
focuses specifically on recent changes to the synthetic credit book.
JPM's CIO has been using a synthetic credit (credit derivative) portfolio since 2007. It was
initially set up to provide income to mitigate other significant credit losses that would
surface under a broad credit stress scenario. Since it wasn't possible to tailor a specific
hedge to the JPM ba lance sheet as a whole, this portfolio was constructed. As the
investment portfolio grew in 2007-2009, the synthetic credit portfolio was used to hedge
stress and jump to default exposures in that portfolio as well.
ClO's credit derivative position wa$ managed to provide around $1 billion to $1.5 billion
. income in credit stress scenarios against firm wide losses of $5 billion to $8 billion.
In late 2011, in view of a change in perception in the state of the economy, CIO managers
decided to reduce high-yield (HY) credit protectioni however! after the AMR bankruptcy
and with Kodak expected to file for bankruptcy, the markets for CIO's HY indices weren't
liquid enough to use them to unwind CIO's position.
The IG 9 index, which is much more liquid than HY indices, includes five "fallen angels" that
allowed it to be used to reduce a "good part" ofCIO's HY position, so it was used to reduce
the HY protection.
The IG 9 market is not illiquid as it trades around $10 billion daily and spread changes for
this index are in Hne with .peer indices. The IG 9 curve has steepened in a move of around
65 standard deviations, and there has been strong buying of deferred contracts, implying
that the buyers are certain that there will be no defaults in the next 9 months and nearly
certain that there will be defaults next year. In view of events, however, JPM is conducting
a "post mortem" of the IG 9 situation and its impact and share results with OCC and when
completed.
The CIO began using credit derivatives around 2007 as part of its mandate to mana.gestructural
balance sheet positions. CIO only uses credit derivatives on indices, not specific names. Initially
CIO bought protection (shorted risk) on mortgages
J
using ABX, and high yield indices to mitigate
some ofthe firm's balance sheet credit exposure. At this time CIO investments were highly
concentrated in Agency mortgage securities, and the structural credit risk was in the
lines of business.
BANK PROPRIETARY AND/OR TRADE SECRET .. __ E.XHI_.B_IT_#.6.3 __ __
ThYF()R M A TION
OCC-00012521
Through the financial crisis deposit inflows combined with iower loan demand to leave the firm
with significant excess funds. As part of its mandate to invest, when appropriate, in high credit
quality, liquid investments, the CIO began purchasing low credit risk, top of the capital structure
securities to use the excess funds. While high quality, these investment securi!ies have more credit
risk than the U.S. Agency pass-throughs that continued to be held, so that structural credit risk in
the investment portfolio increased along with portfolio growth.
Throughout this the CIO continued using index credit default swaps (CDSs) to mitigate some ofthe
structural credit risk in the investment portfolio and the lines of business other than the
investment bank, which manages its own credit risk exposure. While there are liquid markets for
many credit derivative indices, the markets are not deep enough to fully hedge a multi-trillion
dollar balance sheet. ClO's credit derivative position was managed to provide around $1 billion to
$1.5 billion income in credit stress scenarios against firmwide losses of $S biliion to $8 billion.
CIO managers decided to reduce the high yield credit derivative protection around Thanksgiving
last year. After the AMR bankruptcy filing on November 29, 2011, the firm profited from its credit
derivative positions as anticipated, but high yield index derivatives had limited liquidity as demand
increased. CIO managers thought that it wouldn't be possible to reduce the high yield credit
derivative position by using the indices that created it; the best available hedge product was the IG
9 index, which has good liquidity as an investment grade index and a high yield component as five
of the index companies are "fallen angels" i.e., companies that have fallen below investment grade
since the index originated. This was the reason that JPMCB began selling IG 9 CDSs; going long IG 9
credit risk (selling CDSs) would neutralize some of the short high yield credit risk pOSition (long
CDSs).
JPM provided the CIO notional CDS exposures as requested, along with a summary ofthe synthetic
credit portfolio maturity profile and results of a 10% credit spread widening (CSW). The CIO CDS
portfolio includes exposure to JPMC's IB along with third parties. The third-party counterparties
. are all major banks or broker/dealers. The stress results show that the CDS portfolio net exposure
cannot be judged by looking at notional exposures alone. An example given is the ITraxx Main
20Jun13 position; the notional exposure is $28 billion long risk suggesting a loss if credit spreads
widen, but the 10% CSW shows a profit of $68 million because of equity tranche protection that is
part of the position ..
The synthetic credit portfolio'position now provides around $434 million income in the credit crisis
stress scenario. Very generally, the portfolio risk profile is short high-yield risk against long
investment grade risk and short short-duration (to yea rend 2012) investment grade risk against
long long-duration investment grade risk, i.e. a credit curve flattener. The portfolio VaR was $59.2
million on April 5th. The portfolio is reported in CIO positions and subject to all of the JPMC
market risk management systems.
Through the indices used, the portfolio provides credit protection on 588 names. liLl of them are
from the IG 9 index, which currently gives an average $146 million jump to default at market
recovery gain per name. This position is stable until December 20, 2012 when $32 billion of short-
dated protection rolls off along with $4 billion of protection on IG 9 equity tranches, and the
n-n::;(YRU A TI()r...T
OCC-ooo 12522
average jump to default at market recovery becomes a loss of $572 million per name. Befo're that
happens, CIO managers feel they have time to adjust the portfolio to compensate without roiling
the IG 9 market.
In addition to inclusion in the firm-wide stress scenarios, cia managers routinely run other stress
scenarios to assess portfolio performance in a variety of circumstances. The synthetic credit
portf9lio is seen to provide stress loss protection in an environment of significant credit
deterioration with defaults or perception of imminent defaults.
CIa managers have been surprised that the IG 9 market has been so willing to take on'and sell so
much protection, regardless of what JPMC did. The market is not illiquid as the IG 9 trades around
$10 billion daily.' The spread changes for this index are in line with peer indices. Many market
participants have been strong buyers of deferred contracts, implying that they had complete
certainty there would be no defaults in the next 9 months and near certainty that next year there
will be defaults. The IG 9 curve has steepened in a move of several standard deviations. CIO
managers said that the curVe steepening move was around 6.5 standard deviations from the
mean. A review of the tG 9 situation is being done, and it will be shared with the OCC and Fed
when completed.
AttenQees:
JPM: cia attendees: Ina Drew Chief Investment Officer, John Wilmot CIO CFO, Achilles Macris CIO
Managing Director EMEA (telephone), Javier Artajo cia Managing Director EMEA (telephone),lrv
Goldman Market Risk Management Managing Director, Pete Weiland Market Risk Management
:Managing Director, Keith Stephan Market Risk Management Executive Director EMEA (telephone),
Greg Baer Managing Director Associate General Counsel, Joe Sabatini Managing Difector Head
Supervisory Relationship
OCC attendees: Fred Crumlish, James Hohl, Mike Kirk
Fed attendees: Anna tacucci, two others
- apc
*** If you have received this message in error. please delete the original and all copies. and notify the sender
im.rJJ.ediately. Federal law prohibits the disclosure or other use of this information. ***
BANK PROPRIETARY AND/OR TRADE SECRET acc-ooo 1?5 23
From:
To:
Sent:
,ubject:
Wilmot, John
Regulator\), James X <Hohl \>
4/19/20129:15:18PM
, RE: CIO EMR?
Yes, we still produce it but we don't include in the Treasury EMR. It is separate. I apologize for you guys being left
off. f will get my team to rectify that and send you the monthlies ytd.
John C. Wilmot I Chief Investment Offic:e I + [email protected]:om I (Work: (212) 834-5452 I (Cell:
Sent: Thursday, April 19, 2012 3:21 PM
To: Wilmot, John
_= Redacted by the PerOl;tnt,nt
Subcommittee on InH'!'':;:lil!)!'"
Subject: 00 EMR?
Hi John,
, Does the CIO still produce an EMR? It wasn't included in the January Treasury EMR, which is where I used to see it.
I'm looking for the balance sheet information that was in it. Thanks,
James
BANK PROPRIETARY AND/OR TRADE SE __ .E.XH_.IB_IT_#.6.4 __ ...
n..fRn'R MATI nl\T
OCC-00004723
From: .
To:
CC:
Sent:
')ubject:
Weiland, Peter
Regulator\), James. X <Hohl \>
<Wilmot, John>;<Goldman, Irvin J>
4/191201210:24:01 PM
. RE: Info on VaR, CSBPV, and stress status and limits
I talked to someone in reporting. The excessions email was incorrect.
We are in the midst of implementing stress limits that include SM. The old limits were $500mm for MTM and
$800mm for Aggregate excluding SAA. The IiUmbers I gave you below are the new usages fully inclusive of SAA with
the new limits as approved by Hogan et al. It may be that the official reports for April 5 still showed the old limits. Just
to summarize, the new ones are:
CIO MTM usage $1.53B against limit of $1.0B
CIO.Aggregate usage $12.67B against limit of $15.0B
Pete
Peter Weiiqnd
Tel: +1212834 5549
Mob:+ ____
From: Hohl (RegulatorL James X
To: Weiland, Peter
Subject: RE: Info on VaR, CSBPV, and stress status and limits
Pete,
he attached 4/17 excession report was the source of the comment. It seems to show CIO aggregate stress of $
18,454 million in the Level 1 tab to me also, unless we're not reading it correctly. I've also included the report that we
have for 4/5 because the way I read it in the Level 1 tab, CIO exceeds both aggregate. and MTM stress limits of $800
million and $500 million respectively. Please let me know whether we're reading the reports correctly. .
Thanks, James
To: Hohl (Regulator), James X .
Cc: Wilmot, John; Goldman, Irvin J
Subject: RE: Info on VaR, CSBPV, and stress status and limits
Hi James-
Happy to help.
1. The Morday-Tuesday daily increase in the firm's VaR was due primarily to an increase in the CIO VaR. This
was not due to any new trades, but rather to market data. In fact, in reviewing some of the market data from
the last week we found that some of the volatility from April 10 was absent in the market data and we fixed it.
2. The aggregate stress comment is not correct. As of April 5, CIO is over its MTM stress limit, at $1.53B vs.
limit of $1.0B. Aggregate stress usage is $12.67B vs. limit of $15B (within limit). With respect to CS01limit, it
is correct that we have been in excess for some time. This is a limit under review, as it currently aggregates
CS01 s from various underlyings (e.g., IG and HY) that should not be added. We have chosen not to adjust the
limit until we implement the new methodology. We are working on a new set of limits for synthetic credit am
the current CS01 win .bereplaced by something more sensible and granular. .
BANK PROPRIETARY AND/OR TRADE SE EXHIBIT #65
.. - - - - - - - - - - - - - ~
OCC-SPI-00022340
Best,
Pete
Peter Weiland
Tel: +1212834 5549
Mob:+ ____
Sent: Thursday, April 19, 2012 11:07 AM
To: Weiland, Peter
- - Redacted by the Pennanent
Subcommittee on In\'estigations
Subject: Info on VaR, CSBPV, and stress status and limits
Hi Pete,
Would you have any color around some observations about the CIO VaR, CSBPVand stress results?
received the following from another examiner this morning. Thanks, James.
The increase in the Firm's VaR is primarily driven by CIO Synthetic Credit portfolio.
CIO aggregate stress loss is over 23% of Hs $15B limit. Also, MtM cs bpv limit is in excession by 1074% and has been In
excession for 71 days,
INFORMATION
OCC-SPI-00022341
I
From:
To:
Sent;
iubject.:
Kamath, Jairam,
Bat ista, Geralynn
4/23/2012551 :25 PM
_. ". - == Redacted by the Permanent
RE: Weekly Market Summary period ending 4113
. Subcommittee 0-:- Investigation,
Sorry, I missed your email l ast week, I also saw t he final version Fred sent out. Looks good.
ja i ra m. ka [email protected]
Tel; 212-899-1386
BB: ___ _
Fax: 301-433-6238
This message is intended for designated recipients only. If you have received this message in error, please delete
the original and al l copies and notify the sender i mmedi ately. Federal law prohibits the' disclosure or other use of '
this info rmation.
From: Batista, Geralynn '
Sent: Thursday, April '19, 2012 1:15 PM
To: Kamath, Jairam'
Ce: Swank, Todd; Fursa, Thomas
Subject: Weekly Market Summary period endi ng 4/13
Hi Jairam,
Do you mind taking a quick peek at t hi s to confirm that it properly reflects the changestothe stress testing
, tramework? ' '
Thanks,
Geralynn
S t r ~ s s losses increased attributable to additional portfolios added as a result of FSf (see details below); IB VaR
unchanged; trailing 5-day trading revenue is moderate at $398mm.
STRESS RESULTS (COB 4/6/12)
Change Current
Current Loss/Gain
Prior week Loss/Gain
Limit
Scenario
Firm MTM Bad Case '
Permanent Subcommittee on Invest igations
EXHIBIT #66
BANK PROPRIETARY AND/OR TRADE SE .. _______ ;,;;. __ ..1
OCC-SPI-000230S7
INFORMATION
i rm Aggregate Bad Case
IB MTM Bad Case
CIOMTM
RFS MTM
-$667mm
-$1.5bn
-$860mm
-$1.0bn
Oil Crisis
- -.:= Redacted by the Permanent
Subcommittee on Investigati ;. t'!
The AFS portfolio has been added to the CIO Aggregate stress test, resulting in a dramatic rise in siress
BANK PROPRlETARY AND/OR TRADE SECRET
INFORMATION
OCC-SPI-000230S 8
losses (see chart 1 be low). However, the inclusion of the sizable AFS portfol io represents a discontinuity in t he
Aggregate Bad Ca se time series as previously displ ayed on the graphs. To adjust for this change, the CIO Aggregate
loss estimate is subtracted from the seri es and shown on t he "Adjusted" chart (see chart 2 below). 100% of CIO
'ggregate losses are assu m"ed to come from the AFSportfol io for simplicity (note that pri or week' s CIO Aggregate
lOSS contribution to Aggregate Bad Case losses was immateria I).
Other portfolios,
--
o
o The CIO MTM li mit increased from $O.5bn to $l.Obn
o The CIO Aggregate li mit increased from $0.8bn to $lS.Don
Chart 1
OLE Object: Picture (Device Independent Bitmap)>>
Chart Z
OLE Object: Picture (Device Independent Bitmap)>>
WAR (4/6 - 4113)
. MEETING MINUTES (4/18)
Follow-Up Items
Review Fred's email (4(17) for to-do's while he is out
Subcommittee on
Send Fred a list of impediments to having "strong" risk management in the areas of .interest rate risk,
price risk, and liquidity
Summary Bullets
General
Sally visited to review the Supervisory Strategy over the past two days. Shepointed out that regarding
Heighte ned Expectations, the definition of "strong risk management" is to be considered at the dedicated risk
management line, not the lines of business
The Whale Trade issue is considered closed--email went out to Senior Management yesterday
Derivatives/Rates/Equities
INFORMATION "
OCC-SPI-00023059
Redacted By The
Permanent Subcommittee
on Investigations
. OCC-SPI-00023060
From:
To:
CC:
Sent:
Subject:
Attachments:
Batisia, Geralynn
<Crumlish, Fred>;<Monroe, Christopher>;<Kirk, Mike>;<Swank, Todd>; <Hohl, James>;<Banks,
George>;<Kamath, Jairam>;<Wong, Elwyn>;<Tornese, Doug>; <Fursa, Thomas>;<McLaughlin,
Doug>;<Vourvoulias, Andrea>;<G!assman, Adam>;<Mark, Aaron>
<Waterhouse, Scott>;<Jacobi, Gene>;<Atkins, Glenn>;<Batista, Geralynn>
4/25/20128:10:07 PM
Weekly MarketSummary period ending 4/20
ATIACHOOO.eml .
Stress.losses increased marginally following last week's dramatic jump due to the inclusion of more portfolios
i nto FSI (see I.ast week's email attached below for more details); IB VaR is up from 85mm to 87mm; trailing 5-day
trading revenue is moderate at $378mm.
STRESS RESULTS (COB 4/13/12\
Fi rm MTM Bad Case
Firm Aggregate Bad Case
IB MTM Bad Case
BANK PROPRlETAR Y AND/OR TRADE Sl
INFORMATION
Change Current
Cu rrent Loss/Gain
Prior week Loss/Gai n
- = Redacted by the Permanent .
Subcommittee on
Limit
Scenario
.
EXHIBIT #67
OCC-SPI-000237S3
CIOMTM
$97mm
-$1.4bn
-$1.5bn
-$1.0bn
Oil Crisis
RFSMTM
The increase in Firm Aggregate loss was driven by Cia's elevated utilization primari ly due to a large sell
off in equities
. For the second consecutive week, cia is breaching its S1.0bn stress limit with a utilization of $1.43bn in
the Oil Crisi s scenario
Chart 1
.,,
Chart 2
...
AR (4/23)
. BANK PROPRIETARY AND/OR TRADE SECRET
INFORMATION
OCC-SPI-00023754
Firm VaR is $144.9mm up from $134mm wow due to CIO VaR increase. After breachi ng the limi t multiple
times last week:the limit was raised to $145mm
. .., , ,...
, .. ~ J '
MEETING MINUTES (4{25)
,ANK PROP,RlETARY AND/OR TRADE SECRET
NFORMATION
OtC-SPI-00023755
-.
From:
To:
Sent:
Subject:
,
Crumlish, Fred
Hohl, James; Kamath, Jairam
5/6/20129:03:05 PM
Re: CIO Synthetic PosITion
Just got back from chile and saw this. Also didn1t see any ema ils or weekly summ?ry comments since I went on leave ..
-apc
acc
202-439-3938
This message is'intended foruesignated recipients 9nly.lfyou have received this message in error, please delete the
original and a lI copies,. and notify the sender immediately. Federal law prohibits the disclosure or other use of this
information.
From: Waterhouse, Scott
Sent: Friday, May 04,201212:03 PM
To: Crumlish, Fred; Hohl, James
Subject: CIO Synthetic Position
Doug Braunstein and John Hogan called to provide an update on the CIO position .. They mentioned that if we
have been watching the po.sition reports and P&Ls, we would have seen that they have been taking some
significa nt MTM losses over the past few weeks. These losses are on po.sitions established some time ago. Current
losses are approximately $1.6 billion. Dougsaid that over time, the bankhas taken 'a couplebillion' in gain as an
offset to this position.
But atthis point, the remaining position istoo large and the bank is trying to reduce risk. John said that the long
position is sensitive to. a 10% widening in the amo.unt of $900MM. This is hedged with a short position in high
yields that has a 10% sensitivity of $650MM, giving a net risk to credit spread widening.of $250MM. The bank is
taking actions now to further reduce the exposure.
Doug saidthatthe CIO will also close out some bond positions to take approximately $1 B in gains to offset this
loss.
John said that Ashley Bacon, in his new role as global overseer of market risk, is introducing new risk measures and
limits for the CIO.
The bank will publish its Q on Thursday, and Dougexpects that they will make some comment in the document.
Doug wants to have a meeting on Wednesday to discuss the history of the position, its performance, and 'glide
path' to fu rther red uce the risk. He expects that the position will be down su bsta ntially by the time we get
together. This meeting will be with the Fed. Fred --you and James should be prepared to attend. Let'stalk
Monday about this.
Scott
BANK PROPRIETARY AND/OR TRADE SEem
INFORMATION
Permanent Subcommittee on InvestigationS-'
n
EXHIBIT #68
oeC-SPI-00021S53
From:
To:
CC:
Sent:
Subject:
Attachments:
Crumlish, Fred
Waterhouse, Scott
Kamalh, Jairam; Kirk, Mike; Hohl, James
5/7/20126:57:01 PM
CIO information for Wednesday
FSI Limit Change FAQ.docx; R-700596-CIO_-_7-ppt.DRF
Scott - I have been catchi ng up and going through email from the team, and am sendi ng you a couple of background
documents relevant to Wednesday. I believe you have the handout and notes from our meeting with Ina Drew, but I
can res end them as well.
CIO went to the DRPC in March (see attached wisdm line), but there wasn't a lot of discussion of the synthetic book.
JPM would acknowledge that what they do may be problematic from a Volker perspective, depending on the way the
rues are written. (Note especially the wording of the mandate) However, they strongly believe that what they do should
be exempt Itom Volker. I haven't found their pi tch to DC or others particularly compelling however, since when before
DC policy they tend to speak in generalities or use the word "hedge" too much when what they do is more accurately
described as active ri sk mgmt.
Also attached is a JPM document summarizing some recent limit changes. (We have a monthly meeting with market
risk reporting where changes to FSI and other matters related to limits reporting and approval are discussed). We have
the email where Hogan approved 'the new firmwide stress limit.
FYI The follow up from our meeting with Ina Drew was to come back and provide us with the results of their "post
mortem" on the ''whale'' issue and the changes that were going to be put in place. On the first call (the one that
proceeded the larger meeting with Ina) Hogan also referred to this. I'd expect they would cover some of this during the
meeting Wednesday
1M HO on balance closing the book down makes sense given that it was built in light of the cri sis. So it' s reason for
existing isn't as compelling as it once was. Bank coud use simpler ways of hedging OCI.
I asked the team to go into the FSI grids to get the main dri vers of the stress loss numbers (ie, which factors contribute
the most materi al share).
A I ~ o - given CIO's ro le, we haven't historically gotten daily P&Lfrom them as we do the IB given the nature of its
operations. However I asked James to f irst, put in a request for more granular daily P&L on the synthetic credit to help
us prepare for Wednesday's meeting, and, more generally, put out the request that going forward we get dai ly P&L in a
form such as they provide to (say) Ina Drew. Bank will likely object to this, but it wi ll help us better to answer "Volker"
related questions internally. James is ~ I s o pursuing logic of limit changes with RM in CIa.
BANK PROPRIETARY ANDIOR TRADE SECRJ
INFORMATION .
Permane.nt Subcommittee on Investigations
EXHIBIT #69
OCC-SPI -000 13 73 7
From:
To:
Sent:
,ubject:
Thanks Fred,
Kirk, Mike
<Crumlish, Fred>;<Hohl, James>
5/10/20122:05:39 PM
RE: My opinion on yesterday's meeting.
Wanted to get some ideas down on paper before I forget the details, and to serve as a roadmap in the future.
Working on sO.ma ny different thi ngs all of which will take place overlong time periods ... so wanted to write down
the t hought s.
I'm certain Ja mes has more deta il s an d ideas.
Regard s,
Mike
From: Crumlish, Fred
Sent: Thursday, May 10,20129:58 AM
To: Kirk, Mike; Hohl, James
Subject: RE: MYDpinion on yesterday's meeting.
See bold.
- ape
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From: Kirk, Mike
Sent: Thursday, May 10, 20129:22 AM
To: Crumlish, Fred; Hohl, James
Subject: My opinion on yesterday's meeting.
Fred,
James and I were chatting electronically about the recent 00 events, and I wanted to share my opinions as food for thought
recognizing that these are only opinions as all the facts are not in, and I don't know for sure what has happened and what is
the cOlTed course of action.
It's not clear to me that the synthetic credit hedging strategy failed, as it worked quite well for some time (and perhaps until
very recently), and then began to .Iose effediveness and they didn't realize this unti l they tried to reduce part of it. I think it's
. possible bank processes failed, not the micro strategy of the synthetic credit hedge.
Agree -It w asn't the basic strategy; it was the specific trades done to adjust the position that fail ed; this seems to
hav.e elimi'nated all the benefit accrued so far. So t he problem was the selection of the strategy to make the
change
I admire Risk for standing up and taking blame for inadequate limits, but that's only part of the problem. No one will ever
Know prospectively how issues may artse; that's why there's multiple forms of controls. Issues sometimes manifest
lemselves thru risk, other times thru models and assumptions, others thru valuation, and others thru combinations of factors
(likely in this case) .
BANK PROPRIETARY AND/OR TRADE SECF
INFORMi'.TlON
Permanent Subcommittee on
EXHIBIT #70
OCC-00005302
I
,
,
!
I
i
I
I
Agree - Also cia prob"blyneeds to focus more on the short term time horizon as well as the longer holding
periods (Recall Ina's comments).
'1any processes probably may need to be enhanced and management may want to rethink their strategy approval processes
" note the M.RA in 2010 attempts to get at this). I think all the seni or managers, including Jaime Dimon, who approved this
strategy shoulder the blame. I think Ina Drew considers herself to be a real money manager; she is not. She is a more like a
AlM manager. The CIa fundion is in a bank. A real money manager produces returns monthly (sometimes more frequently)
to investors who can withdraw at any time'. This instils a certain amount of discipline in risk/return vs. liquidity. They know
that any investment they make may need to be liquidated.in short order, therefore they need to be conscious of their size,
size, of t rades, and market ability to absorb their investments when they need to exit (I reali ze they have liquidi ty lines of
credit to assist with this, but this provides for orderly liquidation, it does not provide for long term unwinds with large market
. risk expOSure) . Ina doesn't have that type of diSCipline forced upon her b/c bank liabilities are not correlated strongly to her
return, and she doesn't have the risk that investors may withdraw funds if they are unhappy with her investment selections.
Agree - Cia needs a more balanced perspective
In reality Ina Drew is a hybrid, and should manager her fundion/business as a hybrid. Items that are marked to market
probably should have the same processes as IB, as at the end of the day JPMC has limited appetite for P&l vol. Also, limits
tend at JPMC to be set once there are material exposures. , In this case, because of the size of JPMC's balance sheet, t hey
would likely set t he limits very larg'e anyway. Moreover, there are so many permutations on how to reduce with derivs
(Indices, tranches etc) that the limit system would have to have been extremely comprehensive, and it is unlikely they would ,
have set it up that way (particularly if they didn't have the exposures yet) even if they did think of notional limits. So, I thi nk ,
that traders would have found other means to exit other than unwinding what they had, If reserves provided proper
incentives to unwind vs. find leSs costly altemative the situation may have been better.
Once the bank finishes their investigations etc, we can also spend 'more time pulling this apart. cia was on the
schedule for October
"lore robust reservi ng for concentrations and liquidity may likely have resulted in traders rolling out of existing HY trades
arlier before they became off the run indices, as there may have been an incentive to hold more actively and deeply traded
indices rather than holding onto an older index as liquidity fell, and JPMC's concentration relative to market size increased. If
the bank was n'ot able to roll into another more liquid HY index that was a suitable hedge, this would have been an indication
that the strategy may be breaking down, or that correlations have changed and holdings should be changed to match
available credit hedges, It may not ever be known what happened, but somewhere in between initiating the position and the
point where the bank decided to reduce the HY hedge the market's willingness/abi lity to absorb JPMC's size changed, and that
should (I believe). be reflected in their pal thru reserves (call it concentration or liquidity) and this would have provided the
incentives to the bank to reduce exposunes before it became a multibillion dollar issue. This is another way of saying that
there was no process in place,to reevaluate the strategy as long as it was in place in worki ng in terms of current P&L. so they
wouldn't know they were driving on a road where the bridge was out.until they got there. The reserving process, sensitive to
changes in concentrations and liquidity, are the road signs waming of danger ahead, Limit structures do not provide this
warning until you get to the end of the road.
I wasn't satisfied with the ~ o m m e n t s made about valuation process and thresholds yesterday, and so we have
, some followup here. I am not SUre they got the point, probably because of that "time horizon" comment. In
addition to reserve, there were likely problems with the thresholds themselves. So this is another followup. ,
(Valuation was one of the things Hogan said they are looking at)
In the case of this micro strategy"one can look at the market and make a case that the reason why they could not exit the HY
CDS were not due to AMR, EK, lTRO, but due to a pronounced change in market perceptions of risk as one could one could
selllG instead. "What does that tell you'? (To quote a fumner trading mentor of mine.) I think that tells you (and with
hiMsight it's cl ear) that the market has changed materially, and no longer holds historical relationships true; therefore the
JPMC traders use of historical relationships (correlations) was in error, because forward correlations were now materially
different and likely to remain that way (as JPMC's later analysis agreed). Market's seemingly insatiable appetite to take the
other Side of JPMC's trades possibly indicated that the IMPUED market price of this correlation has collapsed .. something that
eventually became realized in the losses at JPMC. '
,gree and when evaluating strategy's perhaps traders shou Id hav,e looked at more scenarios. We will 'see what they
d'id.
BANK PROPRIETARYAND/OR TRADE SECRET
INFORMATION
OCC-00005303
While having more granular limits would have certainly helped, the limits alone would not provide the proper incentive for
traders to unwind the t rades they have vs enter new ones and adqing complexity. For as long as it is less costly to the
traders P&L to enter new risks vs closing old ones, new risks will be added. This is a simple law of trading that will always
hold true. With complex products traders can always find a way to reduce a type of exposure by adding a new one. The
sue is when relationships assumed between the risks break down (correlations) t he whole strategy implodes and multiple
Illiquid ri sks need to be unwound instead of one. And unwinding this is more complex that it seems because lifting one leg
wi t hout the-closing the other exposes new ri sks again, and it is extremely difficult to find the other side to mult iple legged
complex risks strategies; in other words it's unlikely that you wil l find someone who will want both legs of your complex hedge
at a time when it's moving so much against you (or at any time for that matter because the other side of complex hedging -
strategies do not 'naturally exist").
Processes for new strategy should have included stresses to that strategy. But would they have stressed to extent market is
currently dislocated? Probably not, blc they would have based upon historical spreads and correlations which are now no
longer relevant and the moves to current level would have been considered beyond extreme. I thin-k this is a similar issue as
the hybrids books_ . .JPMC may not stress the complex risks enough. By putting the complex illiquid products thru the typical
stress scenarios the-bank is effectively ignoring the illiquidity because the standard scenarios assume an exit and rebalance
which may not be feasible. The normal stress processes do not assume events happen multiple times, and do not go
extremely deep into ta ils.
Agree I -am curious to see what t hey did, though
I have no concerns generally with t he overarching strategy of the CIO fundion and what they were attempting to do. I think,
however, that processes may need to be strengthened. I understand the bank is looki ng at all proces$es right now; but, I
think we should consider steering t hem towards changes in val uation poliCies and processes for mark to market items,
initiating a new strategy review process t hat is documented and signed off by all control functions (sort of like a NBIA), and a
review of stress processes for complex products and s\Tategies (something I think the bank fell short of with respect to
hybrids) . Prospective strategies should be run thru the complex stress scenarios as part of the NBIA look a-like process.
Agree
Just thinking on paper, not saying that any of this is fact, orthe solution.

Mike
Mike Kirk
Markets Examiner
Large Bank Supervision
Phone: 212 8991 383
Fax: 301 4339209
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INFORMATION
OCC-00005304
From: Waterhouse, Scott
To:
Sent:
,ubject:
<Brosnan, Mike>;<8elshaw, Sally>
5/11/20122:58:22 PM
RE: J.P.Morgan Chase
Just FYI - we did an examination of the CIO at the end of 2(}10and have a follow-up planned soon. We had some
concerns about overall governance and transparency of the activities. We received a lot of pushback from the bank,
Ina Drew in particular, regarding. our comments. In fact, Ina called Crumlish when he was in London and "sternly"
discussed our cordusions with him for 45 minutes. Basically she said that investment decisions are made with the full
understanding of executive management including Jamie Dimon. She said that everyone knows what is going on and
there is little need for more limits, controls, or reports. At the conclusionof the exam, we issued the following MRA .
Management should update and amend investment policies to clearly define the processes used to manage the
investment portfolio as well as document current portfolio Objectives and investment parameters.
The risk management framework for the investment portfoliOS (Strategic Asset Allocaiion and Tactical Asset Allocation) is not
well documented. While overall risk controls and communication appear to be sound, the absence of a documented
metl10dology wch clear records of decisions and other approvals makes. difficult to determine whether portfolio risk
management and control are governed according to senior management and DRPC expectations. Discussions with
managers and a review of aud. work enabled us to clarify how investment decisions are made and what parameters and
lim.s exist around investment activITies. Nevertheless, is our expectation that the following minimums be formally
documented:
While trades, portfolio decisions and market ,malysis focus on maintaining an agreed upon duration of equ.y (DOE), there
is no report that summarizes support for the agreed upon DOE, Senior ALCO receives only the DOE synopsis page, and
documentation leading up to decisions andlor minutes of those discussions should be kept.
Guidance articulating overall portfoliO objectives or exposure targets and asset parameters is not used. While we
recognize the need for maintaining flexibiltty in portfOliO management, practices and decisions should be documented.
Reporting and amilysis on below-investment-grade and nonrated (NR) securtties should be documented better to ensure
ongoing compliance wnh ace Bulletin 2004-25.
It just goes to show that it is difficult to always be smarter than the market. Humility is good.
From: Brosnan, Mike
Sent: Friday, May 11, 2012 10:35 AM
To: Selshaw, Sally; Waterhouse, Scott
Subject: Fw: J.P ,Morga n Chase .
Redaded by the
Permanent SUbCllnunitteeon Investigations
,
,
BANK PROPRIETARY AND/OR TRADE SECRl
INFORMATION:
. " co - " .. , , , " ' ;"
\
#71 I
OCC-00001746
From:
To: .
'ent:
.ubject:
. Reg ulator\) , James X <Hohl \>
<Wilmot , John> .
5/14/201211 :24: 14 AM
RE: CIO P&l reporting
Hi John, If there's a dailyP&L distribution like those that we get from the IB, canyou add either me or my boss Fred
Crumlish to it as soon as possible, Thanks, .James .
. .
From: Wilmot, John .
Sent: Wednesday, May 09, 20126:20 PM
To: Hohl (Regulator), James X
Subject: RE: CIO pal repcrting
Jim - sorry for the delay, I am working on this request.
Johne, Wi lmot I + [email protected] I ( Work: (212) 834-5452 I ( Cell:_
From: Hohl (Regulator), Ja'mes X.
Sent: Monday, May 07, 2012 11:58 AM
To: Wilmot, John
_ = Redacted by the Permanent"
Subject: CIO pal repcrti ng
Hi ,John,
We'd like to get the synthetic credit P&L for the past five weeks broken out on at least aweekly basis, If
you've got regular reports that show this, just forwarding them would be best. Also, we 'are on the
for di3ily P&Ls from the IB, 11 CIO MTM positions are also distributed daily, we'd like to get the
eporting on th.e same basis: I am on the distribution for the .daily MSR P/L Estimate, .
Thanks, James
BANK PROPRIETARY ANDIOR TRADE SEeR
INFORlVLA TION
,,,;,.,, ..
I
OCC-00004759
From:
To:
Sent:
iubject:
Crumlish, Fred
<Waterhouse, Scott>
5/15/20125:24:26 PM
FW:
Exactly. Let's see what the "lessons learned" says .. .
- ape
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From: Wong, Elwyn
Sent: Tuesday, May 15, 2012 1 :17 PM
To: Kirk, Mike; Crumlish, Fred; Fursa, Thomas; Hohl, James
Subject: RE:
Good point. Does not add up. Collateral dispute of$700 mil versus a double digit reserves amount?
From: Kirk, Mike
Sent: Tuesday, May 15, 2012 1:14 PM
To: Wong, Elwyn
Subject: RE:
ust looked at it and can't find what I would think isthe whole book .. . wondering are t here items they weren't price
testing?
Wondering how could they have a l arge collateral dispute and with these reports showing.pricingth istight (16MM
adjustment only)
Is the synthetic portfolio completely covered by this report? It's not elearto me.
From: Wong, Elwyn
Sent: Tuesday, May 15, 2012 11:18 AM
To: Kirk, Mike
Subject:
Talked .10 Tom. There is March CIO VCG report in WISDM under FVP/CIO. The Powerpoint mentioned increase by a
small amount of reserves for CDS butwe didn't find total amount in Spreadsheet. I will look more closely too.
CIO VCG reports to CIO Controller not to Jean Francois Bessin obviously.
BANK PROPRIETARY AND/OR TRADE SECRE
INFORMATION
EXHIBIT #73
OCC-SPI-00009335 .
From:
To:
Sent:
Subject:
Regulatorl), James X <Hohl \>
Regulator\), Fred X <Crumlish \>
5/17/2012 7:36A3 PM
Not Getting CIO daily P&L after only one day
. FYI - I got one CIO daily P&L distribution and then didn't yesterday. I inquired about it this morni ng, but haven't heard
. back. .
From: Hohl (Regulator), JamesX
Sent: Thur>day, May 17,.2012 8:09 AM
To: Rizaj, Admand X'
Subject: RE: CIa Performance Summary - 05/15/2012
Hi, I'received the daily'report below on Tuesday. but didn't receive it on Wednesday . . Was there a problem wi th the '
report last night? Thanks, James
From: Rizaj, Admand X
Sent: Tuesday, MayI5, 2012 8:23 PM
To: CIO Daily Performance Summary
Subject: CIO Performance Summary - 05/15/2012
Admand Rizaj I JPMC"CIO'Finance I admand.x.rizai @lplI)organ.com I ! (212) 8349677
BANK PROPRIETARY AND/OR TRAD.E SECREl
INFORMATION
EXHIBIT #74
OCC-00004540
-----------

- ------!+'-,."- - ------0.-,, - ,--,---------- -----------
__________ :... ___ i ""- __ ,,-_"Y!_LSS_u..C-__ /'! 1:IZ71'",:,.d. ___ _____ /_."
. I
From:
To:
~ e n t :
iubject:
Attachments:
Kirk, Mike
Wong, Elwyn
SI181201211:26:08AM
RE: CIO call w ~ h Mike Brosnan
image001 .png;image002.png
Agreed too. That's the problem with using historical data and assuming mean reversion. It will work a lot of times, but
one has to be mindful of paradigm shifts and the LTRO is a paradigm shift for the markets in the short run. Issue is
JPM never stressed components of the trades beyoncj historical (I think). Had they looked at the components 'of the
risks and stressed them to say 4-5-6 sds they would have the impacts of low probability events. Although my guess is
they would have ignored that tool Arrogance drove this bus.
From: Wong, Elwyn
. To: Kirk, Mike
Subject: Re: 00 call with Mike Brosnan
That's not 'worth the paper it is wri tten on. You think they can convince my cleaning lady? A dollar on each cell of the
mattrix is worth the same
-_ ... _-_ ... _-----_._-----------. - --"----- ---_._- _._-------- .-_. __ ._--. -_._-.. -_._. _-
From: Kirk, Mike
To: Wong, EI)'Iyn
That's the point!
-he relationship obviously didn't hold, and I would be if we plotted the graph today the locations would be far from the
-,iagonal. .. and I beif we had access to the data that the red portion is moving up and farther to the right with each
. passing day in April .
From: Wong, Bwyn
To: Kirk, Mike; Crumlish, Fred; Hohl, James
Cc: Waterho'use, Scott
I was not at the Apri l 16 meeting. But let me venture t6 gUess what it istrying to say .
.
EXHffilT#76
. BANK PROPRIETARY AND/OR TRADE SECRI .. __________ ..
INFORMATION
OCC-SPI-00021628
,-'---,-'-, - ,- -----------_._ , ---, '---' -'-- , ----, ---'--

1G'l5dJ

' 2f) t= by
If: 1- ' ' Permanent Subcommittee
Ii on Investigations
1;:[ ,
-roo

I
The y-axis is rolling 10 yr cds - rolling 5 yr They had a few Bloomberg graphs showing t-ow this rolled spread
from being NEGATIVE in 2008 and 2009 Oust like Greece and Italy) towards more ronmalization when it eventually
returned to being positively sloped, '
The x-axis is the Hedge Index Composite. , venture to guess this is the aggregate hedge that think they need to put on,
related to the aggregate number on the extreme lower right hand side, the $158 .498 mil. They have a 'lvihole matrix of
longs and shorts and that's the composite. As fear resided and rolling 10 yr minus rolling 5 yr returned to positive, they
an reduce their total hedge. As Mike said, the REDS are which they are at now--- so their hedge is not that '
unreasonable, IF THE HEDGE AMOUNT DID HAVE THIS RELATIONSHIP TO THE SLOPE of 5yrto 10yr CDS
The sentence which is somewhat perplexing is "the relationship is bounded by the off-the-run HY shor:ts and the
on-the-run IG shOrts. Meaning that this is their core hedge? "
.. -
"'-""
3,_ 517
1.1<6
-910
eo;
34,2S7 -I7;':1!JO -......
.t.""' t5,""
"PM
,""-"'i
' .3,3!Oi ,
........
:a; 7,.",

1Jj3 ,22
.1') 1,1trr -....
-,>1 .- -",:210 -1,444 -t.014
t,_
-
.....
"'"
n
The wihole scenario thifl9 about convexity is talking their book/advertizing - in a panic situation, people will fUl to put
protection in the short end and rot the long end. So the curve FLATTENS again like in 2007. In other words, their
c,!
. hedge has analYtical underpiming. Not oJiy are they reducing their short risk hedge prudently .according to the slope of ,
the 5yr.-10yr, as plotted on Bloomberg, the flattener would have been a safe bet because in case they were reducing
their hedge too fast and the economy tanked against, the built in flattener would be there to help.
BANK. PROPRIETARY' AND/OR TRADE SECRET
INFORMATION
OCC-SPI-00021629
From: Kirk, Mike
Sent: Thursday, May 17, 20124:51 PM .
. To: Crumlish, Fred; Hohl, James; Wong, BWyn
<:c: Waterhouse, Scott
;ubject: RE: 00 call with Mike Brosnan
Fred ..
Happy to join you in your calls with Mike B.
In respect to your questions, in the order asked:
The graph on page 7 shows the slippage of their portfolio compared to the hedge. The closer to the diagonal
the more dosely the hedge tracks the portfolio. The red highlighted area is recent period they were discussing
where hedges were breaking down, and markets were not moving according to their modeled projections
bOised upon historical correlations. . .
To make the chart you would need two items. A targeted portfolio and a hedge portfolio. We coud ask for
tlis chart of the strategy prior to re working the hedge position to remove part of the hedge (why we were told
they decided to sell lG with fallen angels). Thisrequest may be instructive and could settle the issue of whether
the original portfolio was an effecti ve hedge. pal for previous 4 years, however, was fairly reasonable, so
that woud tend to sLpport the banks statement that the hedge worked well for years. It went astray v.llen they
reduced the hedge . .
I think Matt Zames would likely have a different view of the choice of strategy with hindsight being a benefit.
Position really went bad as shown in March/April, question is did the London desk continue selling in IG in April
with the curve steepening and spreads widening and basis (to theoretical) trading rich. This is something we do
not atthis time know.
You can give Mike B my cell phone number.
Please note Elwyn and James will likely have quality information to add so you may to wait to hear from them
' efore passing along. .
Regards,
Mike
From: Crumlish, Fred
Sent: Thursday, May 17,2012 4:22 PM
To: Kirk, Mike; Hohl, James; Wong, Elwyn
0:: Waterhouse, Scott
Subject: CIa call with Mike Brosnan
Scott and I spoke to Mike Brosnan today about what we were doing now and going forward on the cia book. We will
likely have a call with him frequently, and, particularly with respect to the intricacies of the position, will need to include
you.
A couple of things specific to the pre-April 16 and some of the emails that are circulating:
I told Mike B that the Joe Sabatini em ails with selected position information were sent by the bank after initial
OCC and FRB enquiries. We concluded that this information was pretty much useless, as it did not tell us what
was happering risk wise. We also talked about a coLple.of those other emails, but I emphasized ihat the
culmination was getting a meeting with Ina Drew and company on April 16.
With respect to the April meeting, Mike B. is going through the "synthetic credit deck" and he had a few
technical questions, not all of which I was able to fully answer since I didn't recall or had been focusing on other
issues and didn't !hili< of those questions. With respect to this presentation:
o Mikeand James: Please have a look at your notes for page 7 as I wasn't fully able to explain the graph
on the bottom. Also if you have details on the scenario description on page 11, we srould pass that
along.
o It would be nice at some point if we coud get a chart such as that on page 5 'before' the position was
put on. Maybe we will request it, maybe not. Let's see if we need it after going through new reporting
INFORMATION
OCC-SP! -00021630
o More to the point, I told Mike that the bank would likely not stand behind (aside from a statement that it
was the best they knew at the time) this analysis at this point, as the position tumed out to be far more
problematic than presented and so the description of risk was missing. ' .
' 0 Mike Kirk - as usual, don't be sLiprised if Mike just calls you sometime.
I told Mike that next Monday we will be going over cllTent risk reporting and positions in more detail, as the
repqrting is evolving. He might want to speak with us shortly after. I'd expect to have Mike and Elwyn to help
speak to technical details etc.
So, keep your notes current. All emails get circulated Vvidely, and of course generate, questions.
- ape
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prohibits tre disclosure or other use of this information ***
BANK PROPRIETARY AND/OR TRADE SECRET '
INFORMATION
OCC-SPI-00021631
From:
To:
Sent:
3ubject:
. Karnalh; Jairam
<Crumlish, Fred>;<Fursa, Thomas>;<Wang, Elwyn>
5/21/20123:20:02 PM
RE: cia var change
Here are a few comments from the days precedirg the synthetic credit VaR model change that became effective
1127/ 12. Note the reduction of CIO VaR by 44% to $57mm.
COB 1/23/ 12
The sland alone VaR for each'LOB are as foll ows: IB is $72mm (;s. $120mm CIO is $103mm (;s. $105mm limit), RFS is
$12mm (vs. $95mm TSS is $90101 (vs. $25mm Privale is $90101 (no limit sel given and AM is
$0.20101 (no limit sel given .
. . 'CIO 95% VaR has beco.ine elevated as CIO balances credit prolection and management of its Basel III RWA. In so
doing, CIO has increased its overall credit spread protection (the action taken thus far has further contributed to the
positive stress benefit in the Credit Cdsis (Large Flattening Sell-off) for this portfolio whichhas increased from
+$1 ;4bn to +$1.6bn) while increasing VaR during the breach period.
. Action has been taken to reduce the VaR and will continue. In addition, CIO has developed an improved VaR model for
synthetic credit and has been working with MRG to gain approval, which is expected to be implemented by the end of
January.
The impact of the new VaR model based on Jan. 18 data will be a reduction of CIO VaR by 44% to $57mm.
COB 1124/12
CIO continues to manage the synthetic' credit portfolio balancing credit protection and Basel III RWA .. The new VaR
model for CIO was approved today by MRG and is expected to be implemented prior to month-.md.
[email protected]
Tel: 212-899-1386
BB:
Fax:
This message is intended for designated recipients only. If. you have received this message in error, please delete the
original and all copies and notify the sender immediately. Federal law prohibits the disclosure or other use of this
information. .
From: (rumlish, Fred
. Sent: Monday, May 21, 2012 10:54 AM
To: Fursa, Thomas; Wong, Elwyn; Kamath,. Jairam
Subject: cio var change
During the model control exam or elsewhere, did you specifically discuss the CIO VaR change. If so, let me know what
and how. We can discuss. If it's a workpaper comment or meeting note, you can send me the'link
- ape
... If you have received tlns ill error, please delete t:1:e original and all copies,. and notify seooer lllllIcdiate1y. Federal law
prolribiLs Llx:: (lisclosure or oUler use ofiliis infonnalioll **>t. .
Permanent on Investigations
BANK. PROPRlETARY AND/OR TRADE SECRJ .. __ E_X",H .. I .. B .. I.T.#"",7.7 __ ...
INFORMATION.
OCC-SPI-DD021932
From:
To:
Sent:
ubject:
Waterhouse, Seett
Brosnan, Mike; Belshaw, Sally
6/29/20128:07:30 PM
FW: 2nd Wilmer Hale Call
In1eresting commentary_ Thisis the SEC questioning of WilmerHale_
From: Kirk,
Sent: Friday, June 29, 2012 9:06 AM
To: Wong, Elwyn; Waterhouse, Scott; Crumlish, Fred
Cc: Hohl, James; Patro, Dilip; Banks, George
Subject: RE: 2nd Wilmer Hale Call
Yes, a huge percentage at that point in history_
---------_._-------------_._----------------------------------
From: Wong, Elwyn
Sent: Friday, June 29, 20129:01 AM
To: Kirk, Mike; Waterhouse, Scott; Crumlish, Fred
Subject: Re: 2nd Wilmer Hale Call
That was my immediate reaction as well. Will be interesting t6 see what more they have to say in the 3rd call focusing
on valuation_ But more importantly, the few hundred million divergence was s4Jposed to have been reflected in the
-PnL on the last day of March. Then in April there was another 700 mil collateral dispute? I mean, DISPUTE 0 that is a
percentage of the mark to market!
--am: Kirk, Mike
Friday, June 29,201207:38 AM
To: Wong, .Elwyn; Waterhouse, Scott; Crumlish, Fred .
Subject: RE: 2nd Wilmer Hale Call
Section 1 on Traders is damaging to Hogan's reputation in respect to his interaction with regulators, in
my opinion_
On the very first daily call, Hogan discussed that earlier there had been a large collateral dispute with
their counterparties. I questioned him on how it was resolved and he said JPM eventually agreed to the
counterparties marks and then paid out the near $400MM amount. I thim followed with a question
relating to what I described as mismarked books to which Hogan forcefully stated JPM books were not
mismarked; leaving both Elwyn and me left puzzled over how a collateral dispute could be resolved by
agreeing to the counterparties marks, without admitting your own marks were incorrect The 4th bullet
point below is consistent with a collateral dispute that is resolved by agreeing to counter parties levels,
and more consistent with a common sense view of likely drivers of the same_
From: Wong, Elwyn
Sent: ThursdaY,June 28, 2012 6:17 PM
To: Waterhouse, Scott; Crumlish, Fred; Kirk, Mike
Subject: 2nd Wilmer Hale Call
Jilmer Hale made Part 2 of their presentation today in terms of their findings_ They have yet
to finish interviewing JPM employees in London_ Materials were handed out to our DC
I
BANK PROPRIETARY AND/OR TRADE INFORlV1A1 II OCC-SPI-00071386
,
people. Tom Dowdand Kevin Lee were 2 names I recognize.
There will be a third presentation specifically on trader marks and VCG. It is currently
for next Tuesday but Wi lmer Hale is asking for more time possibly until week after
July 4th as theyare still interviewing Lodon employ.ees.
Today Wilmer Hale focused on who knew what and when they knew.
Traders:
Perplexingly, traders seem to have formulated their RWA reduction strategy based
on their own method of calculating RWA outside of that calculated by Risk
Management/Finance (unsure how exactly the latter calculates it but it did to a large extent
involve Westend and unsure why IG vs HY would reduce RWA at all). While there was not
much disagreement between traders and Risk on the large reduction in VaR upon the
implementation of Westend, there were lengthy debates on why RWA should increase upon
the rollout of the Westend. The disagreement led to Venkat and Olivier's involvement in the
first place (separate and distinct from Hogan parachuting them in by April 2lh). Macris was
unsuccessful in convincing Venkat that traders RWA methodology was correct and Risk
Management's was wrong.
Traders had debated splitting tranches and their delta hedges into one' book to
calculate Comprehensive Risk Measure (CRM) and the pure index positions into another
"')ok to calculate. Incremental Risk Capital (IRC)
Macris and Drew made no mentioning of increase in RWA (according to Risk
Management's calculation) in February CIO ERM attended by Dimon and Braunstein
Wilmer Hale has already begun using the term "hiding losses", Ajunior tra.der Julian
Grout was responsible for FO daily marks. He kept a record of the difference between
"crude-mids" (taking market prices without taking specific consideration of circumstances and
size and who it was from) and CIO marks. It was $1 OOmii in Jan 2012 and had grown to
$300mil in Mar. That record was last dated 03/15/2012. Real market marks were trued by
end of Mar and the large loss on 313112012 was due to that one reason. For example, a
realized loss was $12 mil on a day in March when the crude-mid divergence was $600 mil.
On another day, it was $18 mil loss when the divergence was $300 mil.
. Bruno Iksil mused on divergence reaching $1 bil by the end of March but if CIO held
out it would not lose a single penny. On a Friday, he said he didn't want to come back on
Monday. . .,
Traders were intentionally doing larger notionals to drive the market their way. They
talked about "taking the P/L pain" versus the.risk of building larger positions.
Traders gave much smaller loss estimates under different scenarios repeatedly
rehearsals for the earnings call and inquiries triggered by the Bloomberg London
Whale article just prior to that. 80% chance of Q2 losses between $150 mil and $250 mil but
BANK PROPRlETARY AND/OR TRADE INFORMATION OCC-SPI-00071386
I I
possible large drawdown intra-quarter.
A lot of emai ls between Bruno and Javier not less from them to Macris
When I na met with traders to further discuss why the results of Risk Management's
RWA calculations were so different from the traders, they did not include positions put on
from 3/7 to 3/20 ( we now know they doubled down around this time)
Other senior hires within CIO made incidental suggestions. Head of NA CIO trading
suggested using IRS swap spread to hedge credit spread widening. John Wilmott suggested
using OCI to fund some unwinds. Wilmott also suggested closing the book entirely
Dimon and Braunstein
Nothing new on this front as I have written on this extensively in the last. email. In a
. nutshell, they only began asking for details around the Bloomberg news break and during the
. .
r u n ~ u p to the 4113/2012 earnings call. Macris told Braunstein the majority of the positions
were taken in Jan and Feb but we now know the doubling down in March. Dimon, Braunstein
and Hogan believed I na and Macris well into April for at least another week after 4/13/2012
. earnings call. That was when more significant losses began to show.
Risk Reporting
For the 4/13 earnings supplement, neither Levine Surtani and Matt Lynch from Risk
'eporting nor Goldman/Weiland knew they should be disclosing VaR model change even
,nough SEC guidelines said they should. They even consulted Ashley Bacon. After
Goldman/Weilandsign-off, since only average VaR was reported, no one had picked up on
the sudden decr-ease in VaR caused by the new model.
Only when 1 OQ was about to be filed and more people were involved such as PCW
and ControlieTS were they .then made aware of the need for disclosure.
The part on why they had to re-instate old model with a much large VaR is now
familiar to us
BANK PROPRIETARY AND/OR TRADE INFORMATION OCC-SPI-00071386
From: Market Risk Management - Reporting <[email protected]>
Sent: Fri, 20 Jan 2012 23:10:24 GMT
Market Risk Management - Reporting <[email protected];>; Dimon, Jamie
<[email protected]>; Hogan, John J. <[email protected]>;Zubrow, Barry L
<[email protected]>; Staley, Jes <[email protected]>; Drew, Ina
<[email protected]>; Rauchenberger, Louis <[email protected]>; Lake, Marianne
To: <[email protected]>; Weiland, Peter <[email protected]>;Weisbrod, David A.
<DavidA [email protected]>; Bacon, Ashley <[email protected]>; Beck, David J
<[email protected]>; Braunstein, Douglas <'[email protected]>; Morzaria, Tushar R
<[email protected]>; Wilmot, John <[email protected]>; Dellosso, Donna
<[email protected]>; Bisignano, Frank J <frank.j [email protected]>
Doyle, Robin A. <[email protected]>; Waring, Mick <[email protected]>; Market Risk
Reporting <[email protected]>; Sreckovic, Steven <[email protected]>;
CC: McCaffrey, Lauren A <[email protected]>;Tocchio, Samantha X
<[email protected]>; Chiavenato, Ricardo 5: <[email protected]>; Chen,
Dan <[email protected]>; Goldman, Irvin J <[email protected]>
, Subject: JPMC Firmwide VaR - Daily Update - COB 01/19/2012
Fiimwide 95% 100 VaR

The Firm's 95% lOQ VaR as of cob 01/19/2012 has decreased by $9mm from the prior day's VaR to $129mm and
continues to breach the $125mm Firm VaR limit for the fourth consecutive day.
ClO's 95% 10Q VaR* as of cob 01/19/2012 has decreased by $2.5mm from the prior day's VaR to $100mm and
continues to breach the $95mm cia VaR limit for the fourth consecutive day.
The decrease in the Firm's VaR is primarily driven by an overall increase in diversification benefit across the Firm
and pOSition changes in CIO and MSR.
Each LOB's con,tribution to the Firm's
'CIO 95% VaR has'become elevated as CIO balances credit protection and management of its Basel III RWA. Inso
doing, cia hasincreased its overall credit spread protection (the action taken thus far has further contributed to' the
positive stress benefit in the Credit Crisis (Large Flattening Sell -off) for this portfolio which has increased from
+$l.4bn to +$1.6bn) while increasing VaR during the breach period.
Action has been taken to reduce the VaR and will continue. In addition, ClO has developed an improved VaR model
, for synthetic credit and has been working with MRG to gain approval, which' is expected to be implemented by the
end of January.
The impact of the new VaR model based on Jan. 18 data will be a reduction of cia VaR by 44% to $57mm.
100 Extemallv Disclosed VaR
EXHmIT#79a
CONFIDENTIAL TREATMENT REQUES- JPM-CIO-PSI0002457
From:
Sent:
To:
cc:
MRM Reporting <[email protected]>
Fri, 20 Jan 20 12 23:10:53 GMT
Dimon, Jamie <[email protected]>; Hogan, John 1. <[email protected]>;
Zubrow, Barry L <[email protected]>
. Staley, Jes <[email protected]>; Drew, Ina <[email protected]>; Doyle, Robin A.
<[email protected]>; Weiland, Peter <[email protected]>; Bacon, Ashley
<[email protected]>; Waring, Mick <[email protected]>; Lochtefeld,
Thomas A <[email protected]>; Surtani, Lavine <[email protected]>;
Tocchio, Samantha X <[email protected]>; Goldman, Irvin J
<[email protected]>; Gondell, Sarah N <[email protected]>; Sreckovic,
Steven <[email protected]>; McCaffrey, Lauren A
<[email protected]>; MRM Business Reporting
<MRM _Business _ [email protected]>; MRM Reporting <mrm. [email protected]>;
Intraspect - LIMITS <[email protected]>
Subject: JPMC 95% 10Q VaR - Limit Excession Notification (COB 111911 2)
The Firm's 95% 10Q VaR breached its $125mm limit for the fourth consecutive day on January 19th 2012,
p,imaril y driven by CIO .
. CIO 95% VaR has become elevated as CIO balances credit protection and management of its Basel III RW A. In
so doing, CIO has increased its overall credit spread protection (the action taken thus far has further contributed
to the positive stress benefit in the Credit Crisis (Large Flattening Sell-oft) for this portfolio which has
increased from +$IAbn to +$ 1. 6bn) while increasing VaR during the breach period.
Action has been taken to reduce the VaR and will continue. In addition, CIO has developed an improved VaR
model for synthetic credit and has been working with MRG to gain approval, which is expected to be
implemented by the end ofJanuary.
The impact of the new VaR model based on Jan. IS data will be a reduction ofCIO VaR by 44% to $57mm.
Blackberry friendly:
$mm
COB VaRLimit
)119/2012129.2125.0
1I1S/2012 13S.0 125.0
1/ 1712012 132.9125.0
lIi6/2012 126.5 125.0
Perma nent Subcommittee on Investigations
EXHmIT#79b
JPM-ClO-PSl0001890
From:
Sent:
To:
CC:
Subject:
MRM Reporting <[email protected]>
Mon, 23 Jan 2012 20:30:50 GMT
Dimon, Jamie <[email protected]>; Hogan, John J. <[email protected]>
Drew, Ina <[email protected]>; Staley, Jes <[email protected]>; Weiland, Peter
<[email protected]>; Bacon, Ashley <[email protected]>; Waring,
Mick <[email protected]>; Doyle, Robin A. <[email protected]>;
Bisignano, Frank J <[email protected]>; Tocchio, Samantha X
<[email protected]>; Lochtefeld, Thomas A
<[email protected]>; GREEN, IAN <[email protected]>; Gondell,
Sarah N <[email protected]>; MRM Firmwide Reporting
<[email protected]>; Intraspect - LIMITS <Intraspect_-
_ [email protected]>
APPROVAL NEEDED: JPMC 95% 10Q VaR One-Off Limit Approval
Importance: High
This email is to request your approval to implement the temporary increase of the Firm's 95% 10Q VaR limit from
$125mm to $140mm, expiring on January 31", Z012. There is a pending approval for a new model for the ClO Inti Credit
Tranche book. If the new model is approved and implemented prior to January 31", the Firm's 95% lOQ VaR limit will
revert back to the original $125mm level.
CIO 95% VaR has become elevated as CIO balances credit protection and management of its Basel III RWA. In so doing,
CIO has increased its overall credit spread protection (the action taken thus far has further contributed to the positive
stress benefit in the Credit Crisis (Large Flattening Sell-off) for this portfolio which has increased from +$l.4bn to
+$1.6bn) while increasing VaR during the breach period.
Action has been taken to reduce the VaR and will continue. In addition, CIO has developed an imp'roved VaR model for
synthetic credit and has been working with MRG to gain approval, which is expected to be implemented by the end of
January.
The impact of the new VaR model based on Jan. 18 data will be a reduction of CIO VaR by 44% to $57mm.
Below are estimated VaR levels for COB 1/18/12 using the new Credit Tranche model.
COB 1118112 CURRENT
FIRM
NEW MODEL
FIRM.
CURRENT
CIO
NEW MODEL
CIO
95% 10Q
VaR
$137,961,471 $98,456,554 $102,385,406 $57,183,430
Proposed Change to the Firm's 95% lOQ VaR:
LOB Limit Type: Levell
JPMC 95% lOQ VaR
CUrrent Limit
. $125mm
Proposed Temporary Limit
$140mm
If more information is required, please let us know and we will arranoe to orovide further details.
Permanent Subcommittee on rnvestigations :
EXHIBIT #79c
CONFIDENTIAL TREATMENT REQUES JPM-CIO-PSI 0004660
Temporary increase of the JPMC 95% lOQ VaR Limit from $125m.m to $140mm.
Upon receipt of your approval, the above limit change wi ll be entered into Market Risk Systems with a start date of
. January 20, 2012.
If you approve of the li mit change, pl ease reply to all with your approval.
Thank-you.
CONFIDENTIAL TREATMENT REQUESTED BY J.P. MQRGAN CHASE & CO. JPMCIOPS.I 0004661
From:
Sent:
' To:
Dimon, Jamie <jamie.dimon@jpmchase;com>
Mon, 23 Jan 2012 23:13:18 GMT
Hogan, John J. <[email protected]>; MRM Reporting
<[email protected]>
Drew, Ina <[email protected]>; Staley, Jes <[email protected]>; Wei land, Peter
<[email protected]>; Bacon, Ashley <[email protected]>; Waring, Mick
<[email protected]>; Doyle, Robin A. <[email protected]>; Bisignano, Frank
J <[email protected]>; Tocchio, Samantha X
cc: . <[email protected]>; Lochtefeld, Thomas A .
<[email protected]>; GREEN, rAN <[email protected]> ; Gondell,
Sarah N <[email protected]>; MRM Firmwide Reporting
<[email protected]>; Intraspect - LIMITS
[email protected]>
Subject: Re: APPROVAL NEEDED: JPMC 95% 10Q VaR One-Off Limit Approval
I approve.
To: MRM Reporti ng; Dimon, Jamie .
C;:c: Drew, Ina; Staley, Jes; Weiland, Peter; Bacon, Ashley; Waring, "Mick; Doyle, Robin A.; Bisignano, Frank J; Tocchlo, Samantha 'X;
Lochtefeld, Thomas A; GREEN, IAN; Gondell, Sarah N; MRM Firmwlde Reporting; Intraspect - LIMITS
Sent: Mon Jan 23 17:44:412012
Subject: RE: APPROVAL NEEDED: JPMC 95% 10Q VaR One-Off Limit Approval
I approve.
From: MRM Reporting
Sent: Monday, January 23, 20i2 3:31 PM
To: Dimon, Jamie; Hogan, John J. .
Cc: Drew, Ina; Staley, Jes; Weiland, Peter; Bacon, Ashley; Wari ng, Mick; Doyle, Robin A.; Bisignano, Frank J; Tocchio, Samantha X;
Lochtefeld, Thomas A; GREEN,IAN; Gondell, Sarah N; MRM Firmwlde Reporting; Intraspect - LIMITS
Subject: APPROVAL NEEDED: JPMC 95% lOQ VaR'One-Off Limit Approval
Importance: High
This email .is to request your approval to impl ement the temporary increase of the Firm's 95% 10Q VaR limit from
$125mni to $140mm, expiring on January 31 st, 2012. There is a pending approval for a new model for the CIO Inti
Credit Tranche book. If the new model is approved and implemented prior to January 31
5
1, the Firm's 95% 10Q VaR
limit will revert back to the original $125mm level.
cia 95%VaR has become elevated as cia balances credit protection and management of its Basel III RWA. In so
doing, cia has increased its overall credit spread protection (the action taken thus f ar has further contributed to the
positive stress benefit in the Credit Crisis (large Flattening Sell-off) for this portfolio which has increased from
+$lAbn to +$1.6bn) while increasing VaH during the breach period.
Action has been taken.to reduce the VaR and will continue. In addition, cia has developed an improved VaR model
for synthetic credit and has been working with MRG to gain approval, which is expected to be implemented by the
end of January.
l)ermanent Subcommittee on Investigations
EXHIBIT #79d
Confidential Treatment Requested by J . .. -------------.
JPM-CIO-PSI 0001337
The impact of the new VaR model based on Jan. 18 data wi ll be a reduction of CIO VaR by 44% to $57mm.
Below are estimated VaR levels for COB 1/18/12 using the new Credit Tranche model.
COB 1/18/12 CURRENT FIRM NEW MODEL FIRM CURRENT CIO NEW MODEL CIO
95% 10Q VaR $137,961,471 $98,456,554 $102,385,406 $57,183,430
Proposed Change to the Firm's 95% 10Q VaR:
LOB Limit Type: Levell Current Limit Proposed Temporary Limit
JPMC 95% 10Q VaR $125mm $140mm
If more information is required, please let us know and we will arrange to provide further detai ls.
Temporary increase of the JPMC 95% 10Q VaR Limit from $125mm to $140mm . .
Upon receipt of your approval, the above limit change will be entered into Market Risk Systems wit h a start d ~ t e of
January 20, 2012.
If you approve of the limit change, please reply to all with your approval.
Thank you.
Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIOPSI0001338
From: Market Risk Management 'Reporting <marketrisKmanagement-reporting@jpmorgan:com>
Sent: Tue, 24 Jan 2012 00:05:59 GMT
. To:
CC:
Market Risk Management - Reporting <[email protected]>; Dimon, Jamie
<[email protected]>; Staley, Jes <[email protected]>; Dr ew, Ina
<lna. [email protected]>; Goldman, Irvin J <[email protected]>;Weiland, Peter
<peter. [email protected]>;Weisbrod, David A: <[email protected]>; Bacon, Ashley
<[email protected]>; Beck, David J <[email protected]>; Braunstein, Douglas
<[email protected]>; Morzaria, Tushar R <[email protected]>; Wilmot,John
<[email protected]>; D8110sso, Donna <[email protected]>; Bisignano, Frank!
<[email protected]>; Rauchenberger, Louis <[email protected]>; Lake,
Marianne <[email protected]>
Doyle, Robin A. <[email protected]>; Waring, Mick <[email protected]>; Market Risk.
Reporting <[email protected]>; GREEN, IAN <[email protected]>; McCaffrey,
Lauren A <[email protected]>;Tocchio,Samantha X <[email protected]>;
Chiavenato, Ricardo S. <[email protected]>;Chen, Dan <[email protected]>
Subj ect: JPMC Firmwide VaR -.Daily Update - COB 01/20/2012
_ Subtommittee on Investigations
Firmwide 95% 10'0 VaR
The Firm's 95% 10Q VaR as of cob 01/20/2012 is $131mm ofthe $140mm limit, an increase of $3mm from the
prior"dayls revised V9R.
CIO's 95% 10Q VaR* as of cob 01/20/2012. is ,$100mm ofthe $105mm limit, materially unchanged from the prior
day's VaR.
Each LOB's contribution to the Firm's $131mm VaR (as shown
CIO is $100mm (vs. $105mm
*CIO 95% VaR has become elevated as CIO balances credit protection and management of its Basel III RWA. In so
doing, CIO has increased its overall credit spread protection (the action t aken thus far has further contributed to the
positive stress benefit in the Credit Crisis (Large Fl attening Sell-off) for this portfolio which has increased from
+$l.4bn to +$1.6bn) while increasing VaR during the breach peri od.
Action has been taken to reduce the VaR and will continue. In additi on, CIO has developed an improved VaR model
end of JanUary.
The i mpact of the hew VaR model based on Jan. 18 data will be a reduction of CIO VaR by 44% to $57mm.
100 Externally Disclosed VaR
The below table shows the 95% 100 VaR for the current quarter compared with the prior quarter and the corresponding
. quarter of prior year.
EXIllBIT #7ge
CONFIDENTIAL TREATMENT REQUESl
JPM-CIO-PSI0003346
... . - - ----.- - - - - ---- - - - _.-
Sent: Tue, 24 Jan 2012 23:31:28 GMT
To.:
cc:
Market Risk Management - Reporting <[email protected]>; Dimon, Jamie
<[email protected]>; Staley, Jes <[email protected]>; Drew, Ina
<[email protected]>; Goldman, Irvin J <irvin.j:[email protected]>; Weiland, Peter
<[email protected]>; Weisbrod, DavidA. <[email protected]>; Bacon, Ashley
<[email protected]>; Beck, David j <[email protected]>; BraunStein, Douglas
<[email protected]>; Morzaria, Tushar R <[email protected]>; Wilmot; John
<[email protected]>; Dellosso, Donna <[email protected]>; Bisignano, Frank J
<[email protected]>; Rauchenberger, Louis <[email protected]>; L.a.ke,
Marianne <[email protected]>
Doyle, Robin A. <[email protected]>;Waring, Mick <[email protected]>; GREEN, IAN
<[email protected]>; McCaffrey, Lauren A <[email protected]>;Tocchio, Samantha X
<[email protected]>; Chiavenato, Ricardo S. <[email protected]>; Chen,
Dan <[email protected]>; Market Risk Reporting <[email protected]>
Subject: JPMC Firmwide VaR - Daily Update - COB 01/23/2012
Finmwide 95% 100 VaR
1-.= Redacted by the Permanent . 1
. . Sub.eMMitt n In tigation,
The Firm's 95% 10Q VaR as of cob 01/23/2012 is $134mm of the $140mm limit, an increase of $3mm from the
prior day's VaR.
CIO's 95% lOQ VaR* as of cob 01/23/:1012 is $103mm of the $105mm limit, an increase of $3mm from the prior
day's VaR.
Each LOB's contribution to the Firm's $134mm VaR (as shown by marginal VaR) are: III
($79mm mVaR, primarily
I credit tranche book),
The stand alone VaR for each LOB are as follows: IB is
Iimit),RFS is
__ ,andAMis
is $103mm (vs. $105mm
95% VaR has become elevated as CIO balances credit protection and management of its Basel III RWA. In so
doing, CIO has increased its overall credit spread protection (the action taken thus far has further contributed to the
positive stress benefit in the Credit Crisis (Large Flattening Sell-off) for this portfolio which has increased from
+$l.4bn to +$1.6bn) while increasing VaR during the breach period.
Action has been taken to reduce the VaR and will continue. In addition, CIO has developed an improved VaR model
end of January.
The impact of the new. VaR model based on Jan.18 data will be a reduction of CIO VaR by 44% to $57mm.
109 Externally Disclosed VaR
The below table shows the 95% lOQ VaR for the current quarter compared with the prior quarter and the corresponding
EXHIBIT #79f
CONFIDENTIAL TREATMENT REQUESl JPM-CIO-PSI.0003715
John J. <[email protected]>
llt: Sat, 28 Jan 16:18:23 GMT
10: Dimon, Jamie <[email protected]>
Subject: Fw: JPMC Armwide VaR - Daily Update - COB 01/26/2012
This should be the last day of firmwide VaR breach. A CIO model change. is planned to go in this week-end. New VaR
methodology approved (and now the same methodology as IB) reduces standalone Credit VaR by approx $30 mio. John
From: Market Jljsk Management - Reporting
To: Market Risk Management - Reporting; Dimon, Jamie; Hogan, John J.; Zubrow, Barry L; Staley, Jes; Drew, Ina; Goldman, Irvin J;
Weiland, Peter; Weisbrod, David A.; Bacon, Ashley; Beck, David J; Braunstein, Douglas; MOrZaria, Tushar R; Wilmot, John; Dellosso,
Donna; Bisignano, Frank J; Rauchenberger, Louis; Lake, Marianne
Cc: Doyle, Robin A.; Waring, Mick; Market Risk Reporting; GREEN, IAN; McCaffrey, lauren A; Tocchio, Samantha X; Chiavenato,
. Ricardo S.; Chen, Dan
Sent: Fri Jan 27 18:16:352012
Subject: JPMC Firmwide VaR - Daily Update - COB 01/26/2012
Firmwide 95% 100 VaR
. . The Firm's 95% 10Q VaR as of cob 01/26/2012 has increased by $8mm from the prior day's VaR to $161mm and has
breached the $140mm Firm VaR limit forthe third consecutive day.
ClOls 95% 10Q VaR* as of cob 01/26/2012 has by $"8rrym from the prior day's VaR to $120mm and has
breached the $llDmm CIOVaR limit forthe third consecutive day.
The increase in the Firm'sVaR is primarily driven by an overall reduction in diversification benefit across the Firm and
position changes in.OO.
Each LOB's contribution tothe Firm's $161mm VaR (as shown by marginal VaR) are: IB
($107mm mVaR, primarily driven by CIO International

* CIO continues to manage the synthetic credit portfolio balancing credit protection and Basel III RWA. The new VaR model for
CIO was approved by MRG and is expected to be implemented prior to month-end.
100 Externally DisclOsed VaR
The below table shows the95% 10Q VaR for the current quarter compared with the prior quarter and the corresponding
Confidential Troatment Requestell by
CONFIDENTIAL TREATMENT REQUESTED BY J.
EXHIBIT #79g
JPM-C;;IO DDD2216
Man, 30 Jan 2012 23:53:05 GMT
i 70: Weiland, Peter <[email protected]>
Subject: Re: JPMC Rrmwide VaR - Daily Update - COB 01/27/2012
:Just got it.
To: Goldman, irvin J
Sent: Man Jan 30 18:52:30 2012
Subject: FW: JPMC Firmwide VaR - Daily Update - COB 01/27/2012.
This is the email you want.
peter Weiland
Tel: +l 2128345549
_.:: Redacit! by tbe Per:manent
. .Subcommittee oD Investigations
Mob: +1
From: Market Risk Management - Reportng
Sent: Monday, January 30, 20126:49 PM
To: Market Risk Management - Reportng; Dimon, Jamie; Hogan, John J.; Zubnow, Barry L; Staley, Jes; Drew, Ina; Goldman, Irvin' J;
Weiland, Peter; Weisbrod, David A.; Bacon, Ashley; Beck, David J; Braunstein, Douglas; Morzana, Tushar R; Wilmot, John; Dellosso,
.Donna; Bisignano
r
Frank J; Rauchenberger, Lake, Marianne
Cc: Doyle, Robin A.; Waring, Mick; Market Risk Reportng; GREEN, IAN; McCaffrey, l<Iuren A; Tocchio, Samantha X; Chiavenato,
Ricardo S.; Chen, Dan .
..... bject: JPMC Firmwide VaR - Daily Update - COB 01/27/2012
Eirmwide 95% 100 VaR
The Firm's 95% 10Q VaR as of cob 01/27/2012 is $108mm of t he $125mm limit, a decrease of $53mm from the prior
day's revised VaR, driven by CIO (implementation of newly approved VaR model for synthetic credit).
Each LOB's contribution to the Firm's $108mm VaR (as shown by marginal VaR) are:IB
CIO ($35mm mVaR, primarily driven by cIa Synthetic
P,;val:e Equity

100 Externally pisclosed YaH
The below table shows the 95% 10Q VaR for the current quarter compared with the prior quartet and the corresponding
Permanent Subcommittee 0!1 Investigations
EXHIBIT #79h
Confidential Treatment Requested by J.P. N ... ------.. ------.
JPM-CIO-PSI0001339
From:
Sent:
Wilmot, John <JOHN.wILMOT@jpmorgan,com>
. Tue, 28 Feb 2012 23:48:50 GMT
To: Enfield, Keith <Keith,Enfield@jpmorgan,com>; Weiner, Pamela <pamela,weiner@jpmorgan,com>
Subject: pW: eIO Business Review Materials
FYI
John C. Wi lmot I Chief Investment Office I @ john.wilmot@jpmorgan,com I. 'ii' Work: (212) I if
From: Wilmot, John
Sent: Tuesday, February 28, 2012 6:32 PM
To: Dimon, Jamie; Braunstein, Douglas; Zubrow, Barry L; Drew, Ina; Hogan, John J,; Macris, Achilles 0; Tse, Irene Y;
Goldman, Irvin J
Cc: Warren, Shannon S; Gunselman, Gregg B; Jain, Manish; Wil l, Kathleen; Alvelo, Alexandra X; Peterson, Ruth J; Serpico,
Gina; Beamon-Fontenelie, Margaret; Adam, Phillipa C; Gonzalez, Jeanette; Rios, Martha I; O'Donnell, Julie
Subject: CIO Business Review Materials .
Attached please find the CIO Business Review materials for our discussion tomorrow,February 29
th
at 2:00pm,
John
John C. Wilmot I Chief Investment Office I @ [email protected] I 'iii' Work: (212) ! w cell: _
'SubeommiUee on
EXHIBIT #80
JPM-CIO-PSI0001940
CIO February 2012 Business Review
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[ I NTE RN AL DI SC U SS I ON)
JPMORG.-\..o'l CHASE & Co.
JPMCIO-PSI0001941
Business Review agenda - CIO
February agenda (1 % hrs) . . , .:' . Business Review scorecard - ,,', ";;r ,,-. _:- _

;:-:: - 'fT -
.Iii . -
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1. Review of current agenda Drew 1-4. [20 mins]
(i) Discussion points
Other Corporate Acti'vities -/ 31--32
Control Environment x
33
2. Financial Summary Wilmot 57 [5 minsj
3. CIO Business Sttl.Jcture Drew/Wilmot 8-10 [5 minsj
(i) O-.eNew B9
M.::tena! changes to Mission Critica.l X
34
Apperldix - SPAR Analytics
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3543
(ii) RWA Forecast 10
4. SAAPortfolio Analytics GoldmaniMacrisfTse 11-16 [20 mins]
(i) Over..iew 11
(ii) RWA Efficient Portfolio
(iii) Alternatim Portfolios 14
(iv) Economic Impact Analysis 15
(v) OCI and PV Sensitivity 16
5. Risk Goldman 17-18 [10 mlns]
6. Rein-..estment Activity MacrisrTse 19'30 [20 mins]
(i) 3Q11 - 1.012 Purchases 19-25
(ii) What we are looking !3-t buying 26-29
7. FX Capital Hedging Macris 30 [5 minsj
B. Other Corporate Activities DrewfItVilmot 31-32 [5 minsj
[INTERNAL DISCUSSION) JPlvlORGAN CHASE & CO.
TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPMCIOPSI0001942
CIO Business Structure - Mandate and Approach
Optimize and protect the Finn's balance sheet from potential losses, and crea"te and preserve economic value over
the longer-term
IlNTERNAlD1S.CUSSION]
8
JPMORGAN CHASE 82Co.
:;ONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI0001949
CIO Business Structure (continued)
Volcker Rule permits risk-mitigating hedging activity, so the prohibition on prop trading does not apply to the or sale of a
covered financial position" by a banking entity that is made "in connect'ion with and related to individual O( aggregated" positions
As proposed, however, the Rule may adversely affect certain ALM activi ties. CIO is selectively reducing certain M.tMfTrading Account
.activities and calibrating under-50 daV activities across the division
Further alignment of activities within Volcker Rule framework has resulted in the consolidation of Strategic and Tactical Asset Allocation
portfolios. CIG has completed transition from legacy & T AA" to consolidated financials, risk management and portfolio structure,
MtM Overlay is for non-AFS eligible transactions and for
CIO is resizing the credit book as a hedge for fat-tail risk
IIponoy MrtvlQu
, 0 .. ""'. .,. .. !:Is Ie ma tch
Uoblmi
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.",,<llJedpooi. T9110
CMBS
, CWS
I""""," I nd oct "';th o>lremely low
RWIIusago
, Logacy f>"$Klcn. ln RMBS,
<:tl(H"'Uy la'getirlg opportunisUc
add.1<> RMBS porlf<>iio""....
pc.ltion. lD be"efitfmm 20\2 NPR
[INTERNAL DISCUSSION]
Rat
, OUrallol\ "",nage"",'" ""d
JPM
Municipal B.nd.
, IIookge""",I.d slg"If"",,,tl,,=no
via s p",.d.ocI IiIx "dvanlagl

ccfllOl'llr! debt I,,,,,"nco
Corpo ....,. Dab! l p,.r. ".. ds
Focus on bank debt ftn<I prellrTeds
g/v<! nu,. botwc:."
BlnksMd Co<j>ol3les
'Th. hook gc""",led .1golll""m
Inrorno YI . "!'Iced Bnd ORO iJu<

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DIlr.r1"'n 'P",. d
I""""" from global rates """'.'.
AlIlil blll\Jeo p".sed 10 Inl1 have
lhos farboen plBcO'd InUacl<>n; . r.:l
clcsoJymatched.
Socu,. d C,.dit
, Top cfth. ,e>tpltolstrudlJ r. RMBS
and CLO i""eslmonls.
, Tho book genenrte lgniticant
added v.1ur! from lis
."""",tho most llu]l"blo funding
. ""lSlrt!hft porlmary ma""""'.
O M"rkoto C .. dlt
senlorbond
mn.
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and maCrO

Emof'lling hlBr\r.ts C ..
Oyn..... oaly man _Qed 1""""1",,,111
"",de '''''rglllQ mil""" bends
where JPM 11 capital presenc..
MIlk.. ""c ofdurotlcn,shgle
prolKtionand mac", Index Ilr>dg
to maMl\ O dr;ow.<j.""""
SyrrthotlcC",dlt
, Inde>< and Inoncite ""dhtr .... and
jr.J mp p<>r\fo1lc.
Th. portfolio

FX

emberJdod FX capltol "p<l$Uf'eS
U,l't>U\Ihdynarric spol Bod
ellidenlNiI goneratlonand
",onogemom lhrough d. rivatlve
cvan.1 l nd be. 1 <:r.lm:ncy dtJraUon.
JPMORGA0i CHASE&CO.
JPMCIO-PSI0001950
RWA Forecast
RWA trends reflect CID structure

_ = Redaded by the Permanent
2012 trend will reflect continued reduction to MTM Overlay offset by continued rotation into higher RWA rates and credit
within 8M

[INT ERNAL DISCUSSION]
Redacted b-ythe
Permanent Subc:ommitteeon Investigations
10
JPMORGAN CHASE&CO.
1
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CIOSummary Risk MetriGs
Credit Crisis
(credit selloff I
Stress Testing (mm U5D) rates rally) Drivers
[IN TERNAL OISCUSS"ION I
17
TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO.
-=
Redaded by the Perman.ent
CIO- Global-"10Q VAR
"'.000.000 E=======r I
80.000.000
60,000,000 - 1"--""'---\
40.000.000
20,000,000 1-
-00-Global- lOCI. VA"
JPMORGAN CHASE&CO.
J PMCIOPSI 0001958
CIO Market Risk Summary
..
r [INTERNAL QISCUSSION]
1B
JPMORGA...N CHASE&CO.
CIO Reinvestment Activity - 3Q11 through YTD12
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{IN TE RNAL DISCUSSION]
19
.TPMORGAN CHASE&CO.
'.,-..
CIO Reinvestment Activity - 3Q11 through YTD12 .
. 20
.JPMORGA1''I CHASE & Co .
REQUESTED BY J.P. MORGAN CHASE & CD. JPM-CIO-PSI0001961
CIO International Core Credit: Tail Risk Book
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Capital
This is a Tail Risk Book that had under Basel I an RWA cost of US$5bln and from 2007-2011 has generated US$2Abln
total return
Under Basel 2.5, Risk Weighted Assets are estimated to increase 5-8x (methodology still in development); this would
increase the RWA of the core credit book to US$36bln however, CIO is currently working to reduce this to US$20bln for
year end 2012
Despite effectiveness of the Tail Risk Book hedging credit portfolio, the change in regulatory 'capital regime is likely>to force
a re-size I run-off of synthetic portfolio' in order to maintain RWA targets for the Finn
cia continues to coordinate with IB Risk to improve the applicable RWA and capital levels
[I NT E RN AL . DI se US S ION)
22
JPM ORGAN CHASE & CO.
CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI 0001963
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Mandate and Approach
KEY MANDATE: Optimize and protect the Firm's balance sheet from potential losses, and create and preserve economic
value over the
Private
Equity
Oversight of
legacy
investments
$3.500
AUM
Position in
run-off
mode
LONGER
Investing
Retirement
Plan
Management of
US defined
benefit pension
investments
and oversight
of 401k
SI' .0bnAUM
TO 2012
estimated
return 5.7%
Special
Investments
COLI
BOll
Investment in Maximization
stressed and of tax-
distressed advantaged
opportunities investments
related to of life
undervalued insurance
or under- premiums
performing
JPMC loans
TBO $8.8bn AUM
First two
Allocation to
investments
mortgages and
completed
high grade
credit
INVESTMENT HORIZON
Strategic Investing & Risk Management
Core
inveatmenland
derivattves
portfolio used to
manage tile
Finn's structural
risk exposures.
Mainly available
tor .. ,.
$(139)mm BPV .
slnldurai fisk
Reduced
Interest rate
allocation;
rotating Into
_.
FX
Hedging
Management
of Finn's
, ... Ign
cunency
exposure from
nonUSe
capital.
revenues, and
expenses
$11"
........
structural risk
Some open
cunency
exposures,
primarily Asia
andlatam
1
MSR
Hedging
Management
of exposures
InHome
lending's
MSRasset
$(21)mm BPV
_'ok
Close to fully
hedged post
model update
J.P.Morgan
JI'M-CIO-I'SI0015016
Overview
- ' - ~ ----------- -_._.
2
." ~ , ~ . "
Business Structure
" Manage the portfol io with TRR
mind set, delivering on
.. ' Financial returns vs budget
" ' RWA limits
II Risk adjusted returns (GCI,and
liabil ity marked)
II Allocation oJ $153bn in RWA arid
$6,9bn in capital' against AFS and
'MTM activities ' ,
, .. , AFS investment portfOlio
$110bn in RWA
.. MTM activities $43bn in RWA '
II Reallocation trend of RW A from
MTM toAFS
.. 430 people worldwide
Governance Structure
II Expanded Managem'ent Committee
II: Operating issues
Jill Investment Committee
.. ALM and Investment portfolio
review, analytics and asset
allocation
.. CIO Risk Committee
.. Management of aggregate
market, credit, reputation and
operational ri,sks
J.P.Morgan
JPM-CIO-PSI 0015017
cia Risk Summary - COB March 6, 2012
[
.1
FX Capital Hedging
Country Risk
Redacted by I
Permanent Subcommittee on Investigations I
Redacted by the
Permanent Subcommittee on Investigations,
__ .......................... .
Redacted by the
P,rmanent Subcommittee on Investigations
,
Redacted by the I
3
JP.Morgan
JPM-CIO-PSIOOI5018
Volcker
'.
',.
. ., " ':;'-t, . -f;'::: /: .
kfAny :!rade'subjectto,Market:RisKCcipital,Rules: is',deem ed de .. ',,;:: ';AtransactioO' that is legitimately:'risk"hedg ing ,is' ribtproj:,ctradihg';';
:_ .. ,';: ';i":;: ....::lJ!j<!':' ;.. L , c;,;- '>:'':'-, _,_ 'L- ...,." .... ' .,c',,,, :e' , ,,' ... ;:.. c... ,-\)< "', ": ;' < .: ..... ,. ,;- .;',1':'-__ . -,"'
:-"J' acc,Quntlog _and capltaVrules ;:-...

Trades held for less than 60 days duration are presumptively
prop trading
MTM positions that are true ri sk mitigation transactions might
benefit from short term price movements but are not prop .
trading

II ALM-Volcker comment letter was submitted to the Clearing House and SIFMA for
industry submission
II Included as part of JPM comment letter on Volcker Rule specific examples of actions
taken during the crisis that need clarification under the Rule as written
II Held meetings with Fed and acc in late January. Scheduling meetings with the FDIC
and CFTC
8
J.P.Morgan
JPM-CIO-PSI0015023

,

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From:
Sent:
To:
cc:
mcmantis _will [email protected]
Fri, 30 Mar 20)2 22:12:22 GMT
JOHN'"[email protected]; peter.weiland@jpmchase:com
[email protected]; [email protected]; [email protected];
javier.:x:[email protected]; bruno.m.iksi1@jpmchase:com; [email protected];
[email protected]; [email protected];paul [email protected];
rory. h.oneill@jpmchase. com; [email protected]; warren _ [email protected];
graham.j [email protected]; hatzopoulos _ [email protected];
[email protected]; Paul [email protected];jom.x:[email protected];
[email protected]; \[email protected]
Subject: Audit Report: EMEA CIa Credit - Market Risk and Valuation Practices (Rating: Needs Improvement)
I ~
Audit Department Report
Report Number: G-12/003
Audit Rating: Needs Improvement
Report Date: March 3D, 2012
Audit Type: Audit
Prior Report Number; 0 -10/003
Prior Report Date: February 26. 2010
Prior 'Report Rating: Satisfactory
EMEA CIO Credit - Market Risk aDd Valuation Practices
CONFIDENTIAL TREATMENT REQUESTED BY J,P. MORGAN CHASE & CO.
EXHIBIT #82
JPMCIO-PS.10009289
Prior Audit Type: Audit
Business Overview and Context
The Cia EMEA credit portfolio is made up of '\ nvesbnent' and 'Core Credit' portfolios, The Investment portfolio consists of Asset Backed Securities (ABS),
Coli ateralised Loan Obligations (CLOs), Mor1gage Backed SecuritIes (MBS) and Rates products (Corporate & Government Bonds) and had a total notional of
apprOXimately $157 bill ion as of 12131/11, $140bn withi n the Strategic assel all ocation (8M) book and $17bn 1n the tactical asset allocation (fAA) book. The Core
Credit portfolio primarily consists of derivative positions such as the CDS indIces and tranches and had a total notional val ue of approximately $50 billion as of
1213111 1. .
The Market Risk team i"s an independent control function within the CIO whose primary responsibilities are identifying, defining and monitoring appropriate
measurement techniques to control market risk, using information provided by the JPMorgan risk infrastructure. CIO Valuation Control Group (VeG) is also an
independent control function within the CIO responsible for price testing' and fair value adjllstm.ents.
Audit Scope
The audit scope focused on risk. and controls specifically relating to:
Market Risk Including the ri sk limits and sensitivities, VAR methodology and stress testing;
Monthly valuation and reserve processes including independent price testing and provisioning;
The completeness of pOSitions induded in the market risk andflnancial valuation processes.
Key Findings . .
The controls supporting the EMEA CIO Cred.it market risk management and valuati on practices are being rated Improvement' due IO,the following:
CIO VCG Practices
cia utilise a number of risk and valuati on models which have not been subject lo.revlew by the Model Risk Group. While there may be where the use of
unapproved models Is acceptable for a predefined period of time, no reserves are .currently taken to account fot positive P/L on unapproved models used for
valuation purposes (I.e. Swaptions Unapproved Model P/L $18m).
In addition, Audit noted defidencies in the EMEA cia VCG practices Including t he absence of a formally applied price sourcing hierarchy, insufficient consideration
of potentiallyapplicable fair value adjustments (e.g. concentration reserves for significant credit indices positions) and the lack of fOllTlally documented/consistentty
applied price testing t t:lresholds. There is also a lack of transparency and quantitative assessment of the considerable Judgment used to price test the CLO book
given the Inhere!)t valuation uncertainty with the positi ons. .
Market Risk
Stress Testing There is no documented stress testing methodology to outline key testing components (e,g, computational method and shock factors
used) or assess limitations such as ofHne risk measurement, missing risk factors and curves, As a result, Audit was unable to fully assess the stress
testing framework and related scenario outputs, '
Market Risk Management Practices The SM book ($1408n Notional as at 12131) does not currently feed the fillTl wide market risk limits and thresholds
framework and relevant 8M stress testing results are not measured against correspo,n'ding limits, CIO also does not explicitly measure the portfolio
sensitivity to certain potentially applicable risk measures,
Market Risk Models ~ EMEA CtO is currently using unapproved models in the calculation of risk (including VaR) and associated risk measurement
methodologies'have not been appropriately documented and/or catalogued,
VaR Data Controls
Whi le Audit found no specific examples of incomplete or inaccurate data, the control process around the offline VaR calculation ri'eeds to be enhanced to ensure
completeness and accuracy of.Credit trade data used in the offline calculation ofVaR
Root Cause
Root cause: Poony documented CIO VCG practices and faili,He to comply with firmwide risk m,anagement standards,
'tatus
lanagement agrees with the reported Issues and is implementing corrective actions,
Business Details '
Levell: Chief Investment Office
Business Executive: Ina Drew
Level 2: CIa
Business Executive: Achilles 0 Macris, Jolm Wi lmot, Phil Lewis, Irvin J Goldman
Location: United Kingdom, EMEA
Business Executive: Achilles 0 N1acris
Audit Details
Management Team Member: Hatzopoulos, AlexanderX
Audit Manager: John R Buttarazzi
AuditQr In Charge: Andrew C Challen
(;ONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CI0-PSI0009291
-=
Redacted by the Penna.e.t
SulK:ommittee on In\'tstigafions
Detailed Finding! and Management Action Plans
Issue: CIO VCG Practices
Audit testing identified several deficiencies and j-nconsistenci es in EMEA CIO VCG practices and methodologies. Specifically:
cia is not currently deferring positive P&L generated from unapproved valuation models. Spedfically, several unapproved models (Primus Sabre, AliB
Option, Offline TOR, Prime Whole Loan, CMBX, Bond) are currently being used for"valuation purposes without any corresponding reselVes. Per VCG,
associated 201 1 P&L was predominantly limned to Swaptions totalling $18m.
CIO veG lacks a fonnally price sourcing hierarchy to govern the consist ent use and appropriate applicat ion of Independent prices for price
testing purposes. Audit also noted that in price testing high grade corpQrate bonds, CIO VCG inappropriately utilises an indicative report sent by JPM
Asset Management (JPMAM), based on their incorrect understan.ding t hat such prices were validated by JPMAM's price testing function. utili si ng
Bloomberg prices, Audit estimated a price testing Increa?e of $58m at 12131/11 . Separately, emerging market bonds are being price tested at mid levels,
which is inconsistent with t he front office marking at bid and resulted in an Audit estimated price testing decrease of $50m.
There isno evidence of CIO VCG review to ensure the ongoing validity ofthresholds applied to Corporate, EM, government and government guaranteed
bond pri ce testi ng. Further, while the formally documented bond pnce testi ng threshold is +/- 1.5 price points (which would result In minimal required
adjustments) different thresholds are actually appl ied by EMEA VCG without sufficient transparency or evldence.- At year-end; Audit's independent bond
price testing using dynamic thresholds resulted in an estimated $1 10m net increase. tn addition, thresholds used to determine whi ch price t esting
differences requi re adjustment are not dearly defined for Credit Indices.
Concentration FVA was not calculat ed or applied for credit indices to account for the significant market positions. While the subsequently calculated
potential concentration FVA of $13m would not have resulted In a required adjustment based on the CIO policy (which only requires taking the larger of the
liquidity Of . FVA), the policy's should be reassessed.
Root Cause: In.sufflclent of certain price testing methodologies and poorly documented CIO VCG practices.
Action Plim
CIa will review current methodology to ensure consistency in application and appropriate practices are utilised. Specifically, CIO VCG will: .
Implement and evidence enhanced oversight of positive P&L being generated from unapproved and di sapproved models, with reserves as necessary.
Define and implement a price sourcing hierarchy to ensure a consist ent and appropriate price sourcing and testing approach.
Ensure price testing is performed conSistently with front office marking policy.
Document the rationale f or current Bond price testing thresholds and reassess as necessary; clearly define price test ing thresholds for ASS and COS.
Improve evidence of the monthly VCG price testing process in order to enable re pelformance. .
Reconsider the appropriateness of the existing credit indices price testing policy to ensure concentration is sufficiently incorporated.
Targef Date: July 31, 2012
Issue Owner: Jason LDN Hughes
CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. '. JPM-CIO-PSI 0009292
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Subcommittee on
Issue: Market Risk Management and Stress Testing Fractices
Audit noted the following with regards to the market risk management framework, which is currently subject to a comprehensive reassessment by the CIG:
There is no stress testing methodology documentation In place to outline key testing components (e.g. computational method and shock: factors used for
each asset class) or assess limitations such as offi ine risk measurement, missing risk factors and curves. Therefore Audit was unable to fully assess the
validity of the stress testing framework and scenario outputs.
The SAA book ($140bn Notional as.at 12131) does not currently feed the finn wide market risk limits and thresholds framework. While there is SAA
portfolio stress testing and risk measurement of non statistical measures (e. g. CS01 and CSW), these exposures are not measured against corresponding
limits. In the context of a large sel(off scenario, the stress loss for AFS Credit is estimated to be $2.6bn.
cia does nE>t explicitly measure the portfolio sensitivity to certain potentially applicable risk: measures such as bond/CDS basis, index basis and
prepayment risk to facilitate sufficient consideration of corresponding risk: management and controls.
The Single Name Position Risk (SNPR) issuer exposure is misstated for the trading portfolio as it does not incorporate a disaggregation of the credit index
tranche at issuer I
Root Cause: Market risk management practices have not been recently assessed or updated.
Action Plan
1. Comprehensive stress testing methodology documentation will be produced and include shock factors (including FS1alignment) and an
assessment of all risk factors. (Target Date: July 31,2012)
2. CIO is currently undertaking a comprehensive review of the risk: measurement and limits framework across aU asset classes to assess potentially required
enhancements including whether additional risk factors are required for inclusion. (Target Date: July 31,2012)
3, CIO is in the process of implementing new functionality to enable the disaggregation of the credit index tranche for SNPR risk: measurement purposes.
(Target Date: September 30, 2012) .
4 .
. Target Date: July 31, 2012
Issue Owner: Keith Stephan
:ONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO'PSI.0009293
Issue: Market Risk Models
CIO Is currently using unapproved models in the calc.ulatian of nsk: Onc!uding VaR) and assOciated risk measurement methodologies have not been appropriately
documented and/or catalogued, Specifically:

CIO specific amendments to approved 18 VaR have not been documented or submitted to MRG for review. Una'pproved amendments
pertain to the production of P&L vectors and the use of proxies. .
CIQ generate non statistical risk measures used for risk management, stress and VaR measurement via the internally developed West End analylics
model, which has not been submitted to MRG for review.
Documentation for all product sensitivity inputs used in CIO VaR models was, not maintai ned in the Global Model Database (GMD), as required.
The CIO Quantitative Research (QR) model invent ory is incomplete. For example, the application of VaR and sensitivity models to specific product types is
not induded.
Root Cause: Model documentation for VaR and non statistical models was not appropriately maintained and submitted to MRG for review.
Action Plan
t. CIO Vt:'iII document all amendments to the approved VaR model and submit to MRG for review.
CONFIDENTIAL TREATMENT REQUESTED BY J.P. MORGAN CHASE & CO. JPM-CIO-PSI 0009294
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2. CIO will document the West End Analytics engine and submit to MRG for review.
3. The QR model inventory and GMD will be updated as appropriate.
Target Date: June 30, 2012
Issue Owner: Keith Stephan
Issue: VaR Data Controls
While Audit found no specific examples of incomplete or inaccurate data, the control process around the offline VaR calculation needs to be enhanced to ensure
completeness and accuracy of Credit trade data used in the offline of VaR for the Credit Sectors.
For Synthetic Credit, controls require enhancement to ensure the completeness and accuracy of trade positions used in the market risk VaR model, which
are sourced from Primus via a stored procedure.
For Secured' Credit, controls require enhancement to ensure the completeness and accuracy of the sensitivity data (C801) used in the market risk VaR
model and sourced from the trader maintained blotter (which is used as the centra! source of position and risk information for VaR reporting) .
In addition, no S?X testi ng was being perfonned on these manual processes, which require designation as key SOX controls.
Root Cause: A lack of dear handshakes for ensuring the completeness and accur.acy of VaR feeds ,in the off-line process.
:\.ction Plan
1. CIOMO will implement daily controls to ensure the completeness' and accuracy of data used in the off-line calculation ofVAR.
2. FOllowing successful implementation of the above, Middle Office manager to deem control as a soX key control and test as necessary going forward.
Target Date: May 31, 2012
Issue Owner: Hema S Coombes
Issue: VCG reporting
Audit noted the following with regards to VCG reporting to senior management:
Pre- and post- price testing threshold results' are not being reported.
There is n'o historical analysis ortrending of key val uation metrics with only the current month being reported.
__ High grade bond price testing results that were reported to senior management varied from the underlying calculation files by $11m due to a manual
reporting elTor. However, this issue did'not result in.a financial statement impact. .
Root Cause: Insufficient focus on ensuring the appropriateness of VCG reporting to senior management.
Action Plan
wi ll enhance their reporting 10 senior managemenl to provid,e transparency and analysis,
Target Date: June 30, 2012
Issue Owner: Jason LDN Hughes
Issue: Manual Errors within Price Testing and FV A Process
Controls over spreadsheets used for price testing purposes are not appropriately designed, resulti ng in several manual errors totall ing $13m, $1.4m of which had a
fi nancial statement impact. The $1 Am error ($31m reported versus $32Am actual) was primari ly the result of. several off-therun credit indices being exduded.
Other errors noted indude VCG usi ng an incorrect benchmark for 37 of the bonds tested and EUR/GBP high grade corporate bond positions not being converted
into USD before aggregation for report ing purposes:
Root Cause: Controls over spreadsheets for price testing purposes are not appropriately designed,
' Action Plan
CIO VCG wil l suffici enJ spreadsheet control.and governance processes in the VCG process to sufficiently minimise the ri sk of manual errors,
Target Date: July 31, 2012
Issue Owner; Jason LDN Hughes
Not to be distributed without prior permission from Audit
- End Report -
,
cc:
Drew. Ina <[email protected]>
Thu, 05 Apr 2'012 21:05:18 GMT
[email protected]
Wilmot, John <JOHNWIl.MDT@jpmorgan:com>; Goldman, Irvin J
<irvin.j [email protected]>
Subject: Fw: Jamie's fine with this.
From: Drew, Ina
Sent: Thursday, April as, 2012 04:53 PM
To: Evangelisti, Joseph; Zubrow, Barry l
Subject: Re: lamie's with this.
Point two. Assets and liabilities
We do !lot disclose cic earnings - part of corporate
from: Evangelisti, Joseph
Sent: Thursday, April 05, 2012 04:45 PM .
To: Drew, Ina; ZUbrQVol, Barry l
Subject: Jamie's fine with this.
m: Dimon, Jamie
.::.ent: Thursday, April 05, 20124:45 PM
To: Evangelisti, Joseph
sUbject: Re; Revised: WSJ/Bloomberg aD stories
Ok
From: Evangetisti, Joseph
Sent: Thursday, April as, 2012 04:44 PM
To: Drew, Ina; Dimon, Jamie; Hogan, John J.; Scher, Peter l; ZubroV'l, Barry l; Staley, Jes; Cutler, Stephen M; Radin, Neila;
Braunstein, Douglas; Wilmot,. John .
Subject; Revised: WSJ/B!oomberg ao Stories
Here are some revised points based on your The WSJ's deadline is in 10 minutes. Thanks, Joe
The Office is for managing and hedging the firm's foreign exchange, interest rat e and
other str"uctural risks.
" CIO is focused on managing the longte rm structurai liabilities of the firm and is not focused on shorHerm profits.
Our "ClO activities hedge structural risks. and invest to bring the company's asset and liabilities into better alignment. "
Our ClO results are disclosed in our quarterly earnings reports.
r" We cooperate closely with our regulators," who are aware of our hedging activities.
EXHIBIT #83
Confidential Treatment Requested by J.P .. ------------- .
JPM-CIO-PSI 0000543
Background: Not cC:lfrect to attribute gains to a single trader. Members of the Cia take long-term hedging positions in
the context of-our overaliliquidity'management structure.
Background: $2DO billion vastly overstated. $600 mi!Jlon in g'ains overstated.
Won't comment on a specific people.
From: Evangelisti, Joseph
Sent: Thursday, April OS; 2012 4:06 PM
To: Drew, Ina; Braunstein, Douglas; Hogan, John.J.; Staley, Jes; Scher, Peter L
Cc: Dimon, Jamie; Youngwood, Sarah M
SUbject: WSJ/Bloomberg 0.0 stories
The Wall Street Journ'al and Bloomberg are working on prominent stories about Bruno lksil, a managing director in our Chief
Investment Office in london.
They are saying that Iksil currently hasmore than $200 billion in in credit trading products a nd has mad.e J PM more
than $600 in profits over the past two years. They said his' current CDS positions on the IG9 Index are roiling the
market and that some of his positions may result in losses.
More generally, th'e WSJ and are saying that JPMorgan basically has a large proprietary tra'ding sh'op hidden in its
Cia, .and that many analysts are unfamiliar with specifics around its activities. They also say that with increased capital rul.es
. the upcoming Volcker Rule, these activities could come under pressure.
. .
I'd like us to hit hard the points that the ClO's activities are for hedging purposes and'that the'regulators fully aware of our
activiti.es. rd like to give them on the record: .
The Chief Investment Office is responsible for managing and the firm's liquidity, foreign exchange, interest
rate and other structural risks.
Gains in the GO offset and hedge losses in other parts of the firm.
o The investments and' positions undertaken by the CIa are to hedge positions and losses in other parts of the
firm and are done in the of our overall company risk management framework. Hedging gains
reflected in our financial statements represent one s.ide of a transaction that is hedging a loss in one of our
main businesses.
We cooperate closely with our regulat<?Ts, and they are fully aware of our hedging activities.
Background: Not correct to attribute gains to a single trader. Members of the CIa take long-term hedging positions in
the context of our overa!lliquidity management structure.
Background: $200 bilIion vastly overstated. $600 million in gains overstated.
Won't comment on a specific people.
From:
Sent:
To:
Thu, 05 Apr 2012 21:58:38 GMT
Dimon, la
m
ie <jarnie,dimon@jpmchase,cam>; Zubrow, Barry L
<barry.l,zubrow@jpmchase,com>; Staley, les <jes,[email protected]>; Cutler, Stephen
M <stephen,[email protected]>;Maclin, Tadd <TODD,[email protected]>;
Braunstein, Douglas <Douglas.Braunstein@jpmargan,com>;Erdaes,Mary E ,
<mary.erdoes@jpmorgan,com>; Smith, Gordon <gordon,smith@chase,com>; Petno, Douglas
B. <Douglas,B,[email protected]>; Bisignano, Frank 1
<frank.j.bisignano@jpmchase,com>;Hogan,lahn J, <John.J,Hogan@jpmorgan,cam>;
Cavanagh, Mike <[email protected]> .
Subject: CIO
--.:....:.-.--.--.. -.. -"--'-.-.. --.. ..... _-._.-. . -.. _----.......... _._. __ ._--.-._ ......... - ...... --.-.. --..... -.... .. -...
I want to update the operating committee on what is going on with the credit derivatives book in CIO
especially given a wsj article which will come' out tomorrow. .
One of the activities in cio is a credit derivatives book which was built under Achilles in London at the .
time of the merger. ,The book has been extremely profitable for the company (circa 2.5 billion) over the
last several years. -Going into the crisis, we used the instrumentation to hedge mortgage risk and credit
Recently. in the book outperfonned as it waS positionned in for "jump" risk or
default risk throughout the summer as a relatively inexpensive hedge far falIout from weak markets
during the european crisis. The fourth quarter 400 million gain was the result of the unexpected
american airlines default.
Post December as the macro scenario wag upgraded.and our investment activities turned pro the
book was moved into a long position. Th_e' specific derivative index that was utilized has not perfonned
for a number of reasons. In addition the position was not sized or managed very well Hedge funds that
have the other side are actively and aggressively battling and are using the situation as a forum to attack
us on the basiSofvialating the Vo1cker rule .
Having said that, we !11ade mistakes here which I am in the process afworking through. The drawdown
thus far has been 500 mil dollars but nets to 350 mil since there are ather nan derivative positions in the
same credit book. The earnings of the company were not affected in the first quarter since we realized
gains out of the 8.5 billion of value built up in the securities book.
John Hogan and his team have been very helpful. I my partners to be aware of the situation and I
will answer any specific questions at oc monday.
Have a good holiday.
". ' . . 1
1
Confidential Treatment Requested by J.P. M,
EXHIBIT #84a
JPM-CIO-PSI0000539
Sent: Wed, 02 May 201213:34:09 GMT
Subject:
LEADING INTO THE CRISIS AND ECONOMIC DOWNTURN:
IN DISCUSSION WITH JD. CIO DECIDES TO BUY CREDIT PROTECTION. USING
INSTRUMENTATION ON THE SYNTHETIC CREDIT DERIVIATIVES MARKET,
PRINCIPALLY IN THE HIGH YIELD SPACE
WHICH LEFT US SHORT RISK OR LONG PROTECTION IN WHICH CASE THE POSITION
WOULD PROFIT AS HIGH YIELD COMPANIES DEFAULTED. AS TIME PROGRESSED AND
THE FILINGS OCCURRED, THIS POSITION WAS BALANCED TO A MODERATE EXTENT
WITH INVESTMENT GRADE LONG RISK POSITIONS.
OVER THE LAST 5 YEARS, THE POSITIONS MADE APPROXIMATELY 2.3 BILLION
DOLLARS, WERE REASONABLY STABLE WITH PREDICTABLE P L ALTHOUGH THERE
WERE A COUPLE OF PERIODS OF DISTORTIONS MAINLY CENTERED AROUND
SYSTEMATIC MARKET EVENTS INCLUDING LEHMAN AND AIG.
IN NOVEMBER OF 2011 THE POSITION WAS QUITE STABLE AND IN BOUNDS FROM ALL
PERSPECTIVES.
WHAT HAPPENED?
FOUR THINGS HAPPENED AROUND THE MONTH OF DECEMBER TO CtiANGE MY
THINKING ON THE NEED FOR A PRO DEFAULT BIASED HEDGE.
1. THE COMPANY WAS STARTING TO DO THE MATH AROUND THE BASLE III RWA
RULES. THE SAME BOOK THAT WAS DRAWING20 OF CAPITAL UNDER BASLE I
(THE REGIME THAT WAS IN PLACE DURING THE ENTIRE TIME OF THE HEDGE
CONSTRUCTION) WAS GOING TO NEED APPROXIMATELY 60 BIL OR THREE
TIMES THE CAPITAL TO SUPPORT
2. WE HAD A BIG PAY DAY. AMERICAN AIRLINES FILED EARLY AND WE OWNED IN
THE HIGH YIELD HEDGE, A SIGNIFICANT OPTION ON THAT OUTCOME. WE
RECORDED $450 MILLION OF GAINS. ALTHOUGH THIS WAS A POSITIVE EVENT
FOR THE BOOK, THE HIGH YIELD MARKETS WERE RIOLED AND DISLOCATED
FOR THIS AND OTHER TECHNICAL REASONS.
3. THE LTRO IN EUROPE WAS ANNOUNCED ON DECEMBER 8
TH
PROVIDING
STRONG SUPPORT FOR THE CREDIT UNIVERSE.
4. THE ECONOMY, PARTICULARLY IN THE UNITED STATES WAS LOOKING MUCH
. BEnER FROM ALL MACROECONOMIC STATISTICS AND WAS FURTHER FUELED
BY THE LARGE SCALE EUROPEAN LlLQUIDITY INJECTION. WE HAVE A PRO
RISK THEMATIC THROUGH THE INVESTMENT BOOKS.
BonOM LINE: FOR ALL OF THE REASONS CITED, WE MADE A DECISION TO REDUCE
THE SIZE OF THE HIGH YIELD SHORT.
Pcn11anent Subcommittee on Investigations
Confidential Treatment Requested by J'P' I. __
E
X
iiij . Hijjj I.B. I.T .... # .. 8.4.b;.. __ .I JPM-CIO-PSI 0001212
THE TRADERS WERE DETERMINING HOW BEST TO REDUCE THE SHORT IN THE HIGH
YIELD MARKET GIVEN THE DESCRIBED LACK OF LlQLlUIDITY IN THE HIGH YIELD
MARKET. A DIRECT REDUCTIONOF THE EXPLICIT POSITION WAS DEEMED NOT
POSSIBLE AND ENORMOUSLY EXPENSIVE.
THE DESK THEN TURNED TO THE NEXT BEST PROXY WHICH IS CALLED THE IG9
INDEX. IT IS AN OLD INDEX FROM 2007. COMPOSED OF 125 EQUALLLY WEIGHTED
NAMES. WHICH MADE SENSE GIVEN' THATTHE INDEX HAD,5 NAMES INCLUDING
RADIAN,MBIA, ISTAR AND SPRINT OR COMMONALITY IN SINGLE NAMES THAT WOULD
DIRECTLY OFFSET THE HIGH YIELD POSITION. THIS CHOICE WAS VIEWED AS HAVING
AMPLE LlQLUIDITY AND A GOOD PROXY TO REDUCE THE SHORT.
LIMIT
THE. CONSTRAINING OPERATING LIMIT IN PLACE WAS VAR AND THE VAR HAD BEEN A
GOOD PREDICTOR OF THE RISK. IN FACT, AS POSITIONS WERE ADDEO THE VAR WAS '
COMING DOWN WHICH WAS ALSO A KEY DRIVER OF THE INTENDED CAPITAL
REDUCTION,
THE DESK ADDED A VERY LARGE INVESTMENT GRADE POSITION TOTRY TO KEEP UP
WITH THE REBALANCING THAT BELIEVED WAS NECESSARY AS THE HIGH YIELD
MARKET WAS RISING IN PRICE.
WHAT WENT WRONG?
THIS IS WHERE AND HOW THE MAJOR PROBLEMS STARTED.
FIRST WE DID NOT HAVE LIMITS CONSTRAINING THE NOMINAL AMOUNTS OF
POSITIONS THAT WOULD CLEARLY HAVE FLAGGED THE PURCHASES AS TOO LARGE
AND CONCENTRATED FOR THE UNDERLYING LIQUIDITY OF THE MARKET DESPITE
THE FACT THAT THE RISK EQUIVALENT OF THE PURCHASES WERE WITHIN LIMIT.
THE MODEL GOT IT WRONG. ALL THE THEORETICAL UNDERPINNINGS OF VALUATION
HAVE BROKEN DOWN AND THE VOLATILITY HAS BROKEN ALL HISTORICAL AND
WORSE CASE BANDS.
THERE WAS NO ELEVATION OF THE SIZE OF THE POSITION CHANGE OR A
DISCUSSION AROUND THE MAGNITUDE OF NEW LONG RISK BEING ADDED TO
EFFECTVELY CLOSE DOWN OR BALANCE THE SHORT HIGH YIELD POSITION.
THE RESULT
THE RESULT IS A VERY LARGE. CONCENTRATED POSITION WHICH RETAINS ITS PRO
DEFAULT PROPERTIES UNTIL THE END OF THE YEAR, IE STILL SHORT THE HIGH YIELD
MARKET.
HOWEVER THE OVERALL BOOK IS LONG AGGREGATE CREDIT PRINCIPALLY IN
INVESTMENT GRADE IN EUROPE AND THE UNITED STATES.
THE STRESS LOSS HAS FLIPPED FROM A POSITIVE RESULT TO A NEGTIVE RESULT
SHOULD THERE BE A SEVERE SHOCK OR DOWNTURN.
WHAT ARE WE DOING?
THE FIRM WITH SIGNIFICANT HELP FROM THE INVESTMENT BANK AND THE RISK
MANAGEMENT ORGANIZATIONIS FRAMING AHISK REDUCTION pLAN THAT IT HAS
STARTED TO GENTLY IMPLEMENT, THIS WILL TAKE AT LEAST THREE MONTH, WE
ARE UNABLE TO PREDICT THE SIGNIFICANT P L VOLATILITY THAT MAY ARISE AS A
CONSEQUENCE,
I HAD STARTED, REDUCING THE ALLOCATION TO INVESTMENT GRADE CREDIT IN THE
INVESTMENT PORTOLIO IN THE FIRST QUARTER AND AM ACCELERATING THOSE
SALES TO MONETIZE SOME OF THE 9 BIL OF GAINS WE HAVE HARVESTED FROM
THOSE CASH INVESTMENTS, WE CONSIDER THOSE SALES TO BE BOTHI GOOD
ECONOMIC SALES AND ALSO THE RIGHT THING TO DO TO BRING DOWN THE FIRMS
EXPOSURE TO CREDIT, ALBEIT TOP OF THE CAPITAL STRUCTURE, WHILE THE RISK
REDUCTION PLAN FOR THE EXCESS PSOTION IN THE CREDIT DERIVATIVES BOOK IS
BEING UNWOUD,
WE ARE WORKING THROUGH THE 10Q DISCLOSURE AND DOUG AND JAMIE ARE
WEIGHING THE RISK REWARD TO THE COMMUNICATION PLAN AROUND A PRESS
RELEASE ANa ANAYST MEETRING AND THE POTENTIAL IMPACT ON THE MARKET AND
OUR ABILITY TO REDUCE THIS POSITION,
WHAT WENT WRONG:
From:
Sent:
."0:
cc:
Macris, Achilles 0 <[email protected]>
Sun, 08 Apr 2012 23:14:32 GMT
Braunstein, Douglas <[email protected]>; Dimon, Jamie
<[email protected]>; Hogan, John J. Goldman,
Irvin J <[email protected]>; , '
Subject: Synthetic Credit Summary ,
Hi Ina,
Subcommittee on Invest"igations
Following up from our earli er call, here is a summary of ,our synt hetic credi t activity, results and outlook for Q2.
Year-to-date the synthetic book is -'$525MM, Offsets in other credit posi tions limit the Q1 loss to -$350MM, whil e
the Ql CIO Int'l financial income 'was +$830MM including the synthetic book, The Q1' TRR (including OCI delta) is
$3.2blo year to date. '
The synthetic credit book, as a dedicated hedge to our credit longs, continues to be short HY. In Q4, we decided '
to neutralize the risk profile of this book for two reasons: a) the large realized gains around the AMR events, and
b) given our large investment program in cash credit securities and related view. .
Our attempt to neutralize the book has been unsuccessful. We ended up losing a predictable -575MM on HY
shorts, however the IG hedge delivered only +50MM. Alt hough investment grade performed very well In Q1, and
the "relationship between HY and IG also worked in our favour, two idiosyncratic factors rendered our hedge
ineffective:
1. Our longs, IG.9 and,ITX.9 forwards, are in the off-the-run curves steepened +24bps.
Excess liquidity and the pro-risk environment drove carry traders' to the front -end.
2. Ou(' longs underperformed .the on-the-run indices as they contain specific high-risk names "in
the old series (CDX.IG.9 contains Radian, MBIA, Countrywide, ILFC, iStar Financial, RR Donnelly; ITraxx.S9
contains Hellenic Telecom, Banco Espirito Santo, Portugal Telecom, Dixons, El ec. de Portugal ).
The reason', however that we have chosen these IG proxies Is because these are the very names that we are short
' in HY instruments.
Therefore, although thus far unsuccessful, t hese IG proxies best neutralize and balance our synthetic books to
,event' risk. This has been reflected in the VaR and Stress VaR. Overall, we still remain short these names' wit h a
pro- defauit jump risk profi le. '
The book is overall risk balanced, given the cross-market lon'g/short and has positive carry of $2MM/day, whHe
retaining upside on'defaults (see graph below).
, For final Q2 we estimate a P&L range of ,- 150MM to +250MM. Intra-quarter P&L could exceed this range, but not
significantly.
The above estimate does not include P&L on default events, which is significantly positive, as shown in graphs
below.
It is my impression that the recent market attention to our IG.9 activities maybe due to the market's incorrect
perception that we are outright long IG.9 index with a related d'efault risk profile. We are not.
, I think it would be much more likely that the significant market shorts in IG.9 lOY witt need to be covered. Many
dealers hold Significant shorts in IG.9 against legacy CDO portfol ios, and as hedges to illiquid single-name
Inventory'. .
Related to IG.9, the most rewarding, short-term catalyst for CIa would be an MBIA related default event and
EXHIBIT #85
ConfidentiafTreatment Requested by J.I L __
JPM-CIO-PSI0001588
subsequent curve Aattening. Alternatively, a settlement or positive case outcome for MBIA would be bul li sh and
would support a rally in the fo!'Wards. Our P&L profile in this case would be in th'e above range of - 150 to
+250MM, and more carry dependent. Unfortunately this scenario would tie up augmented RWA further forward.
Best,
Achilles
Sent: Mon, 09 Apr 2012 22:39:52 GMT
fo: Serpico, Gina <[email protected]>
Subject: Fw: Deliverables for meeting tomorrow
Print
-_ .. _------------ --_ .. _---_. __ ._-..... ------.. _--_._------------..---_._----.-
From: Wilmot, John
Sent: Monday, Apri l 09, 2012 06:38 PM
To: Drew, Ina; Macris, Achilles 0; macris@ Javier X
Cc: Goldman, Irvin J
Subject: RE: Deliverables for meeting tomorrow
A couple of fol low-ups separately from a conversat ion I had with Doug late this afternoon:
Profile of maturity of the Index and Tranche positions (driven by t he discussion on the handout Appendix: Position
COX IG positi on changes si nce June 2011 all ocated to IG9 forward t rade)
Doug had the question of why we just didn't reduce the HY position to reduce our risk rather than going long the IG 9
(we discussed carry (ie associated p&l ) but he makes t he reievant point that from an RWA perspecti ve t hi s might be
less economic)
Lastly, Doug wanted somehistory relative to current positions (longs and shorts) and what were ,the relative indicative
cr edit spreads at entry against current spreads
My follow- up question from this morning's discussion:
On the Appendix page referenced above: Can you explain to me the trend in risk trend highlighted in the far right
column "Net CDx IG index position on "5yr" bucket""? It went from -14.4bn in Feb to -0.9Gbn in Mar to +12.1bnin
April. Did t he $8bn in IG5.75yr exposure add between Mar and Apr solely drive the $13bn addition to t he Net CDx IG
posi ti on 7
I think for reference purposes we also need to consider any statements around market volumes and days to
liquidation carefully especially as it relates to p&1 impact
John C. WHmot 1 Chief Investment Office I @[email protected] I it Work: (212) 834-5452 I 'if
From: Drew, Ina
Sent: Mdnday, April 09, 2012 5:42 PM
To: Macrls, Achilles Martin-Artajo, Javier X
Ce: Goldman, Irvin J; Wilmot,"J=---- ,
= Redacted by the
Subco,!,mittee on Investigations
Subject: Deliverables for meeting tomorrow
-Index/Tranches - Gross Notionals, nets - itemized for central clearing or CQunterparty ri sk
Table with spreads and VIEWS on spread moves with p /1 associated. This is for Jamie and Doug.
It is an extension of the table you provided that shows spread moves 1)10nthly.
Redacted - Non-Pubhc Supervisory lnformatlonRcdilctcd - Non-l'ublic Supervisory Infonllation
'st of quest ions that we MAYor may not use for specific discussion with the GR (Hill)
EXHIBIT #86
Confidential Treatment Requested by J.F ... _____________ .1
JPM-CIO-PSI 0001646
We can review all and start a process for follow up things we need to address for risk management etc.
John/lrv - anything to add.
lease make sure ALL e mails are distributed to me John and Irv. We will vet together with you tomorrow and then send out
as appropriate.
ACHILLES - your other follow up was with Daniel on FSA**
From: Hogan, John J. <John.J. [email protected]>
font: Wed, 11 Apr 2012 11:18:29 GMT
CC:
Staley, Jes <[email protected]>; Zinke, Steinar X <[email protected]>
Braunstein, Douglas <[email protected]>.; Dimon, Jamie
<[email protected]>
Subject: Fw: Credit risk limits
This is the gpvernance used in the IB to control what is currently going on in CID. We (obviously) need to
implemimt this in CIO as soon as possible. John
From: GREEN, IAN
Sent: Wednesday, April 11, 2012 06:S3 AM
To: Bacon, Ashley; Goldman, Irvin J
Cc: Hogan, John J.
Subject: RE: Credit risk limits
CH uses a small number of limits (attached) and a significant reliance on the Structural Ri sk Measure (SRM
- also attached) as the principal business limits. Directional limits tend to be small as the book is managed
to be broadly neutral to spreads & correlation. All tranches and index trades are decomposed into Single
Name positions and managed against spread-based limits and thru SNPR. We also rely heavily on the Stress
Testing framework running 20 spread scenarios and 6 basis scenarios daily. An example Stress page for CH
is attached.
ere is a also a Significant reliance placed .on the risk MIS and periodic reviews of the gross portfolio risks
forums like the !RBc..1 can send additional commentary on these if required.
Thanks
Ian
-----Original Message----
From: Bacon, Ashley
Sent: 11 April 201200:14
To: Goldman, Irvin J; GREEN, IAN
Cc: Hogan, John J.
Subject: Re: Credit risk limits
Ian, could you please send Irv the structure of CH limits and thresholds (and the SRM).
Thanks
Sent: Tuesday, April 10, 2012 05:57 PM
To: Bacon, Ashley
Cc: Hogan, John J.
Subject: Credit risk limits
"ley,
- .n you tell me what 18 risk limits and 'measures we use for credit hybrids outside of var, stress + cs 10
widening.
EXHIBIT #87
Confidential Treatment Requested by J-f .. ______ iiiiioiiioi _____
JPMCIO 0001139
JPM-CIO-PSI 0001086
lnt: Wed, 1i Apr 201214:59:13 GMT
',0: Drew, Ina <[email protected]>
cc: Macris, Achilles 0 <[email protected]>
Subject: RE: Single names CDS basis relative to IG 9 CDS - URGENT update
Ina I
the market is. quiet today, To early to tell but so far about flat' P!L. The tension has stopped now, The bank's
cOmmunications yesterday are starting to. work. I hope' that it keeps this way tomorrow,
regards
From: Drew, Ina
Sent: 11 April 2012 15:53
Subject: RE: Single names CDS basis relative to IG 9 CDS - URGENT update
How is it going? Any market color today?
.om: Martin-Artajo, Javier X
Sent: Wednesday, April 11, 2012 10:52 AM .
To: Staley, Jes '
Cc: Drew, Ina; Braunstein, Douglas; Hogan, John J.; ,Maais, Achilles 0
Subject: FW: Single names CDS basis relative to IG 9 CDS - URGENT update
Jes I
further to your last question on the single names versus index I hope that this clarifies your quest'ion .
best regards
Javier
Sent: 11 April 2012 15:31
To: Drew, Ina
, Cc: Macris, Achilles 0
Subject: Single names CDS basis relative to IG 9 CDS - URGENT update
Ina,
regarding the relationship of a CDS index versus its components that is not an exposure that we have in the book. But, it is
likely to affect our book given that it is not driving the dynamics of our curve position. The de,mand for single names in the
, , "st has not affected the indexposition if you look at the graph below. Thebasis to theoretical has been somewhere around-
20 bps at the beginning of the year ( Orange line) and the COX IG 9 10 Yr (5.75 maturity, ie our long in IG 9 5 Yr as we cail
Confidential Trutment Requested by
JPMORGAN CHASE & CO, Permanent Subcommittee on Investigations
JPM-ClO OODZast
CONFIDENTIAL TREATMENT REQUESTED BY J,P, EXHIBIT #88 JPM-CIO-PSI-H 0002340
Redacted By The
on Investigations
N
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From:
Sent:
Wed, II Apr 2012 00:16:29 GMT
DUnon. Jamie <[email protected]>; Braunstein, Douglas .
To: . <[email protected]>; Hogan, John I. <JohnJ.Hogan@jpmorganccom>; Zubrow,
BarryL <barryJ ,[email protected]>; Staley, Jes <jes.staley@jpmorgan,com>
cc:
.Goldman, Irvin J <[email protected]>; Wilmot, John
<JOHN,[email protected]>;Macris, Achilles 0 <achilles:o.macri s@jpmorgan,com>
Subject: FW: updated
ALL: Please see attached 2
nd
quarter scenarios for the Credit Book with descriptions.
We can review all assumptions and ansWer questions on the 8:30am calL We are working on Jamie's request
for
Correlation of the credit book agai nst the portfolio and wi ll also have t hose numbers at 8:30am.
ConfidentIal Treatment,Requested By
JPMORGAN CHASE & CO, Permanent Subcommittee on Investigations
EXHIBIT #89
Confidential Treatment Requested by J.P . .. -------------.
JPMCIO 0001124
JPM-CIO-PSI 0001077
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Synthetic Credit Summary ,
II J I ' 101
" "
Note regarding P&L
Es1lmale of 10 April 2012
Today's P8.L e,.<;timalo of-
S395MM represenls a
m(lVO a.SIt_current V.,.R95
ofSGOMM
o rr I1.In IG.9 curves beer
sieepened avg H bp',
of YTD move). end spreeds
widened avg 'I- lObps
ReOlUnd P80L In 01
N 01 Realised PSL -5580, driven by lossJU; In short n.r;k HY (670MM) .. vs. -+,28MM in CDX.lG, and in ITra)()(
f.t -lhe IG oompononl has been !he main P&L dr/vilf of undluperformanca In 01. as IG. Q forward !ong risk did.nol dali or anllcipated prtlri!s given stsepening of lha
curve. Currenl book is overaR risk balanced, given the cross-rnal)i;el 1009(5/1orl and .has positive carry of $2MMlday, While retaining upside OIl dcfOlUl1s
(10 Q2 P&L Estimates theBe .II cenarlos do not lnclud(} 10 April P&L, which would IIccrlltn back Inlo sech scenario +$400MM, If re-caJi bruted for loday' s market moves
.. -S2S0MM (New Financial Crisis) Impl lus an average spread widening 01 +25%, driven by bank6l1inanciaJs undergoing sire.lSS. In this case, the: portfolio P&l Is driven by:
'l- 250MM carry
-1 00MM given relative underperiormance of IG vs. HY (comprasslon. led by bank$lI1nanc1al$ widening)
.s300MM due 10 'dural lon exlen:lIoo' as we projecl .lhallhe shor\daled shorl risk durallon In IG will cenlrad eXpIry app.roaches
-$100MM due 10 sprsad widening. nol off&ol in !hili; case by curve nallllni ng (we assume here Ihal CUNe5 rS(T1 <1Jn .43bps sleep in IG equivalenl 5)
-$150M,M (Stalus Quo) in Ihis case we assume Ihal merkel levels end i real-II' at currenl levl'Ils: In Ihis scenario cia would della hedga around volalilily lhroughoul
the quarter
carry
-$300MM due 10 'durClUon extension' CIS we projecllhatlhe shorlodated .$ho,l risk duration in IG wm ccnlrtlcl all expiry apprcache!\
-$50MM due 10 long-deled lrenche ulldllrperformance as observed In 01
lit 'I- $3.50MM (Cenltal Scenario) in this case bull steepening of IG CVIWS (+4bps). more !han ollse! by oulperlormance of IG.9 curve V'S. on tho run
"
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'l- 170MM carry
-$2BOMM due 10 'duraUon extenslon'as we projecl thellhe shortda ted shorl risk dUl"lltion In IG wil l contract as expiry approaches
";' 'I- $110MM due 10 rally III credit spreads -1 5%
'l-S200MM due to relallve oulpariormanco of IG 9 curve Vi . on the run!G CUf\lIS (whlla counter-intu itive, Ihe "compression" elfecl of l G.9 vs. on tho run lG
complex is driver 01 pen'onnilnce)
+-$150MM due 10 tong-dated equity Itanche outperlormance
In Ill e section "10% OptimIstic the convexHy of !ha porl fono in a highly posillvo or a highly negalive malkal ol.liCOlT\a is demon&lrCiled.
+S702MM in Iho event 01-20% Ughlenlng of spread s, of HY vs. IG credit , and lG.9 fOrM!lrd culpert'orm6llCe (rolling down the curve)
$1 .126 ' End 01 QF referl to a scenario oilirong growth led by U.S., spreads avg. 50% tighter
+1.72SMM in 'Many Defaults- means wave of defautls illJlong .....ldest spread names (incl. MBIA. Radian. iStar) curve naUening. and "15% spreed :.vIdening.
driven by performance of HY shorts. tG nalleners and long prolectlon positions inlhe porlfolio
In the socllon "10% Extreme' II Is eatJmaled Ihatlho book would range S355MM ID -$650MM.
-S355MM in the evenl 01 bear of curves, wider by evg +10%
-$6.50MM in the event of bull steepening of curves. spreads l ighter by avg -25%, driven by underperformance of IG,9 (fOfWards do nol roll down curve in rally)
J . .F! M.orgar:
From:
Sent:
To:
cc:
Wilmot, John <[email protected]>
Wed, 11 Apr 2012 18:59:00 GMT
Dimon, Jamie <[email protected]>
Braunstein, Douglas <[email protected]>; Hogan, John J.
<[email protected]>; Zubrow, Barry L <[email protected]>; Drew, Ina
<[email protected]>; Staley, Jes <[email protected]>; Goldman, Irvin J .
. <[email protected]>
Subject: synthetic credit information
Jamie,
Attached please find a presentation on the synthetic credit book that was reviewed this afternoon with Doug, Jes, [na"Barry
and John. It covers the data requests' from the past several days . .
John
John C. Wilmot I Chief Office I @[email protected] I 'Ii' Work: (212) 834-5452 I if cell:_
SUbcommi!tee on Investi.ations
EXHffiIT#90
Confidential Treatment Requested by J.P .. ____ iiiiii _______ ..
JPM-CIO-PSI 0001701
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Synthetic Credit Summary: Notional Exposure
Gross external (to CID, Indllding (8) notional, Is Sa36blo
tong risk vs. $678bio stKlrl risk across art Index and tranche
products
II External ' ndell naUoool lal;(IS tnterconUnountal Exchange
(ICE) Is nel $96.7blo, 97% of lolal net external Index
eXposure
Il Tranche products are not eligible for ICE clearing and are
bllatersl counlerpar1y exposures
II COX.IG.9 net posilion 'cYCIO Is $822b1o, which Is
approximately 10-15 day.s of 100% of trading volume
III' 1TX.9 net positIon for cra Is S35blo, which Is apprOximately
812 days of 100% trading volume '
!'I For on the run positions the numbers am much smaller,
ranging from 0.25 days 10 2 days volume In IG and HY,
respectively.
. 1
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Synthetic Credit Summary: Maturity Profile
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11\ Top table shows groiJs noUona18 across Indices and tranches by underlying Index family (can be confusing, adds notlonals.of Indi ces and tranches)
f: BoUam table shows the 100/ . credjt spread wideni ng per maturity bucket
largest short risk exposures In Investment grade mature In 00c-12 for COX.lO.9 and Jun-l-3for ITraxx S9
,
o!! Largest short risk exposures In high yield are concentrated In Dec-15 to Jun-16 for CDX.HY and 'Oec-16 for rTraxx.Cmslover
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J! Total Synthetic Credit yaR 59.2mm
10f. Credit Spread Widening
.. The position, beta-adjusted has net directlonlliity of $163MM In 10% parallel move In spreads
This 1, equivalent of $34 5blo of long risk In 5y IG !!!Qy!yalenls
1I Relallve value Risk Exposures
.. 1<3 VI. HY $27mmlbps of If IG undetperforms HY by 1bps
It rGg 5/10s curve poalt lon $46MMlbps of risk if curve steepens 1bps
n XO \'S. ITX $34mmlbps of risk If IIX underperlorms XQVER by lbps
11/ ITX9 5110s curve pasHlan $19MMlbps If curve steepens 1bps
IndcK
COX HY
CDXlCDX
COXIG
ITRAXXMN
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ITRAXX FINSUB
JTRAXX'FINSEN
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Total
Conffdentral Treat ment Requested 'By
JPMORGAN CHASE & co.
Spr01 Spr+10% Up500/0
B,510,B86 478,3\19,558 2,285,664,595
90,747 . 1,399,630 6,726, 105
35,121 ,719 -453,123,526 -2,. 144,460, 027
-22.056, 110 -344,04fJ,211 -1,771,899,467
3,060,724 178,1 97,413 819,365,090
-560,652 -23,044,526 107,358,388
-727,797 -3,496.997
-1 9;909 -437,611 -2, 115,454

COX HY 6.510,8861 42,554,432:
COX LCOX 90,747 453,735: . ' 1
COXIG -35,121,719 -35.121,719: -27.235,271: -45,080,71 5;

ITRAXXMN -22,056,1 10; -22,056.110 . -34,256,803:
ITRAXX XO 3,060,724.
1
12,242,896.
, .
ITRAXX FINSUB -560,652; -2,242,609 '
ITRAXX FINSEN -31.2401
SOVXWE -'9,9091 -19,909'

__
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JPM.cIO 0001 154
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Synthetic Credit Summary: Exposure _______ "--_.:..-__
iii On a simple basis, curve could steepen by 20 bps
more (on historical basis) .
lOlll a $1 billion .
n With hedges currenlly In place, we could steepen
by 1 Obps epprox
Loss approx $550mm
Bottom greph shoWS the behaviour or the slope of
109 1 yr V8/'BUS 10 9 5 Yr thaI we tiave In our
book . This shows the relationship between Ine
. slope of our position In the Indele versus the actual
hedge that we have boudlng the relationship that Is
the 5 Yr shortlhal we he"!! on the Tun five year IG
and the short thai we have In Ihe HY OTR
Jan 2()03 This rallo Is 65 % 800 15% as per our
book.
Confidential Treatment Requested .By
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.. 1'IIb.-ApI
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Table 1: default profile today and post December 2012
# of names Average P&L
Max P&L # of names Average Max Gain
Portfolio # of Names with default given Default
given with Gain given given
loss risk ($mm)
default Defaul t Default
($mm) gain ($mm) ($mm)
Total portfolio today 588 62 -67 526 133 600
Total portltlllo .posl Dec
2012. 585 228 336 -716 357 133 600
JG9 only' today 121 0 0 0 121 146 417
IG9 post Dec 2012 121 121 572 -716 0 0 0
on-the-run
IG9"Hedge opllo.ns 1G18 89 names out or 121
on-the-run
post Dec 2012 HY18 COWr.i 13 out'of the remaining 32 namE!S unhedged With IG1B
I! Today there Is conslderebla default pro\6ction coming from 1(39 trenches.
JI Across the 121 names In 1139, the Jump-Ta-Default at Market Recovery goes from a ciJrrentgain of +14Bm on average per neme to a loss of --572m name post December
2012.
ill This is because of Ihe rol1-off of two forms of
M The the 32bn of short.tfaled protec:lloo on 201h Dec 2012.
a The second '(and Ihls Is Important) Is the rOil-off 01 nearly $4bn long protection on IG9 equily Iranches. The equity tnmche gives protectien al an uppro;.:lmule
rallo 013010 1, so the $4bn of equity tranche prolectlon Is equivalenllo $120bn of Index protectlon In lerms of pUfe-c'efaull risk.
'IS Posl20th December 2012. \WI would be able 10 partially hedge this e;.:posure with Ihe current ofl-the-run Ifldel!: bul the overlap Is 89 flames out of the 121 In IG9.
I! On Ihe 32 remaining names we have a Jump-Io-Dalaulliess of $500mm on average per name thai would need 10 be hedged by other means (HY on Ihe run Indo;.:, single name
CDS, lode;.: lranches etc)
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JPM..cIO 0001156
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1:1 Across Ihe 121 names In IG9, !he Jump-To-Defsull al M!lrkel Recovery goes
from a current 'galn of +146m on aYet:age per name to a loss of _572m per
name December 2012 aa shown In the Lable
ConfJdential Treatment Requested By
6
Table 2: Top 20 "ames Oefilult EJCpo511re Post Det lOU ,
Names 109 JTD post dec
a.t.XTEfI. NTEIW'\.TON4.L It
BRISTot.-M'l'ERS SQlJIBB OOIA!>AN'f
D\.PlTAL ONE BAf.I( {l..SAJ. NA."T1ONot. L
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Note regarding P&l
E5tlmat. of 10 April 2012
Today's P&lllsUmale of
$395MM represents a
move 6.5)( current VeR95
qf$60MM.
c. 150 150 250 no 150 200 17(1
1m InUlol CUl"l .-:.'
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IS Realised P&L In Q1 .
Off the run IG.g curves bear
stellpened avg +7bps (30%
of VTO move), lind spreads
widened avg +"10bps
01 Realised P&L -$580, driven by Iosle,.lo short risk HY (670MM), vs. +128MM in COX.!G, and -30M,,-,,}o rTra)(l(
.. The IG componenl hn been the main paL driver of underperformance In 01 . as IG.9 forward long risk positions did not deliver IIntldpa\ed profits given steepening of Ihe
cur.ve. CUl'1enl book Is overell risk balanced, given Ihe cross-mar1l.ellong/short and has posllJve carry of $2MMlday, while relalnlng upside on darllulls
.. Q2 P&l Estimates theslI sc,narlo. do not Includll10 April P&L, which woultl accrllte back Into each Bcenarlo +$400MM, If rll-celfbrllied fortoday's m!lrkllt moves
t $250MM (New Financial Crisis) Implle. an average spread widening of +25%, drIVen by undergoing stress. In this cas!!!, lhe portfolio P&lls driven by:
+250MMcany .
100MM given relallve underperformance of IG vs: HY (compression, led by bankslflnanclals Widening)
$300MM due 10 'duration extension' es we projecllhellhe short-dated .hort risk duraUon In IG wilt contracl as expiry approaches
S100MM due to .. pread widening, nol offset In thIS case by curve flattening (we assume here thai curves remain 43bps sleep In 113 equivalents)
II' -S150MM (Stetus Quo) In Ihls case we assume Ihal mark!!!1 levels end curv!!!S 'freez!!!' at CUrren! levels; In this scenario CIO would della hedge eround volatnlty throughoul
Iha Quarter . .
+200MM carry
-$JOOMM due to 'duration extension' as we projecl Iha.t the short-dated short risk duration in IG will contract as expiry approeches
-$50MM due 10 Iong.daled lrancha underperfolTnance as observ!ld In Q1
:r- +S350MM (C!!!ntral SCOll8rlo) In ibis case bull steepening Qf IG curves (+4bps), more than offset by outperformaflCe 01 1G.9 curve vs. on the run
+170MM carry . .
-$280MM due 10 'duralioo extension' as we project !hal the e/lort-dated short risk duration In IG Will cQntract as !lKplry approaches
+S110MM duo 10 rally in cr&dil spreads -15% .
+$200MM due 10 relative ootperformance of IG 9 curve vs. on the run tG ourves (while counter-Intuitive, the "cOmpression" effect of IG.B vs. on the run IG
cOmplex Is drlver 01 performance)
+$lS0MM due to Iong-dalad equity tranche oulperformence
III the section "10% Opllmlst!c"lhe convexity of Ihe portfollQ In a highly positive or II highly negaUve market outcome Is demonstrated.
+S702MM 11'1 the event of -20% Ughtenrny of spreads, clecompr8sslon of HY va. IG credil , aod IG.g fOlWard oulperformonee (roiling down the curve)
S 1,126 "End of QE" refera to a sCftrnl rlo of strong growth led by U.S . sprlladsevg. 50% l ighter
+1,725MM In 'Many Defaults meens wave ot defaul ts among wIdest 'preed namos (Incl . MBIA, Radian, IStar) curVe nallenlng, and +75"/0 spread widening,
driven by perfonnanc!!! of HY shorts, IG natlenen; and long prol8(:lIon positions In the (JOrtrollo
1Io In the sect ion "10% EJdreme"U is esl1maled t!latlha book would range -$JSsMM 10 -S650MM.
-$355MM In Ihe evenl of bear steepening of curves, spl1l ads wider by avg +10%
-S650MM In the event of bull steepening of CtJIVes, spreads tlghler by avg -25%, driven by underperformance of 10.9 (fofWards do not roll down curve In rally)
7
.J.P. Morgan
JPM-CIO 000115B
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Appendix: CDX.IG.9 Market Impact
II. cia Increased the CDX.IG.9 S.75y exposure by $36blo during January and February
11 Compared to on the run equivalent !;ptead moVeS this does not appear to have distorted market prices
Jill Skew" PI" rodol( 10 theo balis hal been mean reverting I moving less negalfve since sfart 'of year (organge line on OalaQuery graph)
-61 -52- rz:-: ... 25 - , I -- '29 - I 109 ,'-,"-,',
MTO Chg 1 - - 101- 10J 15J' _sl 12J 591 14-:3-5/
Redacted By The
on Investigations
Confidential Treatment Reques ted By
8
.IP.Morgan
J PM..GIO 0001 159
From:
Sent:
Drew, Ina <Ina.Drew@jpmargan. com>
111ll,12Apr201215:19.17GMT
. Dimon, Jarnie.<j amie.di [email protected]>; Braunstein, Douglas
To: <[email protected]>;Hogan, John 1. <John)[email protected]>; Zubrow,
'. Barry L <[email protected]>; Staley, Ies <jes. stal"l'@jpmorgan.com>
Wilmot, John <[email protected]>; Youngwood, Sarah M
CC: <sarah [email protected]>; ;Evangel isti " Joseph <joseph.evange1i [email protected]>; .
Goldman, Irvin J <[email protected]> .
Subject: FW: Synthetic Credit Materials
Attached please find the three documents we discussed:
Core Credit Executive Summary
. Synthetic Credit Q+A
Market Structure Overview
EXHIBIT #91
Confidential Treatment Requested by J.P . ... _____________ 1
JPM-CIO-PSI 0001100
Below is an explanation from a strategi c point of view the construction, execution, risk.
profile and the extreme p/L outlook for synthetic credit book or Core,Credit Book
The construction of the credit derivatives book: the Core Credit Book as we call it
internally was designed since its inception to benefit from market downside ri sk with a
profile would offer the firm the best risk/reward for that. protection.
At the beginning of 2007 we' started a program that bought A8X and TABX protection on the
subprime and since July 2008 we started a program that would benefit from large defaults
on High Yield names as the Ri sk / Reward for having curve f1a tenne'rs was i:I very good way to
get this protection for the company. The book has kept its profile of pro-default risk for High
. Yield until the end of 2.011.
'The execution of the High Yield Book from inception in 2.007 was based on buying
protection on the on-the-run series and tranches of this series and balancing the book with
older series as the High Yield ma.rket tends to have wider names as times passes since it
collects the most traded names and will incl ude t he large falten angels too. So , this' makes
sense to do if we believe that we have a bad economy in front of us but has to be balanced
to adjust for large spread moves and' needs to offset with some posit ive carry to make t he
book with the smallest negative carry .that we ;5 appropriate.
The .waY that we at-CIO have book-run the Core Book to balance the negative carry cost of
the High yield Book overtime 'has been using Investment strategies that gave us
some carry or buying optionality ( or both) in the tranche market to offset the
directionality of the High Yield Book. jf this was more effident than using intra- High Yield
hedging.
From an execution point of view the Book from the beginning of 2011 was a pivotal year
since we started to realize that the Risk / Reward that this book offered started to have a
Risk / Reward that was not as compeling as it had been in the past and started to
book nationals and size until June 2011 when we increased the High Yield Book once again
as the events of Europe and US started to gather momentum.
The P/l Outlook for the Core Book could be as balanced in terms of directionality
{without a short bias Beta adjusted} and with large default protection for aU of 2012.ofthe
top 12 High Yield.riskiest names in HY and a pqsitive carry of Z MM/day .
In order to explain the P/L outlook for Q2/03/Q4 2012 .1 would like to describe the bqok in
a more detail group of trades to better understand the risks that the .book currently has.
The Core Credit Book has two main Books: the Investment Grade Book and the High Yield
Book.
The Investment Grade Book Book) haslwo strategies one for Europe (ITraxx Block)
and one for the us (IG CDX BlocK)
The High Yield Book has just one strategy called HY Block.
The IG CDX Block would best be described as a long risk IG 9 CDX position and a short of
equivalent size in IG On the run CDX {OTR J and an extra block of long'risk OTR. The
European iTraxx position would be described in the same way as long Series 9 and 'short the
OTR. This position has positive carry of 4 MM USD /day. They way that we are positioned to '
go long risk i.n the IG 9 position is by going long risk ,th,e 3Yr and 5 Yr maturities.and being
short the 1 year maturity to be neutral default risk, positive carry and with a long beta risk
to the 5 riskier names are part of the short HY position th,at we have in the HY Book,
The HY-Book would best be described as an on the run HY OTR short ri sk( that includes aU
the risky names (.Rescap,TI<U,Radian,MBIA,IStar J and a long risk HYlO/HY 11 (Older series
of CDX High Yield) that do not include these names. This is how we get protection for riskier
names and has a negative carry of2.7 MM/Day
These two books are also rebalanced rela ti ve to each other to reduce the overall VAR and
sVAR of the whole book with what we would as an Net extra delta IG/HY on the
run indexes This position would be best described as long IG OTR vs short HY OTR.
This position is 0.5 MM USD carry/day.
The main exposures of these blocks are:
lG St:artJan Book CUrrent Book
FQ[wmdvs OTR
89 Fwd 20,497,375 POD 38 p25,oOO
IG OTR eq 19,583 ,380 S56 .-3:3 799 S97 ,222
Fa IWiml vs OTR
IG91wd 54,651,951,114 94,54013 40,003
1G OTR -53.463 ,6.55 220 -;32 ,485,408,090)
HYOTR Start Jan Book . Current Boa k
HY 0" tho ruo
-8,555,429 ,927 -11 ,10S,.141 ,1.46
HY10-11 1 4,405,446 16 p99 ,1 00,062
Extra Cfel1n St.artJan Book Current Boo k
Net rr RAXXlvlain OTR
-;,116,519,;4j 11,496,447,222
Net' COX 1 G OTR 21,85'6 ,2TT,? 12 3249J09,790
The scenario that is most critical for cia ,( large adverse sceflario) happens to be the one
that we experienced yesterday {lOtI'> Apr il) which is a bear steepener of the lG Block both in
the US a'ld Europe and the rest of our positions remaining stable- . This scenario is the
one that caused us almost all of the loss since Feb 2012 . I do believe that this position will
either mean revert because af the enhanced carry that has also increased from yesterdays
move of the JG block or though a default or series of defaults in the most critical names
MBIA, ISTAR, Sprint, and MGIC in the next year. The magnitude of the m'ove over
the weekend for this curve to steepen, Le. our .short in the Front did not widen but t he Syr
IG widened relative to -our OTR by 7 bps . This is for a day on a -mark to
market and could still go wider on its own but the part of our book that sho'uld be
protecting us fror:n most ofthis widening is the HY short position OTR that contains these
names too and should have mitigated around 70% of this move. It did not materIalize. So
this goes agains all economic sense, is due to the marks that we are experiencing on our.
large US IG Block that has caught the attentio.n of the media . It could still go wider and we
could face and additional 'Ios$ if the same behaviour persists but at some point that \Iofe have
already beyond the HY buc.keJ should hedged our exposure. I believe that this mark to
marked loss is going to mean revert for reasons,
It might take some time but I am very confident that outcome will be materialized in the
coming months.
Confidential Treatment Requested by J.P. Morgan & Co, JPM-CIO-PSI 0001103
How do derivative instruments and t he "synthetic credit" activity fit in
with the overall CIO activity? .
The Chief InvestmentOffice has utilized the "synthetic credit portfolio," which is a
portfolio of credit derivat ives, to construct a hedge against other ris ks on
. balance sheet. activity has been part of the CIO portfol io construct ion and
risk management since 2007. The related credit deri vative instruments offer an
efficient means to establish protection against adverse credit scenarios and
"st ress events"'. .
This act ivi ty is among the key tools utilized by CIa to manage and hedge stress
loss r isks. The synt heti c cr edi t portfolio has benefited the Firm, especially i n
times of credit market dislocation, sudden spread widening and in the occurrence
of defaults, which is typi ca lly a catalyst for credi t spread widening scen;;tri os.
In Q3 and Q4'111 CIa began to reduce the net stress loss riskprofile of-the
hedges
r
as more positive macroeconomic data i n t he US and an improvi ng
situation in Europe post LTRO merited a reduction to the stress loss protection of
t he "synt hetic credit The book, as a dedicated hedge, continues to be
balanced
l
and to protect our portfolio from st ress events.
yO\1 met Bruno Iltsi1?
Yes - L've -met Bruno in person. (Speci fically on 29 Ma.rch 2010 in a meeting at
100 Wood Street in Lonon). 1 am in regular contact with the team in CIO.
In your view, could this trading fl'tH afoul of Vokker under a narrow
definition (0-1' even a br:oad orte)?
As Barry Zubrow pOinted out in our comment? tothe Regulat ors in February, the
language in Vol t ker is unclear as it pertains to anticipatory hedging needs on the
ALM side. The condition for t he hedging except ion appears to have been drafted
with trading desks in mind, where both sides of a hedge: are marked to market. It
is.a poor fit with ALM.
What is the P+"Limpact on JPM since this story was r eleased?
The book is balanced, and the performance clearly is a function of market prices . .
The Chief I nvestment Office performance has been good, and t hat's reflected in
our results.
How much have these positions made or lost for JPMC? What is the
corresponding loss or gain in your book?
The "synthetic credi t portfolio," since inception has positively benefited JPMorgan,
in particular in times of dislocation and stress in credit markets globally r as was
witnessed in 2008, .2009, and more recently in the high yield bond market in the
US in rate 2011.
Is most of the activity in the 19 index specufat.ive bets by hedge funds?
Hedge funds are industry participants in CDX.NA.IG credit default swap indices.
Ot her industry participants i nclude banks, broker-dealers, insurance companies,
pensions, sovereign wealth funds, and other investors who seek either to gain
exposure to Investment Grade credit via credit swap indices/ or to hedge
exist ing exposure to 1nvestment Grade credit : Informat ion related to hedge
fund's relative size is difficult to estimate, however, can be thought of as
proportional to the capital and funding available t o the hedge fund manager
employi ng COX. IG. 9 credi t default swap indices in tts portfolio . .
Is most of the activity in the 19 index speculative bets by hedge funds?
Hedge funds are industry participants in CDX,NA.IG credi t default swap i ndices.
Other industry partici pants include banks, broker-dealers, insurance companies,
pensions, sovereign wealth funds, arid other i nvestors who seek either to gain
exposure to Investment Grade credit via credit default swap indices, or to hedge
existing exposure to Investment Grade credi t. Informati on related to hedge
fund's relative size is difficult t o estimate, however, can be thought 9f as
proportional to the capital and funding available to the hedge fund. manager
employing CDX,IG,9 credit default swap indices in its portfolio,
VJhat risk or type of risk at JPMC does t he 1G.9 position hedge?
JPMorgan utili zes "IG:9," among other hedging instruments to mitig;;'lte or reduce
portfolio "streSs loss," associated with credi t risks on our bal ance sheet, .
particularly in t he i nvestments securiti es portfolio.
I understand that you!re hedging you overall risk an d the investments
securities portfolio - can you give asense of the relative size of hedging
activity in the past - how big can the g f " O S S ~ get an.d what is the basis
risk around thiS?
The size of hedging activity is a function of the size of the risks we manage, 50 it
changes through t ime, If you look at the history, heading into the Crisis, the
Firm's ALM team i n CIa used credit derivatives to purchase protection on high
yield credit default swap indices with short term maturi ties and to sell protection
on high yield credit default swap indices with longe'r- term maturities-in effect,
taking a high yield curve flattening position in the credit derivatives market, This
strategy resulted in the Firm recogni zing some gains as near-term default 'risks
increased, The gains recognized on these derivatives strategie.s offset in part the
losses that occurred on credit assets held by the Firm. .
Are your' examiners aware of this activity?
Yes
J
this activi ty is included in our regulatory reporting practices, in financi al
statements, and- as part of the Fi rm-wide Market Risk policy-this activity is
.captured in th e Firm's risk measurement systems. .
. Do firms on the other side of these trades have an interest in forcing you
out of them?
Clearly certain market participants have expressed an interest understanding
wlJat is the long-term nature of JPMorgan' s hedging .activity-particularly in
CDXJG.9. It would be speculati ve t o assume participants on t he "other side" of
JPMorgan's activity want to "force u.s out/' and we'r:e In the busi ness of ri sk
management of our own pOSitions, not theirs, JPMorgan's position in IG,9 is part
of a portfoliO balanced across a range of outcomes, It is conceivable that the
opposite position may not be balanced,. which could motlvate those portfolio risk
managers to seek to reduce those exposures,
Why would a bank need a synthetic credit portfolio?
A bank or investor may utilize a "synthetic credit portfolio," that is, a portfolio of
credit derivatives, in particular to construct a hedge to other ri sks on it's balance
sheet, It is an efficient means, given liquidity in the index market, to establish
protection agaInst adverse scenariOS and "stress events," It is often more
practical to buy protection on credit defa u.lt swap indices than it is to es.tablish a
"short ri sk" position in a cash security,
Confidential Treatment Requested by J .p. Morgan & Co. JPM-CIO-PSI 0001105
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Sail IG.a 6.7!>y
Sen JG.S v,. S!ngll.,"iltn. Skl w

.. _ .. _._._ .. -.----_ ... _,..
BU\' PfOi<ICiOn IG. ....

S.1.pr<QCIlO<1IG.!J O.7Sy
Buy 1G.9 .... Slno_-N........ S\.r.",
Pac:kao.
CIO Is short risK/long pru\ecllon in IG.9
: 0.75y .
,:: CIO is long risk /.sherl prolel;;Uon in 10.9
5. 75y as part of ii long forward rlJk posUlon
"" "This posU\on hedges HY shorts elsewhere in
portrolio. provides "carry:' yet retains
convexity in SpI"ead widening (curve
rlatlenlng). and uplilde on defaulb
i'l;i In the conlext of marker making acllvily
dealers over lime accumulale rl&k seiling
prolaetlon on single name CDS, bela-
hedged Ihrough buying prolecl1on on the
t:Offespon<llng IndSK {IG,9 contains MBIA,
Radian) -
. '" In U,is way, !he protection sourced from CIO
!he dealer's requirement for index
pro(acilon' on IG.9 5,751'
The rB5ldual 'tl1e!chad gives rise to
Ihe So-COlOed II skew' Irilde, which
Ihe be:; ls between. alngla nllme&
and lhelr Indu
tt Deaters transfer this basis risk 10 hedge
lunds 10 !'l!dlJce RWA. This is done for
surprisingly low spreeds (between 10-16bps
forIG,9).
"
IS; Had9D Funds et'lter Ihe Sk.ow Irads" by
selling prolection on single names ana'
buying protection on lhl!. indall
, To fund (hi:s 3cl1vil y, HF's rt!ly on Prime
Brokers, HF's must provide capitallo PB's
uplronl and 10 cover MTM overtime on both
leg3 01 (/'1(1 Irad8 (i, tl, lhey are, nol per/rllcUy
nelled)
If/. HF's prolll from Ihls acHviJy os Ihe "skew"
compresses (YTO 1106 moved -1Sbps to-
11bps) ,
HFs are 'In Ihe money,' end Instead of
hotdl ng 10 maturity 10 ea'm this as carry,
given the PB capilai requirements, thoy seek
10 ex1\ & moneti;r;e
From: Zubrow, Barry L < [email protected]>
~ n t : Thu, 12 Apr 2012 21:07:12 GMT
(0: Braunstein, Douglas <[email protected]>
Dimon, Jamie <[email protected]>; Youngwood, Sarah M
cc: <[email protected]>; Evangelisti, Joseph
<[email protected]>; Drew, Ina <[email protected]>
Subject: If asked about London / CIO and Volcker
. I suggest you add the following thoughts:
1.). Activity was NOT short term trading
2.). Was part of LONG TERM hedging of the banks portfolio
3). We do not believe th.at our activity in any way goes against the law as passed by Congress, nor the
spirit or proposed rule as written.
Barry
Confidential Treatment Requected by
CONFIDENTIAL TREATMENT REQUESTED BY J.
EXHIBIT #92
JPM-CIO O()0295S
Sent: Fri, 13 Apr. 2.012. 14:35:10 GMT'
To: Dimon, Jamie <jamie.dimon@jpmchase,com>
Subject: RE: 00
Doug and I asked that the first day. Answer was it most.llefficient" way to do it, 1 would say they just wanted to improve the
carry on the book by selling protection and taking in premium. This is all part of the postmortem and we will fix it.
From: Dimon, Jamie
Sent: Friday, April 13, 2012 10:29 AM
To: Hogan, John J.
Subject: RE: 00
Why didn't they just sell vs offset
To: Dimon, Jamie -
Subject: 00
Jamie-
Below confirms the net notional are truly net nationals with no basis. 1 spoke with Ashley this morning who is working with
Achilles to impl ement a similar structure on this book to the one we nave in the IS-we will do thIs for all of '
C10 oVer coming weeks and 1 will keep you posted on that .. Let me know if you need anything else.
John
From: Goldman; Irvin J
Sent: FridaY,.April 13, 2012 10:20 AM
To: Hog-an, John J.
SUbject: Re:
John,
Yes. To be perfectly clear there is no basis within each maturity.
Subject: RE:
Irv,
Can you just confirm the longs and the shorts from each m.aturity.bucket net and that tne net notional is truly
the net amount that is shown below without any basis risk?
Thx,
John
Sent: Thursday, April 12, 20127:05 PM
To: Dimon, Jamie; Hogan, John J.; Braunstein, Douglas
cC: Drew, Ina .
Subject:
Confidential Treatment Requested by J.P
EXHIBIT #93
JPM-CIO-PSI0001753
All,
Enclosed please find IG 9 positions by maturity and related volume data and charts.
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Redacted By The
on Investigations
JPM-CIO-PSI0001756
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JPM-CIO-PSI0001151
CORPORATE PARTICIPANTS
Doug Braunstein JPMorgan Cho5e"& Company- eFa
Jamie Dimon JPMorgan Chase & Company- Chairman & CEO
CONfERENCE CAlL PARTICIPANTS
Glenn Schorr Nomura - Analyst
Guy Moszkowski 80fA Merrill -Analyst
John McDonald Sanford Bernstein - Anoly'>t
Betsy Graseck Morgan Stanley- Analyst
Brennan Hawken V8S Analyst
Mike Mayo eLSA - Analyst
M.attnew O'Connor Deutsche Bank -Analyst
Ed 151 Group -Analyst
Chris Ko towski Oppenheimer & Co. - Analyst
Andrew Marquardt -Analyst
Jim Mitchell Buckingham Research - Analyst
Paul Miller FBR - AnaJyst
.Christopher Wh eeler.Mediobanca - Analyst
PRESENTATION
Operator
Good morning, ladles and .gentlemen. Welcome to JPMorgan Chase's fjrit-quarter 2012 earnings call. This call is being recorded.
Your line will be muted for ihe duration of the conference. We will now go live to the presentalion.Please stand by.
At this time I would like to turn the call over to JPMorgan Chase's Chairman CEO, Jamie Dimon,and Chief Financial Officer. Doug Braunstein.
Mr. Braunstein, please go ahead_
Doug Braunstein - JPMorgan Chose & Company - eFa
thanks, operator. I am going to be taking you through the earnings presentation. which as you know is available on our website. l would also a5k
everyone to refer to the disclaimer regarding forward-looking statements at the back of the presentation .
. And with that, if you all turn to page one,for the qua.rter we generated net income of a $5.4 billio'n,S131 per share. That is on revenues of $27.4
billion, up 6% year on year, 24% quarter on quarter. Return on tangible common eqUity of the 16% for the quarter and our characterized salld
performance across most of our businesses, particularly strong results in the Investm.ent Bank and significant improvement year over year in ..
mortgage banking.
There are a number of significant items that we are highl1ghting here on this page. We do that every quartet It includes DBA. reserve releases,
litigation billed in theWaMu settlement.
1HDMSON REUTERS STREETEVENTS I YM'w.stteelevents.c.om \ Contact Us
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Confidential Treatment Requested by J.P. Morgan & Co. JPMCIO-PSI 0001152
Every quarte r we also have some mode5t pluses and minuses. We don't put these up flont but if you did total significant items they had an
aggregate negatIve Impact of $0.09 a share onaur reported nu mbers this qUdr te r.l ? m to discuss them In much more detail as we go through
the flnancia ls.
Strong capita l generation in the quarter.We ended with Tier 1 common of $128 doll ars, that is up $5 bi ll ion-plus;strong 8asel.1 a nd JIt ratios
of 1 0.4% IH'\d 8,4%, respectively. And I wanted just to highlight a couple of for the quarter and t ht:n we will go into the
Rrst Is. if you look: across our bmine'.>ses. we have c.o ntinuing signs of underlyIng fundamentalgfowth. So 23% loan growth wholesa le year
o n year. Record middle-market loans this quarter, up 19116 year on year. $4 billIon of credit provided to small bUSinesses. thai Is up 35% year on
year.
Record retelU channel originatIons, up 11 % this year. Deposits CBB up 8% year over year. Sales in Card up 12% year over year.
And 50 the underlying {unda ment03 ls year on year look strong.
On the credit side. we conti nue to have stable arid good credit re sults In our wholesale business and on t he consumer side real. cont inuing
Improvement In Consumer. r would say In aggregate we are putt ing on better quality today from that loan g rowth, but JUs I twoqukk statistics.
In "Mortgage net cha rge-off'> are down 25%yearo[1 year:in Card are down 37%yearon year.
So with that It's sort of an unde;(lylng theme;. Let's tu rn to the Investment Bank on page three.
For the quarter you see circled net Income of $ 1.7 billion. That is on revenues of $7.3 billion,reported ROE
On page o'ne we did highlight$900 million in DVA losses pletax for the 18 t his quarter. And aswe have mentioned consistently In the past,we don't
consider't he DVA as oil part of our core business results.ln fact. after the changes from this quarter. if you remember the spread WidenIng. we saw
In Ihe third quarter of20l1 where we booked a $1.9 billion gain on DVA. .
In the last two quarters we have now reversed $15 billion ofthal,and obviously if spreads returned to the level they were last summe r we would
have gone round tri p. So I am going to fo(U5 on the 18 numbels excludi ng all OVA
So in the first quarter weJ"e $8.1 bill ion. $22 biltion in net Income. and we had a 23%relum on equity_Those nurnbersare aU very comparable
to what was a very strong frnt of 2011, but 1 do waot remind everyone that we tend to have a seasonally strong first quarter to stan the
yea r.
IB fees in the quarter of $1.4 billion.l'hal ls down 23% year on up 23% quart er. on quarter. and if you look on appendix page nine you will see
we continue to maintain our number one mar ket-leading share In fees.
Marke ts re'Jenues were re latively Aal year on year. On a li nked-quarter basis revenues were up significantly. Fixed income revenue was $5 billion
and that reflected continued solid dient revenues across the products, partIcular strenglh this quarter in our global rat es
Equi ties revenue of $1.4 billion really appro .... ed results across cash and derivatives. and we continue to have improving performance from our '
p,rlme services. We are seeing increased balances there,a little Improved leverage in the m arkets, and a modest uptlck in spreads.
Credit portfollo revenue was a linle o .... er $400 million, up from the fourth quaner,and the n expenses in the quarter of $4.7 bUllon we re down 6%
yea r on year. The comp-to'revenue ratio,ex OVA, which is the way we manage it. W<I$ 35% for nie quarter.
'If You go directty i o page five, Consumer & Banking. you will see el rded of $775 mi11ion_1hat is down 13% yt!ilr on ye<lr. And
an ROE for this busines5 of 35% for the quarter.
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Revenue of $4.3 billion. That is relativelyf!atquarte r on q'Uarter but down 4% year on year, and that reduction year ove r year is generaJly consistent
with our guidance on the Impact of the Durbin Amendment, which we had this quarte r and didn't come through in the first q,uarterof!ast year.
We continue to see solid year over year underlying perFormance trends in the business. 50 the deposit is up $29 billion, which I talked about, up
8%. We' believe that is a g rowth rate Faster than the industry wo.wth rate. Business banking originations up 8%year on year.
We had very strong Investment .s.a les this quarter as the mark.ets improved and we continue to build out (PC, our Chase Private Client business,
up 41 % quarter on quarter. In fact. client investment asse ts of $147 is a'record for Cha.s.eWealt h Manag.ement.
O!"' page six you "see Mortgage Prodl,lClion and Servicing.Ci rdeci net income of $460 million for the quarter. t hat compared with a net loss of $1.1
bil lion In the prioryear,so $1.5 billion swing year on year.We had very strong production-re lated revenues of $1.6 billion and that is d riven somewhat
by higher volumes. Originations were up 6% year on year;applications. as I mentioned, up 33%; a very favorable r.efinancing environment including
the impa"ct of HARP 2.0.
But we also had higher margins this quarter as a function of those volumes and .some mix issues. We be cautious about that because we
are likely to see those ma rg(ns returned to more normaHzed levels on a go-forward basis.
Purchase losses in the qua.rter were $300 million.That is lower than our expectations on a quarterly basiS. which remain $350 milllon plus or minus.
In large partthat was a function of timing<
If you now move totheserviclng siqe. in the middle of the page you will.see there of $1.2 bi llion.Thal incl udes approximately $200 m!l\]on
or costs for the roredosure-related matters associated with the settJemenlSo if you exclude that $200 million, servicing costs continue to remain
very elevated at $950 million for fhe quarter. And of that number $700 milnon 15 related to default expense, which was essentially flat quarter on
quarter but very, very high.
As we discussed at Investor day, you should expect to see our servicing costs come down over time.. Volume of delinquencies, as the units dec.Ji ne
costs will come down.. We are also working very ha rd to make our processes more effidenl
Over time you would expect, consistent with what we shared over at Investor day, that our normalized expemes for servicing should be in the
$300 million to $350 million range.Buttha t wil l take a numbe r of years to get to .
. On page seven you see our Real Estate Portfolios. Circled net income of $500 mill10n in the quarter, that compares to a loss of S 160 million In the
prior yea r. Revenues down 7%yearon year. It's the result of the run-offwe have been ta lk.ing about for a wh!le.
Loan balances are down 524 billion. 11% year on year. consistent witli our guidance.. And we have said that you can expect a reduction In NIl!n
this portfolio of about $500 million, or minus, for the year as we continue to run offaboutWaMu portfolio and our other noncore mortgage
assets .
Credit costs you see is a benefit of almost $200 million and that is a fu nction of delinquency trends Improving across all the mortgage asset classes,
including home equity. You see a circled number of $808 million for the quarter In net chargeofts, and as I mentioned. that is down 25% year on
year.
So based on the reduction In Which, by the way, is in the appendix on page 16, the resolution of the foreclosure settlement and
what we are seeing is stabiljty \n our severity numbers. We reduced our allowance this qua rter by S 1 billion. That is. again. part o f the significant
items on page one.
But I will say, even after that reduct ion, allowance coverage remains at 6% for the portfolio. $7.7 billi9tt. whi.ch is a very conservative approach to
our risks and, quite frankly, the $1 billion release is reflecti ve of what we had to do as an accountlng matter.
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I would note one other reporting change here, which is due to the induslr)lWide regulatory guidance we moved $1.0 billion of our high-risk seconds'"
Into the loan calegory.And that is despJte the fact that $1.4 billion oflhose $1.6 bililon are current today.
As you know, we have identified those high risk s.econds early. We put reserves up against early and so our reserves unaffected. But
if you excluded these changes, NPls would have trended down year on year, down quarter on quarter, and the same would bEl true at the
comparJYwide level asyou look at t he company statistics.
On page eight,Card Services and Auto. circled net income of 51.2 billion:That is on revenues of $4.7 billion. Revenues and outstandings lower
yea r on year, that ISlhe Impacl of runoff. And modestly lowerqua rt eron quarter,and th.1t is primarily due to Ihe.seasonalgrowlh thai we saw and
we tend to see in the fourt h quarter around the holidays..
We did see strong sales volume in Card. As I mentioned, up 12%, But if you exclude the sale of Kohl's, sales were actually up 15% for the system
and the new product sales growth for our Freedom, Sapphire, and Ink products were actually in excess of tha t glOwlh rate .
. Auto originations also up 21% year on and thai. quite frankly, reflects higher industry sales.
Credi t costs of $740 million really ref1ect two net chargeoff's are $1.5 billion that is down a little under $900 millico yei'lr on year. We
have,gol lower delinque"ncy <lnd net chMge-off rares circled for Card at the bottom of the page.
We do expect. by the way. the net charge-off rate to be 4.25% plus or minus in the neKt quarter. I would also note loss rates in Auto remain very
low. We recognized 28 basis points of charge-offs this quarter. As a result of al! of that informat ion/we released $750 million this quarter in Card
and, again, reserves here remain very robust even after that release.
One other comment on Card. expenses were up 6% year on year and that really was related to exiting a non-core product In the business.
Page nine. Commercial Banking. Circled net income of almost $600 mIllion on revenues of $1.7 billion; 25% retur n on equity and that Is based on
a higher capital allocation for t his business this year. 9% yea r-aver-year revenue growth. It has been driven by the themes we have been talking
about, growth in loans and liability bal<ln(es,and thai is offset by the spread c0':lpression we have experienced year on year.
It is our seventh consecutive quarter of loan balance growth.. You see the circled loan balaoces of almost $116 bHl ion. Lip 16%. We had rec;ord
revenue record loa n balances in Oll( middle-market business for the quarter; that was up 19%.
C&I loans up year and r think the best have got in Industry data. industry volumes are 12% yeat on year. So if you think
of all that It really does reflect two underlYing trends - growth, we believe, in terms of demand.as well as a combination of improvements in market
share 3cross product sets.
[ will cont inue to note utilization does remain relatively stable where it has been at a low rate for the last several QUarters. Credit costs were $80
million in the quarter here but net charge-offs were exceedingly low at 4 baSis paints.
Page 10, Treasury & SecurityServkes, solid results here. Net income of $350 mill ion, up 11% year on year,40% quarter on quarter. Revenues of 52
bUllan, up g% year on year.and that is again resulting from some underlying fundamental trends that are offsetting that spread compression that
we have talked about.
liability balances are up 34%; intem<lliona\ ... enue was up 12%; assets under custody is a record .$17.9 trillion. up 8%; and trade fi nance loan
up 40% year on year. You wi!! notice there. by the way, we a modest decline in trade finance quarter on quarter. Really a function
of a little bit of seasonallty and I would say an increased return of c?mpetitlon.particularly from sOme of our European ('ompetitors in the fourth
- in the first quarter.
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Page 11,Asset Management We had improved quarter-en-quart er results in AM.largely driven by market conditions, but we. are down from what
was a strong First quarter 2011. Circled net income of $386 million, that is on revenues of $2.4 billion.
The results were really driven by some undec!ying growth as well as the market improvement we saw this last quarter. It's the 12th consecutive
quarter of long-term flows":' $17 billion, $43 billion overthe latest 1 2 monthsWe did set records fo r assets under supervision af1d records for assets
under management. Expenses were up year on year and that-has largely been from the Investment spending we have been talking about for a
number of quarters.
12,Corporateand Private Equity, Private EquIty net income of$130. mil!ion.That is orr $250 mllilon of revenue, predomInately mark-ta-markets
for public positions and some modest realizations this Quarter.
So corporate we recorded a net lass 0($700 million and the loss included two significant items. The first is a $25 billion addition to our litigation
reSErves, predominately mortgage related, we identified that up on pagE! one, So 1 am going to make a couple of comments here on the
litigation reserve.
As you know, Including the actions this quarter, we have been building very significant reserves. We believe that currently these reserves are both
comprehensive in nature and appropriately comervative, given what we know about these exposures, including the information with the first
quarter ofthis year.
And I would thin!c. absent it material adverse that could certainly change our views, we don't anticipate mak.ing material <lddition to
these reserves over the course of the year_ But I do want to caution facts and circumstances can change, reserves can 'go up, they IAn !;Io down.
but we feel based on what we know today tha'twe are unlikely to add materially to this position.
We did book an addition of $1.1 billion pretax gain that was also identified on page one.That is from the WaMu'bankruptcy set.tlemenLAnd if you
excluded those two items, corporate net Income, excluding PE, we note on the bottom right was $175 mllilan for the qU<3rter.
Page 13, the Fortress balance have covered a lot of the topics already but let mejust add two comments to the page.
First. as you know, y'(e authorized a new $15 billion share repurchase. We have spent approximately $450 million yearta-date on that new
authorization, and for those that are likely to ask, it's at a price of about $44.75.
Second, on trust preferred or TRuPS, we have $20 billion outstanding as you all know. We do expect to redeem $10 billion of that $20 billion in
total this year,and that is pursuant to the capital plan that we submitted in the CCAR process. For much of that, those.securities we are going to
wait until there is a regulatory call event to call those:We were In the market for a $400 million callan a single security that didn't requi re that
trigger.
And forthe remaining $1 0 billion currently our view is that is very attractive long-term Anancing.
On page 14 wedo have the outlook.. I think I have covered all of that. And so, before I turn it over to Jamle,1 did want to talk about the topics in
the news around ClO and just take a step back and remind our investors about that activity and performance.
We have more liabilities. 51.1 trillion of deposits than we have $720 billion. And we tak.e that differential and we invest it,and
t.hat pomolio today is approximately $360 billion. We Invest those securities in very high grade, low risk - we invest those dollar: in high grade;
low-riSK securities.
We have got about S 175 billion worth of mortgage securities, we have got government agency securities, high-grade c.redit covered bonds,
securitized products, municipals. marketable CDs.The vast majority oft hose are government orgovernment-backed and very high grade in nature.
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We invest those in order to hedge the' interest rate risk of the Firm as. a function of that liability and asset mismatch. We hedge basis risk, we hedge
convexity risk, foreign e:.::cha.nge risk is managed through CIO, and MSR riSk. We also do it to generate Nil, which we do with that portfolio.
The result of all of that is we also need to manage the stress loss associat.ed with that portfolio, and so we have put on positions to manage for a
significant stress event in Credit We have had that position on for many years and the activities that have been reported in the paper are basically
part of managing that stress 105s position. which we moderate and chaflge over time depending upon our views as to what the risks are for stress
loss from credit
All of those decisions are made on a very basis. They are done to keep the Company effectively balanced from a risk standpoint. We are
very comfortable with our positions as they are he!d today,
And I would ilddthat all those. positions transparent to the regulators. They review them, have access to them at any point in time, get the
information on those positions on il regular and recurring bilsis as part of our normalilec! reporting. All oftho.se positions <:Ire put on pursuant to .
the risk management at the firm-wide level.
The last comment that I would make is that based on, we believe, the spirit of the legislation aswell as our reading of the legislation and consistent
with this long-term investment philosophy we have in CIO we believe all of this is consistent with. what we believe the ultimate outcome will be
related to Vo1cker.
So with that, maybe,Jamie, I will turn it over to you before we open it up for questions.
Jamie Dimon -JPMorgon Chase & Company - Chairman & CEO
Doug, thank you. So let me just -let me talk about one thing and then we will open to questions..
When is the slock buyback7 Obviously we got p.ermissir;m to buy bilck $15 billion worth of stock. We would have preferred to have been able to
buyback substantial am"ounts tangible book value, but we were unable to.
We will always, as a disciplined buyback of the approximately $3 billion we issue eveiyyear, and that is the $3 billion we issue mostly for camp.
And that is not on a GAAP basis. It's [going to bE') issued before investing. etc.
. At 45 we will -- we reserve - right now we are buying beck at that rate, but we may do more. So we reserve the right at any point in time to do
whatever we want and it's based upon basIcally for things.
What are the organic opportunities.? might be (here, portfollos or more organic growth_ What are the investment opportunities? 'rhere are a
lot of things you can buy. both investments or acquisitions, which.we don't rea lly expect big ones now.
Our own desire to get quickly -- how fast do we want to get to our new capital requirements, under 8aselnf. And t he stock price. So it does not
mean at $45 -- obviously when the stock goes up I think we will be consistent and we will buy less.. When it goes down we will buy more.
We are a buyer in size around tangible book value. And then, obviously. we reserve the right to change that at will.
So. let's open up to questions or comments about any subject atall.
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JPM-CI O-PSI 0001157
QUES TIO NS AND AN SWERS
Opera tor
(Operator Instructions) Glenn Schorr, Nomura.
'Schorr - Nomura - Analyn
Jamie. j ust because you broughl i1 up, I it's interesting. If you rook. the midpoint of t he range tha t you outli ned in the,sha reholder letter cnd
you took t he 523 bilr.on. $24 billion of over-trye-c.yde earnings, that is a sub-7 times multi ple. It seems very attractive at the midpoint of the range.
I am just curi ous on how you think through the valuation when you are thinkifi9 about the use proceeds on the buyback.
Jamie Dimon - JPMorgan Chose & Company Chairman & (fa
We ll, ! mean, look, yo u said it yourself, anyone can do the numbers.Our tangible book value Is extremely att ract ive,at 40 it will pro babl y be att racti ve
and at 4 5 -\ am ,not saying it's not att ractive, but our best thing is to grow our business and not to worry about buying back the stock.
We are go Ing to buy back the stock \.rhen it's a bargain, not just because we feel like It. And so you guys can all do the numoers, we are jlm not
going to, tell you wh'at we are going do.
Gl e nn Schorr
Al l right, fair enough. If you look on the quart er fo r yea r-on-yea r basis, expe nses are up li ke 15%. Now there is litigation cost s in there lind t hings
li ke that. I think on t he investor yOll had suggested flat expe nses year on yea r. Obviously it depends on Investment Bank but ca n
you just talk about the revenue expe nse dynamic?
Jamie Dimon JPMorgon Chase & Company - Chairman & CEO
We said flat expenses; we still that.. The firs t q uarter is' a nule bit higher because of FICA and payroll,a whole bunch of things like that. and
some expenses that throug h there. And that is nat if you back out IS comp and extraordincuy stock.
That number should be about $12 billion a quarter. Obvio usly it was a li ttl e bit higher thi s quarter to do that, but it wlll corne down overtime we
think.
Gle nn Schorr 8 Nomura 8 Analyst
Ok,ay,so still ftat-.
Jamie Dimon Cha5e & C;ompany Chairman 8.- CEO
---------_._ - -_.----
Remember, Lt's flat but we are stil l doing a lot of investing.'So we are getting <? ther effi ciencies to he lp pay fo rthe investing.
Gl e nn Scho(r Maryst
Fair eno ugh.Ari d then maybe last one for me.l. t hink the fea r around issues in Europe.has started to subside post the LTRO,and I think we disc us sed
tha I last call. We got a li tHe bi t of a scan!,. though, the last week ortwo witl'rSpai n.
8
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. Confidential Treatment Requested by J.P. Morgan & Co. JPM-CIO-PSI 0001158
Just curious on your t houghts right nowjwr.ete are we in that process a nd do you still fe!!1 comfortable on the counterparty e,xposures?
Jamie Dimen - jPMofgan Ol ase & Company -Cholrman & CEO
Yes, I constantly read about collnterparti es..Our numbers - we disclosed aro und $15 billion, a lil !le bi t higher than that now. They obviously move
around_
J would slill .ay exactly the same thing. The lTRO Wds. a massive thIng that took the redl catastrophe in the short run off the lable, but obvIous ly
the world is going to eva lua te'overtime whether the fisca l union is tight e ned and given teeth and carrots and sticks and all that. It's going to look
at Spain Italy's both austerity and growth plans, and it's goIng to be like an accordion for the next 18 mont hs. So I per!>Onally am not going to
over react to that.
But I th!nk they have to do some things to give it the rea l stability_The L1 RO wasn't sufficient It was not a -- it was a short-term fix not a perma nent
fix.
Glenn Schorr - NomUla -Analyst
Okay,l appreciate it.Thankyou.
Operator
Guy Moszkowski, Bank. of America.
Guy MOs:D<owski - BofAMerri11 l.ynm - Analysr
Good momlng.On thl! 00 question, which obviously you have addressed and has gotten so much attention in the press this week:ca n I just ask
one further question, which Is are all of lne result s ofthe (10 group reflected only and Othe; r?There is no sharing of any of those
results wi th. say, Flee in ter ms of the reporting that we would see in thE!' Investment Ba nk?
Jamie Dimon - JPMofl)on Chase & Company - Chairman & CEO
.' No, God, no. No, no. A lot of the Nll is given to the busi nesses that generate t hat deposits on a consistent fund transfer methodology, which - but
not with the Investme nt bank. Remember,most of that ponfoli o is an AFS portfolio, not all of it,but most of It.

Guy Mankowski " BofAMerrilf Lynch Analyst
Right, fair enough. It' s just I (multiple speakers)
Jamie Diman - JPMorgan Chase & Compo.ny - Chairman & CEO
Wedisdosed both tear-zed ga ins, unrealized gains. and mark-to-market gains.You get all of t hai.
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JPM-CIO-PSI0001159
Guy Mosrltowski BOfA Merrill Lynch Analyst
Yes, that is just a question that I ask in orderto assess the tempest in the pot nature of the stories relati'o'e to the revenuE's that we see Ihatjust
don't seem to be th.at big.
Ja mie Dimon .JPMorgan Chase&Company -Chairman
It's a complete tempest in a Every bank has a major portfolio; in those portfolios you make investmenlS that you think arE' wise to offset
your eX'p0sures..
Obviously, it's a big portfolio;we are a large company and we try to run it --I t's sophisticated obviously with complex things. But at the end of the
day that is our job is to inves t that portfolio wisely, intelligently over a long period of lime to earn income and to offs et other exposures that we
have.
Guy Moszkowski BofA MerrlN Lynch Analyst
Then turning 10 the capita! questions, obviously you have had a rapid growth 10wCl rds your 8asellll targets. although of course we stiU
don't know exactly what they dre,and you nave all uded to the condltlonsunder whic h you would return through buybacks.BUtwhatabout
the potential for special dividends along the way? If yOu felt that you had excess capit al and that share buybacks were not that attractIve, how
would you think about that?
Jamie Dimon -JPMorgan Chase & Company Chairman &CEO
Guy, I think the right way to look at that isask thatquesli on in two years. I mean Wea re not at the Basel 111 targets yet You should expect dividends
on a regular- we may change our minds, but on a regular annual basis US that wililookat what to do.
Obviously, this is a Board-l evel decisi on. But there is going to certainly be no special dividend before we know what t he rea! capital rul es are.
Guy Mosrltowski BofA Merrill Lynch - Analyst
Fair enough.
Jamie.Dimon -JPMorga.n Ch01e & Company Chairman &CEO
Take t hat off the table.
Guy Ma!>Zkowski BofAMerri ll Lynch -Analyst
-----------
Okay, that is complete!yfair.Mortgage origination you alluded to better spreads obviously, and maybe you could just give us a little bit more color
of trow that came through. Because it certainly does look like improved meani ngfully gjven how t he revenue evolved versus last q uarter versus
the origination volumes.
Jamie Dimon -JPMorgan Company- Chairman & CEO
They we re several hundred milijon dollars higher than what we would call normal for a whole bunch of different reasons, inclUding HARP,
supply/demand, the price d't which Fannie Mae dnd Freddie Mac are .securitIzing things. So I yYou!d expect that to normdHze ove r time.
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Confidential Treatment Requested by J.P. Morgan & Co_
10
JPM-CIO-PSI 0001160
From: Dimon, Jamie <jamie.dimon@jpmchase. com>
Sent: Fri, II May 2012 09:07:24 GMT
To:
CC: Will, Kathleen <[email protected]>
Subj ect : Fw: IO-Q caIl- Buyside and seIlside comments (2)
From: Youngwood, Sarah M
Se nt: Thursday, May 10, 2012 10:31 PM
To: Dimon, Jamie; Braunstein, Douglas; Drew, Ina; Staley, Jes; Cutler, Stephen M; Evangelisti, Joseph; Lemkau, Kristin
. C; Miller, Judith B. . .
Cc: Investor Relations
S ubject: 1O-Q call - Buyside and sellside comments (2)
Here is the balance of calls for the evening. All calls returned. See below regarding comments. We have also left
messages to the extent we couldn't connect (see bottom of mail).
For reference, we had 3,248 people on the webcast and 4,543 people on the telephone lines. A total of 7,791 people on
the call.
Betsy Graseck - Morgan Stanley - sellside
Appreciate Jamie's public apology
How long will it take to unwind the trades?
Why not offset the whole thing with unrealized gains in the AFs book?
Is this something that happened in the month of April? Did you become aware of this while closing your books
or was this something you were aware of in the first quarter?
What was the sequence of the events?
Why did you go back to the old model?
What can you point to in terms of market movements?

Can we, approximate the size of your position based on the losses?

Anyone in particular that is puttingon these types of trades in? How did this happen?
. Will you still do your buybacks?
Please detail changes in Basel III
Glenn Schorr - Nomura
Everyone should give up on trying to figure what the trades are
There weren't any issues with credit in the market. Why the big loss?
The loss was not that big in the grand scheme of things so why have a call on it?
I want to understand for intellectual reasons what happened
Obviously not about the P&L impact and the capital ratio impact
One olthe few companies that trades on a premium will now lose some of that premium
So nothing gets changed for Q1 except VaR and. Bill Tier 1?
This is just something you found in your internal risk management, right?
Andrew Marquardt - Evercore - Sellside
Is this something we should be concerned about in terms oftheculture and risk management across the firm?
Is this just a strategy gone wrong? On the wrong side of a trade?
Is this a red fiag for regulators? Are the regulators now going to review your controls?
Permanent Subcommi ttee on Investigations
EXHIBIT #95
CONFiDENTIAL TREATMENT REQUEST .. ---------...
J.P. MORGAN CHASE & CO. JPM:CIO-PSI0017754
Can you explain what happened in terms of reducing the credit protection? What was the strategy? What was
the change?
Any impact on buybacks?
Anything else in the Q that changed?
Thought it Was a good tall; appreciate the conversation being upfront, the JPMorgan way
Guy Moszkowski - BACML - Sellside
Thank you for the public apology
What does the repositioning of hedges mean?
Is the $l27B of derivative disclosure related to the $2B losses?
How sweeping are. the changes not just in model but in personnel?
Did you restate the 12/31 VaR?
Did Jamie say that the old model was inadequate?
Can you continue to do buybacks? Any updates to that? What about the Fed? They just issu.ed $12-$15B in
buybacks. Are they going to rescind their authorization?
The 20bps decline in Basel III, was that related to the stressed VaR?
Is it fair to say that if you had suffered theses losses in the IB you wouldn't have had this call but because this
was in CIO and you were so far off guidance that you felt you had to have this call?
This wil l look like prop trading to a lot of people; already had Senator Levin on the tapes saying this is why
Volcker has to be in place; riot good from a Washi ngton stand point
Embarrassment for JPMorgan but worst for GS and the industry because of the t iming of the whole Volcker rule
. Jamie was clearly falling on his sword - very noble
Richard Ramsden - GS - Sellside
Restated VaR. On what?
Change in VaR must be.because you changed your risk model correct?
So you wantfrom a standard model to an advanced model and the model didn't work as you thought?
You didn't give disclosure on your position. Does that mean your position is still open?
You must have considerable gains in that portfolio as well correct?
. Are you disclosing this because the auditors t hought you should or you thought you should? Was this your
decision?
Did this have to do with all the articles Bloomberg has written?
Did this hedge have to do with tail-risk? Wou.ld have thought you would have made money; unless you were
reducing the hedge?
Are there going to be other type of effects?
Does this impact the buyback program?
The impact doesn't really change anything; don't think it was that big; don't think it changes the earnings power
and doesn't impact the capi tal return story; financially, don't think it was a big deal
Problem isthat people don't expect this from you
Jim Mitchell- Buckingham Research - Sellside
Was this set up to hedge your previous hedges?
Was it meant to hedge your AFS portfolio from tail risk?
Why would the VaR change retroactively? In light of this situation, you re-evaluated the prior model?
What does it mean when you sayflnat monitored well''?"
. Thiswas not related at all to the IB correct?
When were these positions put on?
Did the fourth quarter number changed?
Marty Mosby - Guggenheim - Sellside
Please confirm this was mark-to-market
This was in the corporate division correct? Not related to clients?

Can you give details on your hedge?
Is cia taking proprietary positions? What do you mean by excess liabilities?
Was this related to hedge ineffectiveness?
What was the core thing that you were trying to hedge?
. Have you given the principal outstanding related to the position?'
Jeff Harte.- Sandler O'Neil- Sellside
How profitable has the portfolio been?
Why shouldn't we be concerned about all of JPMorgan's risk management?
Was the jist of thiS'that you hedged the.portfolio, had the hedges for a long time and you were trying to take
the hedges off?
Can you still buyback stock?
Is it fair to assume this' is new guidance? Does this contradict guidance you had given before?
What was the $7B+ of unrealized gains?
Is this related to a hedge being ineffective?
Would the gains or losses show up in the P&L?
.. How has the reaction been so far?
Dan Marchon - Raymond James - Sellside
What is a synthetic credit portfolio?
On the call, Jamie had mentioned that these were trading losses, but then in the lOQ the language was
different, is that the same thing as
Ben Hesse - Fidelity - Buyside
Over the Easter weekend we spoke and you said there was no losses related to this
Have a lot of contacts in Washington who said this .is going to be a big deal for Volcker; need to manage this in
DC because the hit there is going to be a lot bigger than the hit on earnings'
Greg Wachsman - Lord Abbett:" Buyside
Is the $IB realized or unrealized?
So from my understanding it sounds like you're managing exposure at the top of the house, and then you have
some repositioning and re-hedging of the portfolio - can you go over .it again what transpired because I need to
better understand what happened?
- what is that? Is that CDS? What does that entail?
What did he mean when he said, "it could be another billion on top of that"?
Can you quantify the absolute long-term loss?
Do you know what the notional loss amount was?
The VaR changed from $67mm to $129mm - can you talk about the model behind it?
Was this a hedge or prop trading?
Any capital plan changes?
Since it wasn't that material, why did you guys host the call?
Matthew Antle - Putnam Investments - Buyside
When you gave your Basel III hit, did you consid.erthe multiplier effect?
Soc Gen had to adjust their VaR even higher after their rogue trading incident - is this considered rogue trading?
Did the Fed confirm that you can continue to do share repurchase?
Jeff Busconi - Viking - Buyside
What does the $67mm in VaR represent in the restated supplement?
Is the real problem in the marking of the position? Was it mismarked, or did it move against you?
Why did you come out and 'do this caUl It seems like to numbers aren't that big. "I'd say the $800mm loss is
immaterial." All the dealers on the Street know wh"t the position is, and my guess is other people would know
------
what the position is before I"ong. Seems like you' ve exacerbated the issue. Most of the dealer community is
aware of the positions
What are the changes you've made in risk management?
How is the CIO office adually structured? Does the CIO report to Jamie?
. Was part of the"losses an adjustment to your mark?
There are probably other cDunterparties on the other side of the trade if these are synthetic that are aware of
the position. And, I'd guess the dealer community is aware of the position as well. It must be a pretty big
notional amount to have lost $2B in a short amount of time. $2B is not large relative to your balance sheet, but
it is big in the context of tranches.
Bill Rubin - Blackrock - Buyside (e-mail)
This note further below from Ed Najarian says it all.
I've spoken with several of our team members at Blackrock.
Please forward the following comments to if you deem appropriate.
We are very disappointed by this turn in events, not so much by the size 'of the loss, but more by the bad
stumble in risk management/controls.
Major reputation and sentiment hit, damaging.
Stepping up and coming clean, mea culpa, was the right thing to do. Appreciated.
We expect aggressive resporise on 4 fronts:
1) As smoothly as possible exiting riskiest remaining positions with least amount of further damage to balance
sheet and inc statement, and fixing policies/procedures/risk controls,. .. as Jamie Dimon discussed.
2) Offsets ... are tax implications from reaping further securities gains really that prohibitive?
3) Vet another look at cost reductions where possible/feasible ... especially with weaker capital markets revenues
in 2Q and likely 2H12, we believe the cost structure remains too high. We believe JPM's revenue opportunity will
n"Ot be hurt by reducing costs further - t he company and most of its people are too good to not capture
opportunities when they arise, and being another -1%2% lighter in costs will not materially diminish that
capability.
4) Buy back stock more aggressively. For what it's worth, at $38 price, we believe P/BV 0.8x, P/TBV 1.1x, and
PIE 7x is stupid cheap. The market cap of JPM will be down at least $10 billion tomorrow. If the company can
truly generate $24 bn in net income in a couple years, any stock repurchase anywhere remotely close to these
. . .
stock prices will be very/ very attractive prices indeed.
Just ideas and suggestions to consider.
Please forward to executive management if you deem appropriate.
(Ed Najarian's note below.)
lSI: JPM - JPM annOUIlces $2bn trading loss
Company Note: JPMorgan Chase (Buy, $52 PT)
Maintain Buy; stock over-discounting the loss
*Afterthe market closed, JPM announced a slightly more than $2bn mark-to-market trading loss in a
synthetic credit portfolio that was initially designed to hedge global credit exposure. The hedge was initially
designed to deliver positive revenue in a credit stressed environment. However, a first quarter strategy to reduce
the hedge was poorly designed, poorly executed, arid poorly monitored and hav, resulted in more than $2bn in
mark-lo-market losses thus far in 2Q. JPM plans to partially offset fue loss by reaping $lbrt of investment
. securities gains. Thus, the net loss to 2Q EPS thus far is about $800nm after tax or equal to about $0.2\ per share.
Additionally, the loss could grow or shrink over the balance of this quarter and is likely to lead to more earnings
volatility over the balance of this quarter and next qUarier. For example, it is not unreasonable to assume that JPM
could lose another $lbn on this position. Accordingly, based on this loss and our perception that core trading
.revenue has been weaker than expected thus far in 2Q, we are reducing our 2012 EPS estimate by $0.35 from
$5.05to $4.70. We are maintaining our 2013 and 2014 EPS estimates at $5.50 and $6.\0. We are also maintaining
our one year price target of $52.
* However, JPM'stoc\<: is now off nearly 7% in after hours trading or about $2.70 per share. We would note
that with JPM stock off $2.70/sh that represents about $IObn oflost market cap based'on only a $2bn pre-tax
tracting loss. We find it very ctifflcult to. imagine that this poorly structured synthetic credit position will ever lead
. to $IObn of cumulative after-tax losses. We would expect the cumulative loss figures to remain significantly .
below that threshold (perhaps in the several billion dollar range' and thus not more than $1 per share).
Additionally, we remind investors that !PM recently received approval to repurchase up to $15bnofStock over
the 12 months from 3/31/12 - 3/31/\3 and we fully expect JPM to use near term weakness in the stock to buy it
back aggressively. Furthermore, at a current after-hours price of about $38 this stock is yielding 3.2%.
Accordingly, we would advise investors to not sell into tomorrow's weak JPM stock price. In fact, we would
regard tomorrow:s weakness as a buying opportunity.
* While this incident is unfortunate and clearly represents a major error of judgment, risk management,
and execution within the ChiefInvestment Office of JPM, we have confidence that JPM will work di ligently,
aggressively, and thoughtfully to resolve it in the best way possible with a focus on minimizing its additional
damage to shareholder value. Finally, we note that based on tillS position JPM did revise itS 3/31112 Basel 3 Tier I
Common equity ratio to 8.2% from 8.4% .. But the company remains well positioned to repurchase significant .
amount of stock and surpass a 9.5% Basel 3 threshold by tI,e eod of2013.
Voicemails (calls returned; left vm; wi ll connect tomorrow)
Sel lside: Thang To (lSI junior), John Dunn/Marc Lombardo (Meredith Withney), Paul Miller (FBR)
Buyside: Kush Gael (Nellberger), Dick Manuel (Columbia), Bill Auslander Bernstein), Patri ck Hughes
(Olayan), Ryan l ong (Chesapeake), Jay Mai (Glenview), Ryan lentell (Manulife), John Baldi (Clearbridge), Ravi
. Chopra/Jeff Barnes (Samlyn), Greg Anderson (UBS AM)
Sarah
Sarah Youngwood I Managing Director I Head of Investor Relations I JPMorgan Chase Co. I
270 Park Avenue, New York, NY 10017 I T: 2126226153 I F: 212 270 1648 1
J.P. MORGAN CHASE & CO. JPMCIO-PSI0017758
1 O-May-201 Z
'JPMorgan Chase & Co. (JPM)
BUsiness Update Call
FACfSET: call street
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EXHIBIT #96
I Raw Transcript
\[ Total Pages: 20
,Q01 -2012 factSet Call Street, LLC
I
JPMorgan Chase & Co. (JPM)
Business Update Call
MANAGEMENT DISCUSSION SECTION
I Raw Transcript
.10May-2012
Operator: Please stand by. We are about to begin. This call is being recorded. Your lines will be muted for the
duration of the call. Please stand by.
At this time, I would like to turn the call over to JPMorgan Chase's Chairman and CEO, Jamie Dimon. Mr. Dimon,
please go ahead.
Jamie Dimon
Operator, thank you. Good afternoon, everybody. I would like to thank you all for joining on short notice. I want to
update you on a few items that we have in our just filed lO-Q.
Specifically, we had given prior guidance that Corporate - that net income in the Corporate segment - notice it's
not the corporation, it's one of the segments - ex Private Equity and litigation would be approximately plus or
minus $200 million. This includes the cra's overall performance.
We currently estimate this number to be minus $800 million after-tax. This change is due to two items; both in
cra this quarter - I'm going to get back to give you pre-tax numbers now - slightly more than $2 billion trading
loss on our synthetic credit positions and a $1 billion of securities gain, largely on the sale of credit exposures.
I want to remind you that CIO has over $200 billion in its investment portfolio and unrealized gains as of March
30th of $8 billion. cra manages all its exposures in total as" a whole, and it doesn't in light of the Firm's total
requirements.
We are also amending a disclosure in the first quarter press release about CIO's VAR, Value-at-Risk. We'd shown
average VAR at 67. It will now be 129. In the first quarter, we implemented a new VAR model, which we now
deemed inadequate. And we went back to the old one, which had he.en used for the prior several years, which we
deemed to be more adequate. The numbers I just gave are effective March 30th, the first quarter .
. Regarding what happened, the synthetic credit portfolio was a strategy to hedge the Firm's overall credit exposure,
which is our largest risk overall in its trust credit environment. We're reducing that hedge. But in hindsight, the
new strategy was flawed, complex, poorly reviewed, poorly executed and poorly monitored. The portfolio has
proven to be riskier, more volatile and less effective than economic hedge than we thought.
What have we done? We've had teams from audit, legal, risk and various control functions all from corporate.
involved in an extensive review of what happened. We have more work to do, but it's obvious at this point that
there are many errors, sloppiness and bad judgment. I do remind you that none of this has anything to do with
clients.
We've had many lessons learned and we've already changed some policies and procedures, as we've gone along. In
. addition, you should know that all appropriate corrective actions will be taken, as necessary, in the future. Most
important, some of our hest talent from across the company, particularly traders and risk managers, are fully
engaged in helping to manage the portfolio.
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JPMorgan Chase & CO. (JPM)
~ Raw Transc ript
IDMay2012
The portfolio still has a lot of risk and volatility going forward. So how are we going to manage that? So, number
one, w e ~ r e going to manage it to maximize the economic value for shareholders. YVhat does that mean? It means
that we're not going to do something stupid. We're willing to hold as long as necessary inventory, and we're willing
to bear volatility.
Therefore, the volatility for the rest of this quarter and next quarter or so will be high. It could cost us as much as
'$1 billlon or more. Ohviously, we're going to work hard to have that not be a negative at all. But it is risky, and it '
will be for a couple of quarters. '
Clearly, markets' and our decisions will be a critical factor here. Hopefully, this will not be an issue by the end of
the year, but it does depend on the decisions and the Illarkets - the decisions we make in the markets we have.
However unfortunate this event is, I do want to pilt this in perspective. One of the reasons we keep a fortunate
balance sheet is to handle surprises, although this is not the kind of surprise we wanted to have. Our Basel I ratio
will stay very strong and it doesn't change at all as a result of - March 31 result is, our Basel III ratio, which
remembers a rough estimate anyway will be amended down to 8.2% from 8-4% effective March 30. We will
however in the future continue to meet our very conservative targets for both Base) I and Basel III.
While we don't go - I also want to say, while we don't give overall earnings gnidll.nce and we are not confirming
current analyst estimates, if you did adjust current analyst estimates for the loss, we still earned approximately $4
billion after-tax this quarter give or take.
Neither of these things absorbs us from blame. So speaking for the Senior Management team and myself, while we
can't assure you we won't mistakes, we will - we can assure you we are going to try not to. These were grievous
mistakes, 'they were self inflicted, 'we were accountable and we happened to violate our own standards 'and
principles by how we want to operate the company. This is not how we want to run a business.
We will discuss all these matter and more and in fulsome detail on our second quarter analyst call and we are
going to take some questions on this call. I do want to tell yon ,now we are not going to tal,e questions about
specific risk positions, strategies 01' specific people.
Finally, however unfortunate incident is, we will do what we always do, we admit it, we will learn from it, we will
fix it, we will move on, hopefully in the end, it will make us a better company. We are business to serve clIents and
nothing here distracts all the great things that our 203,000 employees around the world do every day for our
clients. and communities.
So thank you for spending a little time with us and we'll be happy to take a few minutes of questions.
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QUESTION AND ANSWER SECTION
Operator: Your first question is from Glenn Schorr with Nomura.
Glenn Schorr
\I Raw Transcript
IO-May-2D12
Q
Hi thanks. Just curious on when this was caught, if it wasn't caught internally or caught by a regulator when you '
update the regulators, when you talk t? the agencies, just curious on how all inner workings works?
Jamie Dimon
A
You shouJd assume that we try to keep our readers update about what we know and when we know it and it's just a
constant practice of the company. And when I said, it was caught, vVe started dig into this more and more, most of
things were bearing big losses in the second quarter. And of course, when you start to see something like that you
act probably - obviously we shouJd have acted sooner.
Glenn Schorr
Q
So I am not clear when did the losses accumuJ"te? In other words was this something that happened most recently
or this was an era in the past and is just updating your risk amount now? '
Jamie Dimon
There were small ones in the first quarter, but real ones that we talked about the $2 billion were all in the second
quarter. And it kind of grew as the quarter went on. And obviously it got our attention, that and other things,
which come to our attention. .
Glenn Schorr
Q
Got it. Okay, thanks, Jamie.
Jamie Dimon
A
You are welcome.
Operator: Your next question is from Guy Moszkowski with Bank of America Merrill Lynch.
Jamie Dimon
Hey, Guy. Guy?
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I Raw Transcript
10-May2012
Operator: Guy, your line is open. Please make sure that your 'line is not muted. There is no response from Guy.
So we will move to the next question, that question is from Matt Burnell with Wells Fargo Securities.
Matthew Burnell
Q
Good afternoon, Jamie. Just tvvo interrelated question, does ,this change your capital plan for 2012, or does this
have any effect of the regulatory plan that submitted earlier this year to the regulators?
Jami e Dimon
A
No. I do want to say one other thing that a lot of us have analysis week, buy-side and sell-side and we feel terrible
. because we obviously knew a lot but because of FD we couldn't say anything. So on behalf of all of the JPMorgan
people who did that and I personal ly know that it's the [indiscernible] this week we do obviously apologize for
that . .
Matthew Burnell
Thank you.
Operator: Your next question is from Moshe Orenbuch with Credit Suisse.
Moshe Orenbuch
Q
Great, thanks. Was that - the 1 billion of securities gain you said was related to that coming out of CIO was that
part of the same red.uction and could you talk a little bit about the process of kind of mitigating the risk of the
balance of the next couple of quarters?
Jamie Dimon
A
Yeah, we wanted to reduce our overall credit exposure and there were AFS securitieS in CIO gains we sold those
and took gains. .
Moshe Orenbuch
Q
And in terms of the process of getting the exposure down over the next several quarters, I mean can you talk a
little bit about - about how that ...
Jamie Dimon
A
We're going - we have the top teams involved we've reviewed a couple of - probably a couple of times a day at this
point and I've always said that the principle wise how we're going to do that. Maximize economic value, volatility
obviously you can lose more money and I mean I can repeat it five times but that's what we're going to do.
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JPMorgan Chase & CO. (JPM) I Raw Transcript
Business Update Call 10-May-2012
Moshe Orenbuch Q
Okay, thanks.
Jamie Dimon
A
Yeah.
. .. ...... .... .. ....... . " ... , .. . " ..... . " .. ... ..... .. " .... ..... .. .... " .... : ..... . , .. .
Op erator': Your next question is from Matt O'Connor with Deutsche Bank.
J'amie Diinon
A
Hi, Matt.
Matthew O'Connor
Q
Hi. I hope this is another stupid question but I guess when I sit back and I think about the earnings power and all
the moving pieces of your company my first thought is on a net basis $1 billion I guess I still like the message
maybe it's worst than what the numbers are and I'm trying to better understand you know why youtelt like you
need to disclose it in the Q, what's - because last quarter you had 2.5 billion of litigation and you absorbed that
then some.
Jamie Dimon
A
Yeah.
Matthew O'Connor
Q
So it just seems like .. .
'." .::i. : ... . .. . " ... " ..... .. . ... ' .n . .. .. " " . . .. .... ..... .. . ... . .. ... ... ..... .. , . . .. . .. . .. . .. . .... . .. .... .... . ,. . . ..
Jamie Dimon
A
No, it's a very good question and that fact is, first of all - we've already said it could getworse and it's been going
on for a little bit, unfortunately. That's number one. Number two is, so soon after the end of the first quarter when
we basically gave you different kind of guidance.
And number three just what to tell you what we know, we're not telling its, worse, not could I completely agree
~ h a t you said. It's not going to stop us to building a great company. But it's unfortunate and cif courSe it's going to
raise questions and we just want to answer thQse as best we can.
Matthew O' Connor
Q
Okay. Thank you.
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Business Update Call '
\\i Raw Transcript
10-May-2012
Oper ator: Your next question is from John McDonald with Sanford Bernstein.
John McDonald
Q
Yes.
Jamie Dimon
.A
Hi, John:
, ,
John McDonald
Q
Yeah. Hi, Jamie. So just - while we have you, did - was there any other items ,in the Q that changed in terms of
your outlook not having any chance to go through it yet?
Jamie Dimon
A
I don't know it they were running it on CNBC, the litigation and potential future, but I think it was like almost the
same number from the past. And I think most of the guidance was approximately the same, right?
A
A little bit of guidance around the investment bank trading and ...
Jamie Dimon
.A
Right, okay.
A
And mortgage margin?
,,: .. .................. : .... .
. ... " .......... ' ...... .. ........ .. ............ ......... .............. .... .
John McDonald
Q
Okay. No, change on your expense. You're still looking to keep you adjusted at the 49 billion this year?
Jamie Dimon
There was - yeah,'there was no comment in there at all.
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John McDonald
Okay. So we shouid assume you're still shooting for that?
Jamie Dimon
Well, of course. Yeah. Butthat can change too, but yes.
John McDonald
I Raw Transcript
10-May-2012
Q
.. .... . .... ;1.
A
Q
Okay. And then, any - too early to kind of just think about a broader rethinking of CIO and how it's structured or
how you managed the risk that you're looking to hedge there. Is it too early on that or any comments just from a
big picture there?
.: ...................... , .. . .
Jamie Dimon
A
Yeah, so all - remember all banks have fairly big - alJ banka have portfolio and big banks have basically large
portfolios. You have to invest excess cash, have invested around the world in deposits and remember the CIO has
done a great job for a long extended period oHime. This was a unique thing we did and obviously it had a lot of
problems and we are changing appropriately as we are getting our hands around it, but we are going to have a CIO
who is going to have talented people there, continue to do what they've always done.
John McDonald
Q
Okay. And a last thing, the $800 million for this quarter, that's only for this quarter, you are not talking about
continuing we will see on the future quarters but that's just for this quarter right. .
Jamie Dimon
A
It' s this quarter, currently. So we were telling you, there is going to be a lot of volatility here and could easily get
worse this quarter or better, but could easily get worse and the next quarter we also think we have alot of volatility
next quarter. I am not going to update about number changes a lot. We are not going to make calls every tim,e the
number moves around, by $0:5 billion. . ,
John McDonald
Okay_ Thanks.
Jamie Dimon
Okay. Yes.
Operator: Your next question is from Bill Rubin from BlackRock.
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Q
8
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Bill Rubin
I Raw Transcript
10-May-2012
Q
Yes. I don't know if this was asked or ranched [ph] yet, but this doesn't change anything with the c-core [pb]
capital plan or the buyback capability at all, does it?
Jamie Dimon
A
I don't think so because our capital is strong, we are going to meet all our commitments, we can handle highly
stressed envrronment,.- so no, we don't think so.
Bill Rubin
Q
So you can be in the market tomorrow after this?
Jamie Dimon
A
I believe so.
Bill Rubin
Q
Okay. Thanks.
Jamie Dimon
A
My general counsel is sitting right here, so he would have kicked meifI was wrong.
Bill Rubin
Q
Thank you.
Operator: Your next question is from Guy Moszkowski with Bank of America Merrill Lynch.
. . .
Guy Moszkowski
Q
Hi hopefully this will work better.
Jamie Dimon
A
Hey Guy, did you hear my little apology?
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Guy Moszkowski
No, I didn't. But I didn't hear anything for a few minutes. So - but, thank you.
Jamie Dimon
. WI Raw Transcript
lD-May-2D12
Q
A
I apologize .. When you were here, I knew you were here and I didn't have - obviously I couldn't tell you about this
and, of course, I feel terrible about that.
Guy Moszkowski
Q
Well, that's okay. Thank you. Listen, I'd really like to understand what type - why you felt that you neede.d to add
this kind of synthetic credit exposure? Were you ...
Jamie Dimon
Okay.
Guy Moszkowski
Q
Were you not esteemed that you had enough exposure through core lending businesses; and what was going on?
Jamie Dimon
A
Exactly. The original premise .of the synthetic credit exposure was to hedge the company in a stress credit
environment. Our largest exposure is credit across all forms of credit. So we do look at the fat tails that would
affect this company. That was tbe original proposition for this portfolio.
In re-hedging the portfolio, I've already said, it was a bad strategy. It was badly executed. It became more
complex. It was poorly monitored. We don't - obviously, we don't have to do anything like this at all, if we don't
want. And I understand you can ask that question. So I don't want to give you specifics because we've already said
we're not going to talk about the actual positions or anything like that. .
Guy Moszkowski
Q
And, Jamie, the $1 billion that you referred to in your prepared remarks about - of incremental loss potential, is
that the max that you envision above and beyond this sort of net $800 million ...
Jamie Dimon
A
No.
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Guy Moszkowski
... after-tax number?
Jamie Dimon
ill Raw Transcript
1OMay2012
Q
A
No. That is - I said the volatility could easily be that. Obviously, it could be worse than that. We're going to
manage this for economics. Hopefully, by the end of the year, it's the hope that this won't be a significant item for
us. We want to maximize the economic of these POSiti?llS and not panic to do anything stupid. Therefore,
we're willing to bear volatility.
Guy Moszkowski
Q
And the final question is how liquid do you view these exposures as being? In other words, granted you don't want
to, you know, make economically silly decisions and just cut it off right here, but how easy would it be for you to
exit completely and just call it a day and be done with it?
hmie Dimon '
A
I think, I have already said, I am not going to talk about specific risk positions at all.
Guy Moszkowski
Q
Okay, I am not asking specific positions just liquidity.
. Jamie Dimon
A
. Yet, you are getting specific. We will do what we have to .do to maximize the shareholder value. We've got to stay in
power andwe are going to use it.
Guy Moszkowski
Q
Okay, fair enough. And thanks very lllUclJ. and thanks for putting me back in the queue. Appreciate it.
Operator: Your next question is from Brennan Hawken with DBS.
Brennan Hawken
Q
Hi.. Just kind of curious to the extend that you can comment, if you -..if the regulators are aware of this and
whether there has been any regulatory response, if there is heaven forbid any kind of vocal related implications on
this matter? .
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Business Update Ca ll
Jami e Dimon
-v
III Raw T ranscripf
10May-2012
A
. I .think you should assume, I can answer this 100 times, you should assume that we keep our regulators up to date.
That is a policy of the company. Sometimes you don't give them great information, we don't have great
information. You can assume they are up to date. They will take their own point of view on this.
Brennan Hawken
Q
. ~ . ' .
Okay: Ijustd.ldn;t know whether they made ...
Jamie Dimon
A
We always said, this violates our principles whether or not it violates Voleker principles and you know we want to
rim and build a great company. We do believe we need to have the ability to hedge in a C10 type position and that
Voleker allows that. This trading may not violate the Voleker rule but it violates the diamond principle.
Brennan Hawken
Q
Okay. And you had mentioned that this was a new strategy that you had decided to exit, is it possible for you to let
know how new that strategy was?
Jamie Dimon
A
Not new, it was the - I said new but what I meant is it was the strategy to reduce the credit hedge. So it's kind of a
new strategy was devised. And as I already said it was poorly constructed and poorly monitorial that and that's the
place over the course of less couple of months. .
Brennan Hawken
Q
. And the implication I guess might have been that there was all this fresh spepuation about certain trading
individuals out of London where some staff fairly new that came into execute this new or this some of this new
angle and are those folks nO longer in that that's been retriggered I think you said, right?
Jamie Dimon
A
No, no nothing new folks a little bit to do with the Oracle the press so it was somewhat related to that it's obviously
more than that but somewhere related to that. And I also think we acted a little too defensively to that.
Brennan Hawken
Okay, thanks for the color.
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Copyright 2001-2012 FactSet CaliStreet, LLC
JPMorgan Chase & Co. (JPM) I Raw Transcript
Business Update Call _____________________________ 1...:0...: .M...:a::.y...:-Z::.Ol:.::.2
Jamie Dimon
A
Yeah.
Operator: Your next question is from Mike Mayo with Credit Agricole Securities.
Mike Mayo
Q
Hi.
Jamie Dimon
A
Hi.
Mike Mayo
Q
How much of the $2 billion trading loss is due to terrible execution which you mentioned versus the environment
you seem to be implying none of this is due to the environment?
Jamie Dimon
No, no I'm sorry. I think in hindsight their strategy that obviously the environment because these are
mark to market positions. So obviously that. I just don't want to make excuses and start talking abont market and .
dlslocational stuff like that because that's truly just an excuse. .
Mike Mayo
Q
. And so would this be a JPMorgan specific issue or is ther e a chance to others also have some losses on similar
positions? . "
Jamie Dimon
A
I don't know just because we are stupid doesn't mean everybody else was. I have no idea what the people are
doing.
Mike Mayo
Q
And just in real simple terms in siX weeks you lost $2 billion so - and as simpl e as you can simple it what went
wrong?
Jamie Dimon
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Copyright 2001-2012 FactSet Call Street, He
Ii Raw Transcript

You already mentioned, there're huge moves in the market place, is a - we made this position more complex. The
strategy was barely executed, barely monitored. And like I repeated 800 times, I'm not going to get into too more
specifics tban that.
Mike Mayo
Q
And you meutioned ...
Jamie Dimon
A
But Mike, we will be - I already said, at tbe end of the quarter we will be talking more abont this to satisfy your
needs and ours.
Mike Mayo
Q
And you - can you say what recon [ph] tbis was done and you're not going to disclose any of tbat?
Jamie Dimon
A
Global.
Mike Mayo
Q
Global. And what caused you to change the VaR model in tbe first place? I mean you had'sometbing that was
working and you changed it .
... .. ... .. . ........ .. ...... .. ,," . .. ... " ... " .................................................... -:.,... ............. ... .
Jamie Dimon
A
There are constant changes and updates to models, always trying to get tbem better tban they were before. That is
an ongoing procedure.
Mike Mayo
Q
And tbis is kind of sensitive, but you've - probably just helping the company of having :..- being great risk
managers and tbis is mistake and you'll - as you say, you'll learn from tbat. But is tbere any sense that tbe mistake
made in the eIO office could also be in place where at JPMorgan?
Jamie Dimon
A
Mike, we operate i11 a risk busines's and obviously it puts egg on our face and we deserve any criticism we get, so
feel free to give it to us, We'll probably agree witb you. But we tbink we run a pretty good company, witb pretty
good risk controls and pretty risk management. We are not in a business where we're not going to make mistakes;
we are going to make mistakes.
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I Raw Transcript
10May2012
We've always said that, hopefully this small, hopefully few and.far between. I'm sorry, could never promise you no
mistakes. This one, we will put ill egregious category and r understand full why you or anybody else will question
us generally. .
Mike Mayo
Q
And lastly, just one last follow-up. You said you had some smaller losses in the first quarter whether - even in
retrospect were there any sings that perhaps you should have paid more attention to looking back?
... .......... " ......... .. " ... .. ........... , ...... ," .... " .. .
Jamie Dimon
A
Yes. In retrospect, yes.
Mike Mayo
Q
What would those be?
Jamie Dimon
A
Trading losses.
Mike Mayo
Q
Okay. So actuiliy .. .
. .. , ... : .......... , ............ .
Jamie Dimon
,A
There is some stuff in the newspaper and bnnch of other stuff.
Mike Mayo
Q
Gotit.
Jami e Dimon
A
Hindsight is- even ill hindsight, it's not 20/20. But with hindsight, yes, obviously, we should have been paying
more attention to it.
Mike Mayo '
All right Thank you.
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15
Copyright 20012012 FactSet CaliStreet.LLC
JPMorgan Chase & CO. {JPM}
'Business Update Call
Jamie Dimon
Yeah. You.'re e l c o m e ~
Operator: Your next question is from Chris KotowsJ,i with Oppenheimer .
.... :'., .. ...... ... .... .... ..
Chris Kotowski
iii Raw Transcript
10-May-2012
A
Q
Yeah. Hi. You said that you still have an $8 billion gain in the AFS securities portfolio. So should we assume that
that's the combination of 50me gains and .sort of the plain vanilla investment portfolio securities that you nomnally
have'and then a negative position here?
Jami e' Dimoh
No. The $8 billion - the synthetic credit is mark-tb-market. There are no unrealized gains or losses. The AF
portfolio is held at cost. The $8 billion is an' unrealized gain in the AFS portfolio. And if you go to our 10-Q, you
could see exactly where those gains reside as of December 31st.
Chris Kotowski
Q
Okay.
Jamie Dimon
A
Okay. They're in positions all over from mortgages, etcetera.
Chris Kotowski
Q
All right.
. Jamie Dimon
A
And we can take some of those gains ...
Chris Kotowski
Q
Okay.
Jamie Dimon
A
We can take some of those gains, and we can take them to offset this loss. We can take them because we want to
reduce other exposures. But usuaIJy, it's tax inefficient. So we're very careful about taking gains.
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Chris Kotowski
III Raw T ranseri pI
10-May-2012
Q
Right. And so when you said this quarter there was $1 billion of gains and,a $2 billion trading loss. the $1 billion of
gains, that was in other portfolios. It had nothing to do with these.
Jamie Dimon
A
No. The $1 billion of gains is in the AFS portfolio. On March 31st, it had an $8 billion unrealized gain. We realized
$1 billion of it, bringing it down to $7 billion, but it's higher today than it was then. So it shouJd be something 7-
plus right now.
Chris Kotowski
Q
Okay. And I have a feeling, I know the answer, but obviously in a skittish world where people are always worked
about exposures to pigs and all these kinds of things and there is always it feeling that one can rarely get the real
exposures, is there any way you can draw a box around how big the bread box is and ...
Jamie Dimon
A
I've already done that for you, to the extent I am going to do it.
Chris Kotowski
Q
Okay. Thank you.
Jamie Dimon
A
You'-re welcome.
Operator: Your next question is from Keith Horowitz with Citigroup.
Keith Horowitz
Q
Hey J a,mie. Thanks for coming clean on this and I think it's important that you did, I guess the question I really
had is you are open about the strategy that was poorly monitored, but the real question I guess I had is do you feel
that the hedge put on, the position put on, was the intention really to hedge or do you f e ~ l l i k e the person you put
it on, his intention for profits [ph] or to make sure ...
Jamie Dimon ,
A
It's been on for a long time, it actually made money. I won't talk about what it did, it actually did quite well. It was
there'to deliver a positive result in a quite stressed environment and we feel we can do that and make some net
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I Raw Transcript
I 0-May-201 2
income. And that was - and in the process of changes new environments, new markets and all that, I've already
described the outcome.
Keith Horowitz
Q
So we had a stressed environment in terms of credit and so this is where your strategy [phl didn't work but you
feel that as you go back and put money more in quarter back and you look at how the position got so big, do you
feel that itwas done with the intention of trying to hedge the tail risk for JPMorgan?
Jamie Dimon
A
I know it was done with the intention to hedge the tail risk for JPMorgan, but I am telling you, it morphed over
time and the new strategy which was meant to reduce the hedge overall made it more complex, more risky and it
was unbelievably ineffective. And poorly monitored and poorly constructed a.nd poorly reviewed and all that.
Keith Horowitz
Q
Okay. The other thing on that is you had guidance of 200 million per quarter for corporate and its mostly for 2012
but as you kind of think longer term for that business line is that a business line you still think will continue to
make money or is this kind of meant to be more just hedge ...
Jamie Dimon
A
It's not a business .line for the most part it is net corporate expenses which move around we always give you what
we think that number is going to be so you can put in your models. And it's the net income that is not allocated
from CIO's portfolio to the businesses. The net ineome from CIO's portfolio is allocated on the consistent basis
and this is the net residual space here. There are also other things in corporate that run through this ... You know
. there is just a lot of things that run through corporate. So as you know the 200 million was its kind of a guidance
that bounce around overtime.
Keith Horowitz
Q
And then the last question is I guess when you thought about the business when you took over and you thought
about this corporate line business is going to shape up investment office do you feel like the mandate has changed
over the last five years or do you feel that the mandate is still the same. as it was five years ago? .
Jamie Dimon
A
You know a little change I mean first of all when we got here remember the portfolio went from $150 billion to
300 there were a lot of cash coming in which we had to invest. And we did - I think we improved - I read
somewhere that we made it more aggressive I wouldn;t call more aggressive I would call better which we added
different types of people, talented people and stuff like that. That is what we were supposed to do. We will manage
that fixed income portfolio to maximize the returns to the shareholders and we've been very, very careful. So look
at all the things we've done we've been very careful. So if you look at all of the th.ings we've done, we've been very
careful and, I think, quite successful. And this is obviously not in that category.
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Busi ness Update Call
Keith Horowitz
Okay. Thank you.
.J amie Dimon
I Raw Transcript
10-May-2012
Q
A
All right. I should point out to all the folks on the phone, you could see - you can go to the lO-Q and see what
people have those portfolios. And some banks do some things and some do others, but to invest it in actual [ph]
deposits, you buy securities. That's been going on for 100 years in banking. .
Operator: [Operator Instructions] Your next question is from Nancy Bush with NAB Research.
Jamie Dimon
A
Hey, Nancy.
Nancy Bush
Q
Good afternoon. Obviously, Jamie, the timing of this could not be much worse. And I kind of go back to the
Voleker issue. If Dick Durbin stands on the floor of the Senate tomorrow and says this is why we need the Voleker
Rule, what's your replay?
Jamie Dimon
A
It is very unfortunate: But the fact of it is this does not change analyses, facts, detailed argument. It is very
unfortunate. It plays right into all the hands of a bunch of pundits out there, but that's like not to do with that.
Nancy Bush
Q
Okay. Thank you.
Operator: There are no further questions at this time.
Jamie Dimon
Folks, thankyou very much. We're sorry to have to call you on a short notice for something like this, but we
appreciate you taking the time. Thank you.
Operator: Thank you for participating in today's teleconference. At this time, you may now disconnect.
,
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Disclaimer
WI Raw Transc ript
1O-May-20l2
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Febrmtry 4. 201.3
la"ilmy L E"l
SCniiJf ('ou-llscl
U<S. Scn<1k- Pcnmmenl on Irp/estlgalion:;
199 Rus::.:ell Oflkt.' BuUdf:ng
Washington. D, C 20S Ii!
Douglas L B,'aw),l"ln
Ckiinnan
I illH wrifing 'fG clad IY OIlC aSpdct 6f my InterviGw with yO\] Hna othees on ]3,2,012. ;i\.
1(:i \i.:l1kh I tUicil:J"st.:Hld nom dis;;:llsskH15 rny cl,1tHlsd !hatlherc may besfdHc rnist!!1d(:t:')fatlding,
By wny ('}fbacKgn)UfHJ. !;t:fweell Anti! April 13.1 n:ceivt'd i'nn,rllUlthJi\ ft<:Hrl n mnnhetn('
the C10/LondoH \\!h-ah: issue. [Juring that period, 1 hnd convctsntions. \Viih
ina 0I'e\v;, ).1', N!organ's: Chief OHkcc (lr her n;-,am, In{;\uding
Ci,iid' Risk Oml.;cr Ol:liccr. as wt;ll as with .foI!'Il Hogan, J.P. fvt'urtLtllI'S Chid' Rhlk
I n!!!t\ presentatiuns relating to the C10's {l'tldil1g SITHk\@y the SlaWs ofrh.:;
S)'IHhetic Credit Book of /\priL Dtri'ing tll\': interview. I. re,;;:aHed, and dircl.:l<:d YOUf
rtacntkHllO, Ihe CrcdhSurnmal'Y: Risk.& Pit Sccn:lrlOS," eight"page prepIii'cd
b} the London !CLUJ); \vith irrpul from C,S. {)ltd Olivier 10 l{i sk
Th:J{ provided to me ,,-uld (',thcr$: otl/\pril 11. '! 51h!-r,;Hl .. recllllthti11 rdi:;rred topilgl'!
seven ofthaf pn.'scn!tlliun 1\:-; \)llcof tbe .bnSe5 for my slaicmCJlt on April 13 lJtat J,P. Morgan was '\1('1,)
conrf'ortubk"" wirh lhe pos'ilh_ll1$, and 1 dircL'\cd your attention [0 Ihe \:c Jllral scen'nrlo:) il1chl(kd on {ilM
[)age tin goo;,;, Hhd ihnod o f;'1 nHlge of (ltih:OllH.\'; bc,t\vCCIl H {os;.; of $250 mil !i nn ilnd il gain of
$350.nillioll,
r \\-hh l\vo points. r;lrsL 1 did not SltHe duriag tht: thal rtHtd {'died on page
sevellof th\.' Apdl 11 P(C'$I!-IltHlion for Illy UnclCf1\ l:mding reg-arding the hedging cl'lar;lC{ctislks: orthe
p('!I'Un!!o, Second, my Sla!cmenlS!)lJ April 13 regardint4 those hedging W
!he Iwrffo1ic,":o; design alld histod,:al as.n hedge. t \VHS 110t cOll1lliendng on thl' hedging
eHbctivent:qs of thc-ptwtfblio as of April! J,
I hope this is l1clr>flll to l OW: 'Plt,;)st:' comm;t Reg Brown
nrHa!T)' Weiss (202,663-6t)9'3) ifyo\lhave uny HJnhcr
Si ncere-ly yOUI'5\
Doug Braul15lein
!:."?(i r;Jrk 1' ,'J1.:nU0; N('w Nnvi '{m}. WGllJiJld
ndi!pliUl1t,.!V C)1!I
PSI-J PMC35000001
EXHIBIT #97
I
"
II
I
~
----- -- ~ - - - - - * - ---
Report of JPMorgan Chase & Co. Management Task Force
Regarding 2012 CIO Losses
Jannary 16,2013
i
Permanent Subcommittee on Investi gations I
EXHIBIT #98 I
I
I
I

TABLE OF CONTENTS

I. Executive Summary ......................................................................................................................1
A. Summary of Events .........................................................................................................2
B. Key Observations ............................................................................................................7
C. Remedial Measures .......................................................................................................14
II. Key Facts ...................................................................................................................................18
A. Relevant Personnel ........................................................................................................18
B. Overview of CIO and its Functions...............................................................................21
C. Key Events ....................................................................................................................25
1. Trading ...............................................................................................................25
2. Valuation ............................................................................................................46
3. The London Whale Story and Senior Managements Response ....................56
4. Continued Declines and Internal Reviews .........................................................70
5. Disclosure of the Losses ....................................................................................72
D. Risk Limits and Excessions ..........................................................................................75
1. Value at Risk ......................................................................................................77
2. Credit Spread Basis Point Value ........................................................................80
3. Credit Spread Widening 10% and Stress Loss ..................................................82
III. Key Observations .....................................................................................................................83
A. CIO J udgment, Execution and Escalation in the First Quarter of 2012 Were Poor .....84
1. The Priorities ......................................................................................................85
2. The Trades .........................................................................................................85
3. The Reporting ....................................................................................................86
4. The Concerns .....................................................................................................86
5. The Marks ..........................................................................................................89
6. The Estimates .....................................................................................................89
7. Compensation Issues ..........................................................................................91
B. The Firm Did Not Ensure that the Controls and Oversight of CIO Evolved
Commensurately with the Increased Complexity and Risks of Certain CIO
Activities ................................................................................................................93
C. CIO Risk Management Was Ineffective in Dealing with Synthetic Credit Portfolio ...97
D. Risk Limits for CIO Were Not Sufficiently Granular .................................................103
E. Approval and Implementation of CIO Synthetic Credit VaR Model
Were Inadequate ..................................................................................................104
IV. Remedial Measures ................................................................................................................106
A. CIO Leadership, Governance, Mandate and Processes Revamped. ...........................106
1. Team ................................................................................................................106
2. Governance ......................................................................................................108

3. Mandate............................................................................................................110
4. Reporting and Controls ....................................................................................110
B. Risk Self-Assessment and Risk Management Changes ..............................................112
1. Model Governance and Implementation ..........................................................113
2. Market Risk and Governance ...........................................................................114
3. Risk Independence ...........................................................................................116
C. Firm-wide Risk Governance and Organization ...........................................................116
1. Risk Governance ..............................................................................................117
2. Risk Organization ............................................................................................117
V. Conclusion ..............................................................................................................................119
Appendix A: VaR Modeling ........................................................................................................121
A. Development of the New VaR Model .........................................................................122
B. Operation of the VaR Model .......................................................................................127
C. Discovery of Problems with the New VaR Model and Discontinuance .....................128

1

This Report summarizes the review of the J PMorgan Chase & Co. (J PMorgan or the
Firm) Management Task Force regarding the losses incurred in 2012 by the Firms Chief
Investment Office (CIO).
1
These observations are based on a review conducted by the Task
Force and its legal advisors, which has included a significant number of interviews of current and
former J PMorgan employees, and an examination of millions of documents and tens of
thousands of audio files. The Task Force has shared and discussed these observations with the
Review Committee established by the Board of Directors (the Board) as well as the full Board.
I. Executive Summary

This Report addresses three basic questions. First, it addresses what happened by
describing the trading strategies and activities that in 2012 led to large losses in a portfolio
managed by CIO (the Synthetic Credit Portfolio). Second, the Report addresses how it
happened by offering observations about the flawed trading strategies, lapses in oversight,
deficiencies in risk management, and other shortcomings this incident has highlighted. Finally,
the Report addresses where the Firm is now by summarizing the comprehensive remedial
measures the Firm has undertaken in light of the lessons learned.

1
The Task Force was led by Michael Cavanagh, currently co-Chief Executive Officer of the Corporate
and Investment Bank.
2

A. Summary of Events
2

The Synthetic Credit Portfolio managed by CIO was intended generally to offset some of
the credit risk that J PMorgan faces, including in its CIO investment portfolio and in its capacity
as a lender. The Synthetic Credit Portfolio was composed of both long and short positions in
credit default swap indices and related instruments.
3

By late December 2011, CIO was considering major changes to the Synthetic Credit
Portfolio, both because senior Firm management and CIO management had a more positive view
of the economy, and because the Firm was in the midst of an effort to reduce its risk-weighted
assets (RWA), in connection with which senior Firm management directed CIO to reduce
RWA. In particular, CIO was considering reducing the size of the Synthetic Credit Portfolio
and, as explained afterwards by CIO, also moving it to a more credit-neutral position (a shift
from its short risk orientation in the fourth quarter of 2011). CIO was led at this time by the

2
The description of what happened is not a technical analysis of the Synthetic Credit Portfolio or the
price movements in the instruments held in the Synthetic Credit Portfolio. Instead, it focuses on the
trading decision-making process and actions taken (or not taken) by various J PMorgan personnel. The
description of activities described in this Report (including the trading strategies) is based in significant
measure on the recollections of the traders (and in particular the trader who had day-to-day responsibility
for the Synthetic Credit Portfolio and was the primary architect of the trades in question) and others. The
Task Force has not been able to independently verify all of these recollections.
3
In simple terms, positions in credit default swap indices can be analogized to buying protection similar
to insurance policies on the credit risk presented by groups of companies. Trader A sells Trader B
protection (in the form of credit default swaps) against a range of corporate credit events (for example,
bankruptcy, failure to pay, and/or restructuring) in exchange for periodic premiums. In this scenario,
Trader A is said to be long risk and Trader B is short risk. Unlike most insurance policies, it is
unnecessary for the buyer of protection to own the underlying credit risk.
3

Firms Chief Investment Officer, Ina Drew, and responsibility for implementing these changes
belonged primarily to her, together with the Synthetic Credit Portfolios managers and traders.
4

CIO initially considered achieving these goals by unwinding some of the positions in the
Synthetic Credit Portfolio, including certain high-yield short positions. In mid-J anuary,
however, one of the traders advised Ms. Drew that their unwind efforts had been costly. In
response, Ms. Drew said that the team might have additional flexibility on the RWA reduction
mandate, and that the team should be more sensitive to the profit-and-loss impact of their trading
activities. Thereafter, that trader informed another of the traders who managed the Synthetic
Credit Portfolio that he was not to worry as much about RWA reduction, and that he should
instead focus on profits and losses. Around this same time, this latter trader was also directed to
ensure that the Synthetic Credit Portfolio was well-positioned for future corporate defaults.
In the ensuing weeks, the traders began to add substantially to their investment-grade
long positions, and by J anuary 26, the Synthetic Credit Portfolio had a roughly credit-neutral
position
5
(as reflected in a measure called CSW 10%).
6
By the end of J anuary, the portfolios

4
The names of certain UK-based individuals have been excluded from this document in order to comply
with United Kingdom data privacy laws.
5
It continued to fluctuate thereafter.
6
Credit spread widening of 10% (CSW 10%) is one of several different measurements of how long or
short risk a credit book is. CSW 10% stresses all credit spreads in a book upwardly by 10% and then
calculates the resulting profit-and-loss effect. This one measure is not determinative of the overall risk
status of a portfolio as complex as the Synthetic Credit Portfolio. CSW 10% assumes that all spreads on
all instruments for all maturities change by the same percentage at the same time. CSW 10% ignores the
historical relationships among various instruments as well as any relationships among them that may be
inferred from the market, both of which might provide a more realistic risk predictor. In addition, CSW
4

year-to-date, mark-to-market losses were approximately $100 million. The traders continued to
add to the investment-grade long positions in February. The concept of defending their
positions may have played a role in these transactions.
7
The traders also at this time began to
add substantial high-yield short positions. The traders hoped that the combined effect of these
additions would allow them, among other things, to earn premiums (from the addition of the long
positions); position the Synthetic Credit Portfolio to earn revenues in the event of corporate
defaults (from the short positions); and potentially prevent RWA from substantially increasing
(from a combination of both). The losses continued to grow, however: by the end of February,
the Synthetic Credit Portfolio had experienced an additional $69 million in reported mark-to-
market losses.
The traders continued to grow the Synthetic Credit Portfolio throughout much of March.
In the latter half of the month, the traders concluded that the portfolio remained short
(notwithstanding the fact that under CSW 10%, it appeared relatively balanced), and they
therefore significantly added to its long exposure over the course of several days. By the time
Ms. Drew suspended trading in the portfolio on or about March 23, the traders had significantly
increased both the overall notional size and the long exposure of the Synthetic Credit Portfolio.

10% does not reflect the impact on a portfolio of a corporate default. The CSW 10% measure is
explained in more detail in Section II.D.3.
7
For an explanation of defending positions, seeSection II.C.1.
5

The portfolios year-to-date mark-to-market losses as of the end of the first quarter of 2012 were
approximately $718 million.
8

On April 5, Ms. Drew informed the J PMorgan Operating Committee that the Wall Street
Journal and Bloomberg were planning to run stories about CIOs trading and specifically about
one trader, who was referred to in the articles as the London Whale. CIO was asked to and did
provide information and analyses about the Synthetic Credit Portfolio to J PMorgan Chief
Executive Officer J amie Dimon, Chief Financial Officer Douglas Braunstein and Chief Risk
Officer J ohn Hogan. These analyses concluded, in broad terms, that the Synthetic Credit
Portfolio was generally balanced, that the market was currently dislocated, and that mark-to-
market losses were temporary and manageable. One of the traders in particular expressed
confidence that mark-to-market prices in the Synthetic Credit Portfolio would mean revert.
9

On an April 13 analyst call, Mr. Dimon agreed with an analysts characterization of the publicity
surrounding the Synthetic Credit Portfolio as a tempest in a teapot and Mr. Braunstein stated
that the Firm was very comfortable with its positions.
The losses in the Synthetic Credit Portfolio, however, increased in the weeks after the
April 13 earnings call. These losses prompted senior Firm management in late April to direct

8
This figure includes a $155 million liquidity reserve that was taken on certain of the portfolios
positions, but does not reflect the additional losses reported in the Firms first-quarter restatement
described in Section II.C.5.
9
In this context, the phrase mean revert refers to the potential for the prices or correlations of certain
instruments held in the Synthetic Credit Portfolio to return to their historic average relationships to other
instruments.
6

non-CIO personnel to review and, ultimately, assume control of the Synthetic Credit Portfolio.
A team led by a senior member of Firm-wide Market Risk examined the portfolio, and after
analyzing, among other things, correlations of the positions and sensitivities under a range of
market scenarios, the team concluded and informed senior Firm management that the
portfolio faced much greater exposure than previously reported by CIO. The team also found
that the markets knowledge of CIOs positions would make it even more challenging to reduce
the risks presented by those positions.
In addition to this risk-related review, in preparation for the filing of its Form 10-Q for
the first quarter of 2012, the Firm undertook a review relating to the valuations of certain
positions in the Synthetic Credit Portfolio. Based on this review, the Firm concluded that its
marks at March 31 for the Synthetic Credit Portfolio complied with U.S. Generally Accepted
Accounting Principles (U.S. GAAP). This conclusion was reached in consultation with the
Firms outside auditors, PricewaterhouseCoopers LLP (PwC).
On May 10, the Firm disclosed that there were significant problems with the trading
strategy for the Synthetic Credit Portfolio. In Mr. Dimons words, the strategy was flawed,
complex, poorly reviewed, poorly executed, and poorly monitored. The Firm disclosed that the
Synthetic Credit Portfolio had incurred slightly more than $2 billion in mark-to-market losses up
to that point in the second quarter, with the possibility of additional future losses and volatility.
Shortly after May 10, a Task Force was formed to investigate the causes of the losses. In
the course of the Task Forces ensuing work, it became aware of evidence primarily in the
7

form of electronic communications and taped conversations that raised questions about the
integrity of the marks in the Synthetic Credit Portfolio in March 2012. After consulting with
PwC, the Firm concluded that it was no longer confident that the March 31 marks reflected
good-faith estimates of the fair value of all the instruments in the Synthetic Credit Portfolio.
Accordingly, on J uly 13, the Firm announced that it would be restating its first-quarter net
income, to lower it by $459 million. At the same time, the Firm also announced that it had been
expeditiously reducing risk in the Synthetic Credit Portfolio and that the cumulative year-to-date
losses through J une 30, 2012 had grown to approximately $5.8 billion.
B. Key Observations
The Task Force has made five key observations based on its review. These observations
reflect the Task Forces view that direct and principal responsibility for the losses lies with the
traders who designed and implemented the flawed trading strategy. They also reflect the Task
Forces view that responsibility for the flaws that allowed the losses to occur lies primarily with
CIO management but also with senior Firm management.
To this end, and before outlining its Key Observations, the Task Force offers its
perspective on the roles of some of the Firms senior-most managers in these events. In
particular, the Task Force believes that as the Firms Chief Investment Officer, Ina Drew failed
in three critical areas with respect to the Synthetic Credit Portfolio: first, by failing to ensure that
CIO management properly understood and vetted the flawed trading strategy and appropriately
monitored its execution; second, by failing to ensure that the CIO control functions including
8

the CIO Risk and Finance organizations were performing well and were providing effective
oversight of CIOs trading strategy; and, third, by failing to appreciate the magnitude and
significance of the changes in the Synthetic Credit Portfolio during the first quarter of 2012,
including the increases in RWA, size, complexity and riskiness of the portfolio.
The Task Force also believes that Barry Zubrow, as head of the Firm-wide Risk
organization before he left the position in J anuary 2012,
10
bears significant responsibility for
failures of the CIO Risk organization, including its infrastructure and personnel shortcomings,
and inadequacies of its limits and controls on the Synthetic Credit Portfolio. The CIO Risk
organization was not equipped to properly risk-manage the portfolio during the first quarter of
2012, and it performed ineffectively as the portfolio grew in size, complexity and riskiness
during that period.
As the Firms Chief Financial Officer, Douglas Braunstein bears responsibility, in the
Task Forces view, for weaknesses in financial controls applicable to the Synthetic Credit
Portfolio, as well as for the CIO Finance organizations failure to have asked more questions or
to have sought additional information about the evolution of the portfolio during the first quarter
of 2012. This includes the failure by CIO Finance to have sufficiently questioned the size of the
positions, the increase in RWA notwithstanding the RWA reduction mandate and the Synthetic

10
J ohn Hogan, who succeeded Mr. Zubrow as the Firms Chief Risk Officer in J anuary 2012, did not
have sufficient time to ensure that the CIO Risk organization was operating as it should. Nevertheless,
the Task Force notes that there were opportunities during the first and second quarters of 2012 when
further inquiry might have uncovered issues earlier.
9

Credit Portfolios profit-and-loss performance. And while the Task Force believes that the
principal control missteps here were risk-related, the CIO Finance organization could have done
more. That they did not stems, in part, from too narrow a view of their responsibilities i.e., a
view that many of the issues related to the Synthetic Credit Portfolio were for the Risk
organization and not for Finance to flag or address.
The Task Forces views regarding Firm Chief Executive Officer J amie Dimon are
consistent with the conclusions he himself has reached with respect to the Synthetic Credit
Portfolio. Mr. Dimon has stated:
CIO, particularly the Synthetic Credit Portfolio, should have gotten
more scrutiny from both senior management, and I include myself
in that, and the Firm-wide Risk control function. . . . . Make sure
that people on risk committees are always asking questions,
sharing information, and that you have very, very granular limits
when youre taking risk. . . . . In the rest of the company we have
those disciplines in place. We didnt have it here.

* * *
These were egregious mistakes. They were self-inflicted, we were
accountable and what happened violates our own standards and
principles by how we want to operate the company. This is not
how we want to run a business.

As Chief Executive Officer, Mr. Dimon could appropriately rely upon senior managers who
directly reported to him to escalate significant issues and concerns. However, he could have
better tested his reliance on what he was told. This Report demonstrates that more should have
been done regarding the risks, risk controls and personnel associated with CIOs activities, and
10

Mr. Dimon bears some responsibility for that. Importantly, once Mr. Dimon became aware of
the seriousness of the issues presented by CIO, he responded forcefully by directing a thorough
review and an internal program of remediation. Mr. Dimon reports to the Board, and the Board
will weigh the extent of Mr. Dimons responsibility.
* * * * *
The Task Forces five key observations are summarized as follows:
First, CIOs judgment, execution and escalation of issues in the first quarter of 2012 were
poor, in at least six critical areas: (1) CIO management established competing and inconsistent
priorities for the Synthetic Credit Portfolio without adequately exploring or understanding how
the priorities would be simultaneously addressed;
11
(2) the trading strategies that were designed
in an effort to achieve the various priorities were poorly conceived and not fully understood by
CIO management and other CIO personnel who might have been in a position to manage the
risks of the Synthetic Credit Portfolio effectively; (3) CIO management (including CIOs
Finance function) failed to obtain robust, detailed reporting on the activity in the Synthetic Credit
Portfolio, and/or to otherwise appropriately monitor the traders activity as closely as they should
have; (4) CIO personnel at all levels failed to adequately respond to and escalate (including to
senior Firm management and the Board) concerns that were raised at various points during the

11
As discussed below, these priorities included (1) balancing the risk in the Synthetic Credit Portfolio, (2)
reducing RWA, (3) managing profits and losses, (4) managing or reducing VaR, and (5) providing jump-
to-default protection.

11

trading; (5) certain of the traders did not show the full extent of the Synthetic Credit Portfolios
losses; and (6) CIO provided to senior Firm management excessively optimistic and inadequately
analyzed estimates of the Synthetic Credit Portfolios future performance in the days leading up
to the April 13 earnings call.
The Task Force has also considered whether compensation might have played a role in
these matters. Here, the Task Force has concluded that, although the Firm could have done a
better job in communicating to the traders that they would be fairly compensated
notwithstanding the eventual wind-down of the Synthetic Credit Portfolio, the Firms
compensation system did not unduly incentivize the trading activity that led to the losses.
Second, the Firm did not ensure that the controls and oversight of CIO evolved
commensurately with the increased complexity and risks of CIOs activities. As a result,
significant risk management weaknesses developed within CIO that allowed the traders to pursue
their flawed and risky trading strategies. On this point, the Task Force has concluded that senior
Firm managements view of CIO had not evolved to reflect the increasingly complex and risky
strategies CIO was pursuing in the Synthetic Credit Portfolio; instead, they continued to view
CIO as the manager of a stable, high-quality, fixed-income portfolio. As a result, they were less
focused on CIO relative to client-facing businesses, and did not do enough to verify that CIO
was well managed or that the Firm was fully applying its various risk and other controls to the
12

Synthetic Credit Portfolios activities.
12
Compounding the matter, the CIO Finance function
failed to ensure that its price-testing procedures for the Synthetic Credit Portfolio were being
properly and rigorously implemented, and that it produced robust reporting and analytics
regarding the portfolios performance and characteristics. More generally, although primary
responsibility for managing risk lies with the business head and Risk organization, the CFO of
CIO (like the other members of CIO senior management) missed a number of opportunities
during the first quarter to meaningfully challenge the trading strategy.
Third, CIO Risk Management lacked the personnel and structure necessary to manage the
risks of the Synthetic Credit Portfolio. With respect to personnel, a new CIO Chief Risk Officer
was appointed in early 2012, and he was learning the role at the precise time the traders were
building the ultimately problematic positions. More broadly, the CIO Risk function had been
historically understaffed, and some of the CIO risk personnel lacked the requisite skills. With
respect to structural issues, the CIO Risk Committee met only infrequently, and its regular
attendees did not include personnel from outside CIO. As a result, the CIO Risk Committee did
not effectively perform its intended role as a forum for constructive challenge of practices,
strategies and controls. Furthermore, at least some CIO risk managers did not consider
themselves sufficiently independent from CIOs business operations and did not feel empowered

12
The Task Force recognizes that, by the time the Firms new Chief Risk Officer was appointed in
J anuary 2012, separate initiatives were underway both to ensure that appropriate risk management
practices were in place throughout the Firm, and to review and revamp risk limits within CIO. These
initiatives came too late to prevent the losses.
13

to ask hard questions, criticize trading strategies or escalate their concerns in an effective manner
to Firm-wide Risk Management. And finally, the Task Force has concluded that CIO
management, along with Firm-wide Risk Management, did not fulfill their responsibilities to
ensure that CIO control functions were effective or that the environment in CIO was conducive
to their effectiveness.
CIO Risk Management made a number of key missteps, including failures to (1) review
the appropriateness of the CIO risk limits used from 2009 to 2012; (2) ensure that the change to
the CIO Value-at-Risk (VaR) model for the Synthetic Credit Portfolio in J anuary 2012 was
appropriate and being properly implemented;
13
and (3) appreciate the significance of the changes
in the Synthetic Credit Portfolio during early 2012.
Fourth, the risk limits applicable to CIO were not sufficiently granular. There were no
limits by size, asset type or risk factor specific to the Synthetic Credit Portfolio; rather, limits in
CIO were applied only to CIO as a whole. The absence of granular limits played a role in
allowing the flawed trading strategies to proceed in the first quarter, especially as the positions
grew in size.
Fifth, approval and implementation of the new CIO VaR model for the Synthetic Credit
Portfolio in late J anuary 2012 were flawed, and the model as implemented understated the risks
presented by the trades in the first quarter of 2012. As discussed in detail in Appendix A, the

13
For more information on the issues that were identified by the Task Force with respect to the action
plans embedded in the CIO VaR models approval, see Appendix A below.
14

model suffered from significant operational shortcomings that received inadequate scrutiny by
CIO Market Risk, the Model Review Group, and the models developer in the model approval
process. Moreover, although the model produced significantly different results from its
predecessor, the personnel involved in reviewing and approving the new model required only
limited back-testing.
C. Remedial Measures
The Firm has taken comprehensive remedial steps to address deficiencies identified since
the losses. These include the following:
First, the Firm has replaced the individuals within CIO responsible for the losses. It has
terminated the employment or accepted the resignations of the traders and managers who were
responsible for the trades that generated the losses, and is pursuing the maximum clawback of
their compensation. It has also accepted Ms. Drews retirement, as well as her voluntary
agreement to return or waive amounts that the Firm otherwise deemed subject to a clawback.
14

The Firm has also substantially reduced (in some cases, to zero) the 2012 incentive
compensation for a number of employees and, in addition to reductions for specific CIO
employees, has also reduced the 2012 incentive compensation pool for all of CIO.

14
Three of the individuals whose employment was terminated also subsequently agreed to the Firms
clawback demands. In addition, as described in Section IV.A.2, the Firm also expanded the existing
protection-based vesting provisions in certain equity awards to include a specific threshold for CIO.
These provisions permit the Firm to conduct a review of an employees compensation in the event the
financial results for that employees business or function fall below a certain threshold and, as
appropriate, claw back portions of that employees compensation.
15

Second, the Firm has appointed a new, experienced CIO leadership team, headed initially
by Matthew Zames and now by Craig Delany as the new Chief Investment Officer,
15
Marie
Nourie as the new CIO Chief Financial Officer, and Chetan Bhargiri as the new Chief Risk
Officer for CIO, Treasury and Corporate. The new leadership team began promptly to reposition
CIO to focus on its basic mandate, and the Firm also has increased resources for key support
functions within CIO, including Finance and Risk Management.
Third, the Firm has adopted a variety of governance measures to improve its oversight of
CIO, and ensure that CIO is better integrated into the rest of the Firm. For example, the Firm has
instituted new and robust committee structures within CIO, and has taken steps to enhance the
Firms internal audit coverage of CIO activities and ensure tight linkages among CIO, Corporate
Treasury and other operations within the Firms Corporate sector.
16
The Firm has also integrated
the existing CIO Valuation Control Group (VCG) staff into the Investment Banks Valuation
Control Group. In addition, the Firm has established a CIO Valuation Governance Forum
(VGF) as part of a Firm-wide initiative to strengthen the governance of valuation activities.
The Firm has also mandated that the CIO Corporate Business Review be conducted with
increasing frequency, and with the same rigor as similar reviews for the Firms client-facing
lines of business.

15
Mr. Delany reports to Mr. Zames, who has been named co-Chief Operating Officer of the Firm.
16
The Corporate sector (also referred to as the Corporate/Private Equity sector) comprises Private
Equity, Treasury, Chief Investment Office, and Other Corporate, which includes corporate staff units
(such as Audit, Finance, Human Resources, and others) and other centrally managed expense.
16

Fourth, the Firm has overhauled the Risk Committee for CIO and enhanced the
independence of the CIO Risk function. For example, the new CIO Chief Risk Officers
functional reporting practices now conform to his official reporting line; there is no confusion
about his accountability to the Firm-wide Risk function. His compensation and career
advancement will be controlled by the Firm Chief Risk Officer, with input about his performance
from others, as appropriate. CIOs Risk Committee has been renamed the CIO, Treasury and
Corporate Risk Committee, and now has broader responsibilities, covering Treasury and
Corporate functions as well as CIO, and significant representation beyond CIO. The committee
now meets on a weekly basis. Meetings are chaired by Mr. Bhargiri as the Chief Risk Officer for
CIO, Treasury and Corporate, and Mr. Zames as the Firms co-Chief Operating Officer.
Attendees also now include other members of senior management, from within and outside of
CIO.
Fifth, CIO has implemented more than 200 new or restructured risk limits covering a
broad set of risk parameters, including geographic and concentration risks. With respect to the
Synthetic Credit Portfolio in particular, a total of 25 new granular limits were applied in May
2012, including limits specific to the Synthetic Credit Portfolio and limits measuring geographic
exposure, credit-type exposure, single-index positions (effectively a notional-type limit), and
curve shifts and compression.
Finally, under the guidance of its Chief Risk Officer, the Firm has conducted a
comprehensive self-assessment of its entire Risk organization and, as a result, has implemented a
17

series of improvements both Firm-wide and within the lines of business. In addition to working
to improve model development, review, approval, and monitoring, the Firm is reaffirming and,
where appropriate, revising its market risk limits across all of its lines of business, and has
already introduced additional granular and portfolio-level limits. It has strengthened the Firm-
wide limit excession policy to provide for more rapid escalation and a more thorough review. It
is working to further improve market-risk reporting, and has made substantial enhancements to
risk reports presented to the Board of Directors Risk Policy Committee (DRPC).
17
The Firm
also has restructured its Firm-wide Risk Operating Committee in order to increase focus on
identifying and implementing best practices across the Firm. Finally, the Firm has enhanced the
structure of its Risk Governance Committee and established a Firm-wide Risk Committee.
The Task Force noted that while substantial progress has been made with respect to each
of these initiatives, the Firm considers the improvement of its risk practices to be a continuing
exercise and thus, its work in this area is ongoing.

17
According to its charter, the DRPC is responsible for oversight of managements responsibilities to
assess and manage the corporation's credit risk, market risk, interest rate risk, investment risk, liquidity
risk and reputation risk, and is also responsible for review of the Firm's fiduciary and asset management
activities.
18

II. Key Facts
A. Relevant Personnel
The key individuals discussed in this Report include:
Senior Firm Management
Jamie Dimon: Mr. Dimon is the Chief Executive Officer and Chairman of
J PMorgan. Mr. Dimon became CEO on J anuary 1, 2006, and one year later also
became Chairman of the Board. He was named President and Chief Operating
Officer upon the Firms merger with Bank One Corporation on J uly 1, 2004.
Douglas Braunstein: Mr. Braunstein was the Chief Financial Officer and a
member of the Operating Committee
18
of J PMorgan between 2010 and the end of
2012, reporting until J uly 2012 to Mr. Dimon and thereafter to Mr. Zames. He
recently stepped down from his role as CFO and currently serves as a Vice
Chairman of the Firm. Marianne Lake, the former Chief Financial Officer of the
Firms Consumer & Community Banking business, succeeded Mr. Braunstein as
CFO.
John Hogan: Mr. Hogan is the Chief Risk Officer and a member of the
Operating Committee of J PMorgan, reporting to Mr. Dimon. Mr. Hogan was

18
The Operating Committee is the most senior management committee responsible for the major lines of
business and functions of the Firm.
19

appointed to this position in J anuary 2012, and previously served as the Chief
Risk Officer for J PMorgans Investment Bank since 2006.
Barry Zubrow: Mr. Zubrow is the Head of Corporate and Regulatory Affairs.
He previously served as Chief Risk Officer of J PMorgan. He reported to Mr.
Dimon from the date he joined the Firm in 2007 until J uly 2012, when he began
reporting to Mr. Zames. He served on the Firms Operating Committee from
2007 until October 2012. Mr. Zubrow announced his retirement from J PMorgan
in October 2012; his retirement is effective February 2013.
CIO Management and Traders
Ina Drew: Ms. Drew was J PMorgans Chief Investment Officer from 2005 until
May 2012, when she retired from the Firm. She was a member of the Firms
Operating Committee and reported to Mr. Dimon.
Other UK-based CIO managers and traders with responsibility for the Synthetic
Credit Portfolio who are not named in this document due to United Kingdom data
privacy laws.
CIO Risk Personnel
Irvin Goldman: Mr. Goldman was CIOs Chief Risk Officer from J anuary
through mid-May 2012, reporting to Mr. Hogan with dotted line reporting to
Ms. Drew. Prior to becoming Chief Risk Officer, Mr. Goldman had served as
CIOs Head of Strategy. He resigned in J uly 2012.
20

Peter Weiland: Mr. Weiland was the Head of Market Risk for CIO and the most
senior risk officer within CIO prior to mid-J anuary 2012, when he began
reporting to Mr. Goldman. Mr. Weiland resigned in October 2012. From 2009
until mid-J anuary 2012, Mr. Weiland reported to Mr. Zubrow, with dotted line
reporting to Ms. Drew. From J anuary 2012 until May 2012, Mr. Weiland
reported to Mr. Goldman. Thereafter, Mr. Weiland reported to Mr. Bhargiri until
October 2012.
CIO Finance Personnel
John Wilmot: From J anuary 2011 to mid-May 2012, Mr. Wilmot was CIOs
Chief Financial Officer, reporting to Ms. Drew, with dotted line reporting to
Mr. Braunstein. Prior to serving as the CFO of CIO, Mr. Wilmot was responsible
for Bank Owned Life Insurance and J PMorgan Partners Private Equity
Investments within CIO. Mr. Wilmot has announced his resignation and is
expected to leave J PMorgan in 2013.
Other CIO Personnel
Other UK-based CIO personnel who were involved at various times with the
Synthetic Credit Portfolio but who are not named in this document due to United
Kingdom data privacy laws.
21

Risk Personnel
C.S. Venkatakrishnan: Mr. Venkatakrishnan is the Head of Model Risk and
Development. Mr. Venkatakrishnan assumed this position in February 2012, and
reports to Mr. Hogan. Prior to February 2012, Mr. Venkatakrishnan was the Head
of Investment Bank Structuring and Pricing Direct.
Other UK-based Risk Personnel who were involved at various times with the
Synthetic Credit Portfolio but who are not named in this document for data
protection purposes.
B. Overview of CIO and its Functions
J PMorgan is a global financial services firm and one of the largest banking institutions in
the United States, with more than 250,000 employees. The Firm had $2.3 trillion in assets and
$183.6 billion in stockholders equity as of December 31, 2011. The Firms major businesses
include financial services for consumers and small businesses (including mortgage lending,
student and auto lending, credit card lending and branch banking), commercial banking, financial
transaction processing, investment banking and asset management.
J PMorgans businesses take in more in deposits than they make in loans and, as a result,
the Firm has excess cash that must be invested to meet future liquidity needs and provide a
reasonable return. The primary responsibility of CIO, working with J PMorgans Treasury, is to
manage this excess cash. CIO is part of the Corporate sector at J PMorgan and, as of December
31, 2011, it had 428 employees, consisting of 140 traders and 288 middle and back office
22

employees. Ms. Drew ran CIO from 2005 until May 2012 and had significant experience in
CIOs core functions.
19
Until the end of her tenure, she was viewed by senior Firm management
as a highly skilled manager and executive with a strong and detailed command of her business,
and someone in whom they had a great deal of confidence.
CIO invests the bulk of J PMorgans excess cash in high credit quality, fixed-income
securities, such as municipal bonds, whole loans, and asset-backed securities, mortgage-backed
securities, corporate securities, sovereign securities, and collateralized loan obligations. The
bulk of these assets are accounted for on an available-for-sale basis (AFS), although CIO also
holds certain other assets that are accounted for on a mark-to-market basis.
Beginning in 2007, CIO launched the Synthetic Credit Portfolio, which was generally
intended to protect the Firm against adverse credit scenarios. The Firm, like other lenders, is
structurally long credit, including in its AFS portfolio, which means that the Firm tends to
perform well when credit markets perform well and to suffer a decline in performance during a
credit downturn. Through the Synthetic Credit Portfolio, CIO generally sought to establish
positions that would generate revenue during adverse credit scenarios (e.g., widening of credit

19
Prior to assuming her role as the Firms Chief Investment Officer, Ms. Drew had more than 20 years of
experience performing asset-liability management for the Firm and its predecessors, including as head of
the Treasury function.
23

spreads and corporate defaults) in short, to provide protection against structural risks inherent
in the Firms and CIOs long credit profile.
20

The positions in the Synthetic Credit Portfolio consisted of standardized indices (and
related tranches
21
) based on baskets of credit default swaps (CDS) tied to corporate debt
issuers. CIO bought, among other things, credit protection on these instruments, which means
that it would be entitled to payment from its counterparties whenever any company in the basket
defaulted on certain payment obligations, filed for bankruptcy, or in some instances restructured
its debt.
22
In exchange for the right to receive these payments, CIO would make regular
payments to its counterparties, similar to premiums on insurance policies. As described in
greater detail below, the actual trading strategies employed by CIO did not involve exclusively

20
Although the Task Force has reviewed certain general background information on the origin of the
Synthetic Credit Portfolio and its development over time, the Task Forces focus was on the events at the
end of 2011 and the first several months of 2012 when the losses occurred.
21
CDS index tranches are financial instruments based on a CDS index, where each tranche references a
different segment of the loss distribution of the underlying CDS index. Tranches have been issued on
several indices, including the CDX North American Investment Grade Index (the CDX.NA.IG). The
lowest tranche, known as the equity tranche, absorbs the first losses on the index due to defaults up to a
maximum of 3% of the total index. The next tranche (mezzanine) absorbs losses of 37%. Further losses
are absorbed by higher-ranking tranches (senior and super-senior tranches). In return for being more
likely to suffer losses, the equity tranche yields the highest coupon (or stream of payments); conversely,
the super-senior tranche yields the smallest coupon.
22
For certain indices, the triggering criteria include other types of adverse credit scenarios. The list of
events that trigger payment is established in the CDS contracts, and the question of whether a triggering
event has occurred is determined by an industry panel convened by the International Swaps and
Derivatives Association.
24

buying protection or always maintaining a net credit short position (under CSW 10%);
23
rather,
CIO traded in an array of these products, with long and short positions in different instruments.
24

The standardized indices in which CIO traded are created by a company named Markit,
and like equity indices, such as the Dow J ones Industrial Average or the S&P 500, these credit
indices can be used by market participants to express general market views rather than a view as
to one particular company. There are two primary CDS index groups, CDX and iTraxx. CDX is
a group of North American and Emerging Markets indices, and iTraxx is a group of European
and Asian indices. Each index group has a number of more specialized indices, such as those
focused on investment-grade (IG for CDX, or MN for iTraxx) or high-yield (HY for
CDX, or XO for iTraxx) companies.
Markit creates a new series of each index every six months; by way of example, the CDX
investment-grade index issued in September 2012 is IG-19 and a corresponding index issued
in September 2007 is IG-9. The newly created indices have updated reference entities: new
companies are added to replace those no longer qualifying for inclusion in a particular index

23
The Synthetic Credit Portfolios trading strategies sought, among other things, to take advantage of
changes in the relative prices (the basis) among different CDS indices and tranche instruments. These
relationships reflect supply and demand in the market, theoretically driven by views on such matters as
the relative strength of U.S. versus European credit, or investment-grade versus high-yield corporate
credit; the likelihood of deteriorating credit in the short term versus strengthening credit in the longer
term; and the likelihood that there will be some, but not too many defaults. In addition, some market
participants trade the skew, or the basis between the index CDS price and prices for the single name
CDS that make up the index.
24
Even when the Synthetic Credit Portfolio was net long under CSW 10%, it could still maintain jump-
to-default protection.
25

because of corporate actions, ratings changes, lack of liquidity or other reasons. The date on
which a new index is published is referred to as the roll date, and because many market
participants seek to take positions in the new index, the roll date is typically a time when there is
a significant amount of trading and liquidity in the market. After the roll date, the older (off-
the-run) series continue to be traded, and some of those series are liquid, but liquidity typically
is concentrated in the newly issued on-the-run series. All of these instruments are issued in
different maturities, of which the most widely traded are the five and ten years.
As of December 31, 2011, the Synthetic Credit Portfolio contained
25
approximately $51
billion in net notional positions of credit index and tranche positions.
C. Key Events
26

1. Trading
From its inception until late 2011, the Synthetic Credit Portfolio generated roughly $2
billion in gross revenues.
27
Coming into the end of 2011, the Synthetic Credit Portfolio
contained sizeable long and short positions in many of the CDX high-yield and CDX investment-

25
The Synthetic Credit Portfolio, on a gross basis, held a larger total of long and short positions.
However, when the long and short positions are netted against each other, these positions result in a
portfolio of approximately $51 billion in net notional positions.
26
This Report sets out the facts that the Task Force believes are most relevant to understanding the causes
of the losses. It reflects the Task Forces view of the facts. Others (including regulators conducting their
own investigations) may have a different view of the facts, or may focus on facts not described in this
Report, and may also draw different conclusions regarding the facts and issues. In addition, the Task
Force notes that its mandate did not include drawing any legal conclusions, and accordingly, this Report
does not purport to do so.
27
This figure reflects the aggregate mark-to-market net gains (profit) for all Synthetic Credit Portfolio
transactions, including the impact of premiums paid and received.
26

grade series, among others, including both off-the-run and on-the-run series and spanning
multiple maturities and tranche positions. In the fourth quarter of 2011, the Synthetic Credit
Portfolio was in an overall short risk posture (as measured by CSW 10%), with a short risk
position in high-yield offset to some extent by a long-risk investment-grade position.
In late 2011, CIO considered making significant changes to the Synthetic Credit
Portfolio. In particular, it focused on both reducing the Synthetic Credit Portfolio, and as
explained afterwards by CIO, moving it to a more credit-neutral position. There were two
principal reasons for this. First, senior Firm management had directed that CIO along with the
lines of business reduce its use of RWA. Second, both senior Firm management and CIO
management were becoming more optimistic about the general direction of the global economy,
and CIO management believed that macro credit protection was therefore less necessary.
Under a series of international agreements known as the Basel Accords, banking
organizations must maintain certain capital ratios. The amount of capital that a banking
organization is required to hold, under most regulatory capital ratios, is measured against the
amount of its RWA, which, broadly speaking, considers the nature of the assets held by the
banking organization, and certain off-balance sheet exposures. Two of the recent Basel Accords,
commonly referred to as Basel II.5 and Basel III, alter the RWA calculation for J PMorgan
and other banking organizations. As the new standards become effective over a phase-in period,
certain assets held by banking organizations such as J PMorgan will generally be assigned a
higher risk-weighting than they are under the current standards; in practical terms, this means
27

J PMorgan will be required to either increase the amount of capital it holds or reduce its RWA.
Basel III has not yet become effective, but J PMorgan has begun voluntarily disclosing estimated
calculations under Basel III in its financial reporting.
In 2011, J PMorgan was engaged in a Firm-wide effort to reduce RWA in anticipation of
the effectiveness of Basel III. The Synthetic Credit Portfolio was a significant consumer of
RWA, and the traders therefore worked at various points in 2011 to attempt to reduce its RWA.
As part of this effort, in late 2011, CIO discussed unwinding certain positions in the Synthetic
Credit Portfolio.
In the last week of December, Mr. Braunstein asked CIO to evaluate the impact of a
further reduction of $20, $40 or $60 billion of RWA (in addition to a $30 billion reduction that,
according to Mr. Wilmot, was already called for under the initial 2012 CIO RWA budget).
28
Ms.
Drew, Mr. Wilmot and two senior members of the Synthetic Credit Portfolio team conferred as
to how they could accomplish this in a manner that would minimize costs and trading losses, and
in their internal discussions on the matter considered the possibility of unwinding additional
positions in the Synthetic Credit Portfolio. According to one of the traders, on or about
December 26, one of the Synthetic Credit Portfolio team members who had been party to these
discussions called him and informed him that Ms. Drew wanted to know how much it would cost
to reduce RWA by an additional amount. The trader informed him that, under the circumstances,

28
Contemporaneous e-mails suggest that the initial 2012 CIO RWA budget called for a $20 billion
reduction.
28

he believed that the solution would be an unwind and that he would ask another trader to prepare
an estimate of how much it would cost. Shortly thereafter, an analysis prepared by another trader
and provided to Ms. Drew, Mr. Wilmot and an executive from the Synthetic Credit Portfolio
team indicated that a 35% proportional unwind of the Synthetic Credit Portfolio would result in a
$10 billion RWA reduction, but could cost slightly more than $500 million. These cost estimates
included trading and execution costs associated with reducing the positions, as well as the
prospective loss of premiums received for any long-risk positions that CIO unwound.
29

Ultimately, the Firm chose not to modify its initial RWA budget, and for 2012, CIO as a whole
was only required to make the RWA reduction contemplated by its original budget.
In early J anuary, the Synthetic Credit Portfolio incurred mark-to-market losses of
approximately $15 million. On J anuary 10, one of the traders informed Ms. Drew that the losses
resulted from the fact that (among other things) it ha[d] been somewhat costly to unwind
positions in the portfolio. Ms. Drew responded that there might be additional flexibility on the
RWA reduction mandate, and requested a meeting to review the unwind plan to maximize p [&]
l.
30

29
Other materials from this time indicate that the traders also believed that an unwind of short positions
would cause them to forfeit revenue that they were positioned to earn upon the occurrence of defaults.
30
Shortly before this exchange, Ms. Drew and Mr. Wilmot had notified Messrs. Dimon and Braunstein
that CIO (as part of its budgeted RWA reduction) would reduce the Synthetic Credit Portfolios RWA by
year-end 2012, from $43 billion to $20.5 billion. They explained that this would be accomplished by
allowing existing positions to expire ($13 billion), as well as via active reduction ($10 billion). Ms.
Drew discussed the RWA mandate around this time with Mr. Braunstein, who informed her that the
deadline for CIO to meet its RWA requirement was the end of 2012.
29

Around this time, Ms. Drew participated in a conference call with Mr. Wilmot and
members of the Synthetic Credit Portfolio team, during which the RWA reduction mandate was
discussed. According to one of the traders, he informed Ms. Drew during that call that the only
certain approach to RWA reduction was to unwind positions, and he advised her that unwinding
25% of the Synthetic Credit Portfolio would cost approximately $500 million. After the
meeting, one of the more senior members of the Synthetic Credit Portfolio team who attended
the meeting instructed the trader to formulate multiple options for RWA reduction for Ms. Drew
to consider.
On or about J anuary 18, Ms. Drew, Mr. Wilmot, Mr. Weiland and two senior members of
the Synthetic Credit Portfolio team met to further discuss the Synthetic Credit Portfolio and
RWA reduction. According to a trader who had not attended the meeting, after the meeting
ended, one of the Synthetic Credit Portfolio team members who had attended the meeting
informed him that they had decided not to reduce the Synthetic Credit Portfolio, and that the
traders focus in managing the Synthetic Credit Portfolio at that point should be on profits and
losses. Nonetheless, RWA continued to be a matter of real concern for that individual and CIO,
and he thus also sent a follow-up e-mail to the meeting participants in which he set out a number
of options for achieving RWA reduction by the end of 2012. In that e-mail, he stated that the
preferred approach was to select an option under which CIO would attempt to convince the Firm
to modify the model that it used to calculate RWA for the Synthetic Credit Portfolio, and delay
30

any efforts to reduce RWA through changes in positions in the Synthetic Credit Portfolio until
mid-year.
At approximately the same time as the mid-J anuary discussions were taking place, a
significant corporate issuer defaulted on its debt. The Synthetic Credit Portfolio was not well
positioned for this event, and a number of the portfolios positions suffered significant losses as a
result.
31
These losses caused management to become concerned that the Synthetic Credit
Portfolio was not providing sufficient credit loss protection. Management therefore instructed
the relevant trader to avoid similar losses on defaults in the future, and to ensure that the
Synthetic Credit Portfolio had appropriate jump-to-default protection in place.
32

In response to this instruction, the traders began to discuss adding high-yield short
positions in order to better prepare the Synthetic Credit Portfolio for a future default.
33
The
traders, in late J anuary, also added to their long positions, including in the IG-9 index (and
related tranches).
34
These long positions generated premiums, and (among other things) would
help to fund high-yield short positions; the traders also believed that these long positions would

31
One of the traders expressed the view that these losses stemmed from the expiry or unwind of certain
high-yield short positions in late 2011. The trading data confirms that certain high-yield short positions
did expire or were unwound during this time, but also indicates that the traders largely replaced them at or
around the same time.
32
J ump-to-default exposure refers to the risk that a position will experience losses through the
instantaneous move to a default on a reference name as a result of a credit event, such as a bankruptcy.
33
Trading data shows that the traders had been adding some high-yield short positions throughout much
of J anuary, prior to this instruction. However, the additions increased substantially in the period after this
instruction.
34
As described below, the traders continued to build this position in February.
31

help offset (from both a credit risk and, potentially, an RWA perspective) their high-yield short
positions. The traders chose to use the IG-9 index for this offset because, as one of them
explained, it had the liquidity of investment-grade credit derivatives but with a feature that
allowed the traders to hedge part of the high-yield structural short as well. The feature to which
that trader was referring is the fact that the IG-9 index contained a number of so-called fallen
angels, which are companies whose debt had been considered investment-grade at the time of
the IG-9s issuance in September 2007, but had subsequently become high-yield. Because the
IG-9 index contained these high-yield reference entities, the traders believed that a long position
in the IG-9 would offset to some degree the high-yield short positions.
35

By the end of J anuary, the Synthetic Credit Portfolio traders had added approximately
$20 billion in long-risk notional positions to their 10-year IG-9 position. At the same time,
however, they also added $12 billion in 5-year IG-9 short risk notional positions i.e., they
bought credit protection on the same companies for which they were selling protection except
that the maturities for this short position were five years from the creation of the index rather
than ten years.
36
The net effect of these additions was to increase the Synthetic Credit Portfolios
long credit exposure, both because they added more long positions than short positions, and also

35
Because not all of the reference entities in the IG-9 instruments overlapped with those in the high-yield
instruments, this strategy also introduced new risks into the Synthetic Credit Portfolio.
36
The traders referred to this trade (the IG-9 Forward Trade) as the forward trade, or at times, as a
flattener.
32

because longer-dated trades are more sensitive to movements in credit spreads than shorter-dated
trades,
37
due to the fact that the exposure to risk is for a longer period.
38
Ms. Drew did not receive detailed trading or position reports on the Synthetic Credit
Portfolio in the ordinary course, did not request any such reports during this time,
39
and regularly
monitored only the Synthetic Credit Portfolios profits and losses, VaR and stress VaR.
40
She
did understand generally around this time that the traders were planning to add long positions in
order to balance the Synthetic Credit Portfolio, and she also participated in a number of meetings
at which RWA and the profits and losses of the Synthetic Credit Portfolio were discussed.
41

37
A longer-dated CDS instrument will move more in price to a given change in a credit spread in the
same way that a longer-dated bonds price moves more to a given change in credit spreads or interest
rates than a shorter-dated bond.
38
A trader from the Synthetic Credit Portfolio team appears to have described this trading strategy in a
J anuary 26 Core Credit Book Highlights PowerPoint that he circulated to other traders on J anuary 26
and on February 2. In that PowerPoint, the trader described the technical details of the trades that make
sense, which involved building a long position and then adding various short positions in the event of a
market rally.
39
Among other things, there is no evidence that Ms. Drew received the J anuary 26 PowerPoint described
in Footnote 38.
40
Stress VaR is a charge for market risk under Basel II.5 based on a 10-day, 99%-confidence level VaR
that incorporates inputs using historical data from a one-year period of significant financial stress relevant
to the Firms portfolio. While VaR assumes volatility consistent with recent market conditions, stress
VaR assumes difficult market conditions.
41
With respect to RWA reduction, Mr. Weiland sent an email to a member of the Synthetic Credit
Portfolio team on February 3 expressing concern that the member was providing overly optimistic
estimates to Ms. Drew as to the likelihood that CIO would be able to convince the Firm to modify its
RWA calculation model.
33

By J anuary 26, the Synthetic Credit Portfolio was roughly balanced, as measured by
CSW 10%.
42
One of the traders contemporaneous e-mails reflect that he understood this, but
also reflect that he began to have concerns which he shared with other members of the
Synthetic Credit Portfolio team about the continued mark-to-market losses in the Synthetic
Credit Portfolio.

Around the same time, in light of these losses, an executive responsible for the
Synthetic Credit Portfolio directed the senior-most trader to focus solely on the Synthetic Credit
Portfolio to the exclusion of his other responsibilities. On J anuary 31, that executive sent an e-
mail to the same trader which he also forwarded to Ms. Drew in which he stated that the
Synthetic Credit Portfolio was not behaving as intended and described the Synthetic Credit
Portfolios performance as worrisome. In the same e-mail, he included one of several late
J anuary e-mails reflecting another traders concern about the Synthetic Credit Portfolios
positions.
43
In that e-mail, the trader explained that, as designed, the Synthetic Credit Portfolio
would lose money now on a default in us hy and make money if the default occurs in ig world.
According to this trader, however, the high-yield positions were losing more money than
expected, and the investment-grade positions were earning less money than expected (i.e., the
price movements were not correlating as expected, leading to mark-to-market losses).

42
By J anuary 31, the Synthetic Credit Portfolio had moved to a modest net long position as measured by
CSW 10%, and it continued to fluctuate thereafter. Although the Synthetic Credit Portfolio was long as
measured by CSW 10% by this time, it could continue to maintain substantial protection against corporate
defaults.
43
This was one in a series of e-mails that the other trader wrote to himself and to other traders in the last
two days of J anuary, all expressing similar views about the performance of the Synthetic Credit Portfolio,
and the options available as to how best to manage it.
34

In separate e-mails on J anuary 30, the same trader suggested to another (more senior)
trader that CIO should stop increasing the notionals, which were becom[ing] scary, and take
losses (full pain) now; he further stated that these increased notionals would expose the Firm
to larger and larger drawdown pressure versus the risk due to notional increases. While the
documentary record does not reflect how, if at all, the more senior trader responded to these
concerns, the traders nonetheless continued to build the notional size of the positions through late
March.
By early February, the traders concern about the losses including his lack of
understanding as to why they were occurring prompted him to request a meeting with his
managers, including Ms. Drew, in order to discuss the Synthetic Credit Portfolio. He prepared a
presentation for the meeting, which he sent to the more senior trader on February 2. The
presentation was provided to Ms. Drew and an executive responsible for the Synthetic Credit
Portfolio on February 3.
44

The trader did not present his slides at the meeting. Ms. Drew did ask the trader how
much more he thought CIO could lose if they reduced the Synthetic Credit Portfolio. According
to this trader, he explained that he thought that the Synthetic Credit Portfolio could lose a
significant amount, perhaps an additional $100 million, and that it was possible that they did not
have the right long position in light of the characteristics of the IG-9 position and the relevant

44
According to a calendar invite sent by Ms. Drews executive assistant for a February 3 meeting (likely
the meeting in question), Mr. Wilmot, Mr. Goldman, Mr. Weiland and various members of the Synthetic
Credit Portfolio team were invited, among others.
35

market dynamics. Ms. Drew appeared not to be overly concerned by this potential $100 million
loss for the portfolio, and instead focused on the Synthetic Credit Portfolios RWA profile.
45

One week after this meeting, the same trader conferred with the attendees of that meeting
(but not Ms. Drew) regarding an anticipated credit event involving another company.
46
He
explained that in order to be better positioned for this event, he would need to buy further
protection on the high-yield index, and finance that protection by adding long positions in an
investment-grade index. He explained that this trading would increase RWA, but was instructed
to proceed, and to concentrate on managing profits and losses. The executive with whom he
conferred also instructed a senior trader to travel to J PMorgans New York offices to see what
could be done to remove the RWA constraint from the Synthetic Credit Portfolio.
Throughout February, the traders continued to add to their investment-grade long
positions, and also at this time began to add significantly to their high-yield short positions. It
appears that among the reasons for at least some of this trading (and possibly other trading
during the first quarter) was that the traders sought to defend the position or defend the P&L.
The phrase was not defined in a consistent way by the traders who used it, but it appears to be a
response to one or more concerns expressed by the traders throughout much of the first quarter.

45
Also on February 3, Mr. Wilmot sent an email to Mr. Braunstein requesting approval to raise [CIOs]
1Q12 RWA by $7bn to $167bn. Mr. Wilmot explained that it was a one quarter request and that CIO
believed they were on target to achieve the $160bn level for 2Q12-4Q12. Mr. Wilmot wrote that CIO
was less confident in the RWA reduction from the MTM book, specifically the tranche book which is
where [CIO hoped] to continue to achieve significant reductions throughout the year.
46
The company in question ultimately filed for bankruptcy in the second quarter.
36

First, the traders appeared to be concerned about creating a perception in the market that CIO
was reversing course on its trading strategy, which would cause other market participants to take
advantage in pricing and trading behavior. Second, they expressed concern that the prices they
were receiving from other market participants were distorted because those with opposing
positions (e.g., CIO was long where they were short) were engaged in tactical trading or were
providing indicative prices that they would not stand behind. The traders appeared to believe
that if they did not respond through additional trading, they would be forced to recognize losses.
Notwithstanding the continued trading, the Synthetic Credit Portfolio continued to
experience mark-to-market losses. On February 13, 2012, a trader advised Ms. Drew of mark-to-
market losses in the Synthetic Credit Portfolio, explaining in an e-mail that we report a loss of
28m from last Tuesday close and attributing most of the losses to the IG-9.
47
The trader in
question subsequently forwarded this e-mail to senior members of the Synthetic Credit Portfolio
team (but not Ms. Drew).
By late February, the Synthetic Credit Portfolio had experienced year-to-date losses of
approximately $169 million. A trader observed around this time that, although credit spreads
had stayed relatively constant, the IG-9 continued to lose ground. This was contrary to his
expectations, and he therefore advised another Synthetic Credit Portfolio trader not to trade IG-9
because he wanted to observe its behavior. He also advised a more senior trader of his plans, but

47
Ms. Drew also received separate daily profit-and-loss reports on the Synthetic Credit Portfolio.
37

the latter instructed him to trade because they needed to participate in the market to understand
the price at which parties were actually willing to transact.
The trader engaged in a significant amount of trading at the end of February, after being
directed by at least one senior member of the Synthetic Credit Portfolio team to increase the
default protection in the Synthetic Credit Portfolio. The trader also traded at this time in order to
determine the market prices of the positions. His trading was not limited to short positions; he
also added a significant amount of long positions specifically in the IG-9 index in order to
offset the cost and risk of the additional short positions. In an e-mail sent to another trader late in
the evening of February 29, he explained, I have sold important amounts of protection in ig9
10yr (close to 7bln all day or 3.5m cs01) and this will push the cs01 beyond the 25m limit. This
is related to month end price moves that were all adverse although we could limit the damage.
I picked [the IG-9 10-year index] because this is the most obvious one when we analyze the lags
we have in the core book. This trade will also increase the rwa snapshot at month end I am
afraid.
48

On February 29, Ms. Drew, Mr. Wilmot, Mr. Goldman and an executive from the
Synthetic Credit Portfolio participated in a regularly scheduled business review meeting with
Messrs. Dimon, Braunstein, Hogan, Zubrow and others. The meeting covered all of CIOs
activities. With respect to the Synthetic Credit Portfolio, the primary focus of the discussion was

48
It is unclear to what limit the trader was referring because neither CIO CS01 limit was $25 million (the
mark-to-market CS01 limit for CIO was $5 million and the aggregate CS01 limit was $12 million), and
both limits had been exceeded by this point.
38

RWA reduction, and the written materials, which were prepared by individuals from Market
Risk and the Synthetic Credit Portfolio team, indicate that CIO was taking steps to reduce RWA.
CIO management did not disclose any significant problems or concerns with the Synthetic Credit
Portfolio, and CIO management did not explain that CIO was not pursuing the expected course
of action of achieving the RWA reduction via an unwind and was instead embarking on a more
complicated and different strategy that entailed adding significantly to the size of the positions.
The written materials prepared by CIO described the Synthetic Credit Portfolio at a very high
level as a Tail Risk Book, and as an option with positive convexity, positive carry

and upside
on large spread widening and default waves (similar to 2008-2009).
49
The materials do not
explain under what scenarios the Synthetic Credit Portfolio could be expected to lose money, or
that:
CIO had decided not to reduce the size of the Synthetic Credit Portfolio (at least
in the near term);
the Synthetic Credit Portfolio had increased substantially in both gross and net
notional size; and

49
A tail event is generally understood to be one that arises when the market environment moves more
than three standard deviations from the mean based on predictions from a normal distribution of historical
prices. Carry is generally understood to be the profit or loss experienced by a portfolio with the passage
of time but with no change in any other market variable or additional trading. Positive convexity exists
when a portfolio is predicted to profit more (or lose less) on a larger market move than the profits (or
losses) predicted for a smaller market move would imply. Negative convexity exists when a portfolio is
predicted to profit less (or lose more) on a larger market move as compared to the predicted profits (or
losses) on a smaller market move. Using CSW 10% and CSW 50% as an example, if a portfolio is
predicted to lose $100 if credit spreads widen by 10%, but to lose $400 if credit spreads widen by 50%,
then the portfolio reflects positive convexity (a portfolio with no convexity would lose $500). It is
unclear if the written materials for the February 29 meeting were employing these definitions.
39

the plan was no longer to reduce RWA by $23 billion by allowing positions to
expire and by active reduction (to the contrary, the February Business Review
materials suggest that CIO was unwinding the portfolio, explaining that the
change in regulatory capital regime is likely to force a re-size / run-off of
synthetic portfolio in order to maintain RWA targets for the Firm and CIO is
currently working to reduce [RWA]).
By the end of February, the Synthetic Credit Portfolio had experienced an additional $69
million in mark-to-market losses, from approximately $100 million (year-to-date through
J anuary) to $169 million (year-to-date through February).
On March 1, the day after the CIO Business Review, an executive with responsibility for
the Synthetic Credit Portfolio e-mailed one of the traders to express concern that if the traders
needed to [a]ctually reduce the [Synthetic Credit Portfolio] in order to decrease RWA, they
would not be able to defend their positions. This e-mail appears to address the concern that an
unwind of positions to reduce RWA would be in tension with defending the position. The
executive therefore informed the trader (among other things) that CIO would have to win on the
methodology in order to reduce RWA. This phrase refers to the traders goal, described above,
to convince the Firm that it should change the methodology of the model used to calculate RWA
for the Synthetic Credit Portfolio.
On March 7, Mr. Venkatakrishnan reported to Ms. Drew, Mr. Hogan, Mr. Goldman, Mr.
Weiland and a member of the Firm-wide Market Risk team on the results of model-related work
he had been performing relating to the accuracy of CIOs RWA calculation. Mr.
Venkatakrishnan had gotten involved in early March in response to concerns in CIO about the
40

increase in RWA. Mr. Venkatakrishnan reported on March 7 that RWA for the Synthetic Credit
Portfolio had increased significantly since the beginning of the year, and explained that this
increase was entirely explained by a $33bn notional increase in short protection (long risk) in
[CIOs] portfolio between [J anuary] and [February]. Ms. Drew forwarded this information to
Mr. Goldman, Mr. Weiland and two members of the Synthetic Credit Portfolio team. In
response, one of the recipients from the Synthetic Credit Portfolio team expressed the view that
the notional amounts reflected in Mr. Venkatakrishnans calculations were incorrect,
50
despite
the fact that this information had been provided by CIOs middle office, and asked to discuss the
methodology used to calculate RWA.
51

By mid-March, the Synthetic Credit Portfolio was still experiencing mark-to-market
losses.
52
A trader performed a detailed analysis around this time and determined that, even
though the Synthetic Credit Portfolio appeared to be balanced under CSW 10%, its actual
performance and in particular, the fact that it lost money when the markets rallied suggested

50
The relevant recipient may have been expecting Mr. Venkatakrishnan to calculate the notional amounts
on a monthly basis (i.e., J anuary 1 to 31 and February 1 to 29) and not J anuary 18 to February 22, as Mr.
Venkatakrishnan had done.
51
Mr. Venkatakrishnans analysis, which was only of those positions that drove the increase in RWA, did
not trigger further inquiry or concern within or outside CIO at this time regarding the size of the portfolio.
CIO management likewise appears to have focused on the notional increase only insofar as it affected
RWA. In addition, at that time, there were discussions within CIO and with Mr. Hogan that some of the
positions in the Synthetic Credit Portfolio would more appropriately receive a different treatment for
capital purposes than under the currently used method, and that this change would result in a reduction of
RWA to acceptable levels. At the time, the rules under Basel II.5 and III, which alter the RWA
calculation for J PMorgan and other banking organizations, had not been finalized by U.S. regulators.
52
As discussed below, the losses during this period were likely more substantial on at least some days
than were being reflected in CIOs daily valuation estimates.
41

that it continued to have a short bias. The trader attributed this to the significant amounts of
protection that he had purchased since J anuary, and he therefore considered what steps he might
take to finally balance the Synthetic Credit Portfolio. He concluded that he did not want to sell
more protection in IG-9 because the instrument had not behaved as he had expected all year and
the position was already quite large and dangerous; he also understood that he could not
reduce his high-yield position because of the expense associated with that projected liquidation.
The remaining option, in his view, was to increase his long exposure in on-the-run investment-
grade instruments, such as IG-17 and IG-18, with a goal of stemming the losses that he attributed
to its imbalance, and ultimately put[tin]g [the Synthetic Credit Portfolio] to sleep. Once the
portfolio was balanced, he believed he could wait for CIO Management to decide how to
proceed.
Consistent with this strategy, by March 15, the trader proposed to add a very large
position in an on-the-run investment-grade index. He reasoned that this was the best way to
balance the Synthetic Credit Portfolio because: using the on-the-run index would make the
positions less transparent to other market participants, especially if the positions were acquired
on or near the roll date (presumably because of increased liquidity); and if he could put on a
large position very quickly near the roll date (March 20), Risk Management personnel would
have sufficient time in advance of the quarter-end to calculate the attendant changes in RWA,
VaR and other risk metrics.
42

The trader described his plan in a series of e-mails to another trader. On March 15, he
sent an e-mail explaining that [t]his [] may be the solution: let the book run off. So I prepare it
for this outcome. Similarly, on March 19, he wrote to some of the other traders that his
proposed strategy was to let the P&L fluctuate while not defending, just maintaining the upside
on defaults over time. Further, he wrote, the solution proposed amounts to be longer risk and
let the book expire carrying the upside on default: I think we own [] a very good position for a
size that is also significant . . . .
Beginning on March 19 and continuing through March 23, the trader added significant
long positions to the Synthetic Credit Portfolio. These additions roughly coincided with the roll
date and the issuance of the IG-18, and included additions to the 5-year IG-17 long position (a
notional increase of approximately $8 billion), the 5-year IG-18 long position (a notional
increase of approximately $14 billion), and several corresponding iTraxx series, most notably the
5-year-S16 ($12 billion) and the 5-year-S17 ($6 billion).
While this trading was being considered and implemented, on March 20, a review of CIO
was presented to the DRPC (a summary of which was later presented to the full Board), in which
Ms. Drew and Mr. Goldman provided a structural risk summary and addressed overall portfolio
allocations within CIO, how interest rate movements would affect the company, and how CIO
manages the attendant risk. CIO management did not disclose the increasing mark-to-market
losses, the recent breaches in certain of CIOs risk limits, the substantial increase in RWA, the
significant growth in the Synthetic Credit Portfolios notionals, or the breaches in the VaR limit
43

earlier in the year.
53
Further, CIO management did not explain that CIO was embarking on a
complicated strategy that differed from the unwind that had been previously described to senior
Firm management.
On March 23, a trader explained to CIO Market Risk the trading he had done: [I]
switched the book to long risk[.] [I] am done[.] He explained his view that this is it for a
neutral profile[, and] right now we have a market neutral ratio between HY and IG. He further
explained that the reason why I did that is because [I] wanted to have the position set in order to
prepare for month end and avoid defending the pnl [] because it would have resulted in larger
positions[.] This one position I put [on] is different and liquid. The relevant individual from
CIO Market Risk noted that, somehow I think the percep[tion] was that you would be add[ing]
to the [on-the-run index] and reducing elsewhere[.] [I am n]ot sure how this was established[,
but I] think what happened is that people seeing [that] the book is longer in 5y maturity[, and
has] bigger risk[,] and bigger capital[,] and the issue is RWA. The trader stated, ok the
RWA[,] this is what kills me. He proceeded to explain that, because of pressure to reduce

53
Under the Firm-wide Risk Appetite policy in effect at the time, either the CEO or the CRO was
required to notify the Chairman of the DRPC of modifications to or breaches of the prescribed DRPC
market risk stress or VaR limits. The Firm-wide Market Risk Management policy likewise required the
CRO to report all material excesses to the Chairman of the DRPC. (These DRPC-approved limits were
not identical to Firm-wide limits; as a result, not all breaches of Firm-wide limits necessarily required
reporting to the DRPC.) As of J anuary 2012, the DRPC-approved VaR limit was $200 million (as
opposed to the Firm-wide VaR limit of $125 million). Although Firm-wide Market Risk provided the
DRPC with an update on Market Risk Limits at the March 20, 2012 DRPC meeting, this update only
covered (as intended) developments through year-end 2011. The breaches in the CIO and Firm-wide VaR
limits that occurred in J anuary 2012 were not discussed. (The highest the Firm-wide VaR reached in
J anuary 2012 was approximately $160 million.)
44

RWA, the market could come to the conclusion that he did not like his position, and he therefore
wanted to [drop] out of the radar screen and earn carry. He predicted that eventually the
Synthetic Credit Portfolio would profit, and in the meantime, the carry is 2-3m a day[, and] the
protection I sold grossly added 1.1M a day of carry.
On March 21 (i.e., while the traders were adding large long positions), one of the traders
met with Ms. Drew to discuss both the mark-to-market losses and the increase in RWA for the
Synthetic Credit Portfolio. Before the meeting, he informed Ms. Drew that he believed the
Synthetic Credit Portfolios positions had been leaked to the market (a concern he and another
trader voiced previously), and explained that he was nervous that other market participants could
use this information against CIO in their trading. He also e-mailed Ms. Drew that the traders had
already reduced RWA by $10 billion in the Synthetic Credit Portfolio, and recommended that
they sligh[t]ly increase the investment-grade long position, and address RWA the following
quarter. In fact, RWA for the Synthetic Credit Portfolio had increased from the beginning of the
year.
The day after the meeting, Ms. Drew learned that the positions in the Synthetic Credit
Portfolio were significantly larger than had been reflected in the figures discussed at the prior
days meeting, as the figures used during the March 21 meeting were from March 7 and did not
reflect trading activity during the intervening two weeks.
54
Ms. Drew reacted strongly to this

54
The written materials prepared for the March 21 meeting noted that the figures were as of March 7, but
did not indicate that there had been significant changes in the positions since then.
45

and a meeting was scheduled for March 23. A senior member of the Synthetic Credit Portfolio
team informed her at that time that he believed the Synthetic Credit Portfolio had the right
position, because the Synthetic Credit Portfolio was long IG [and] the market [was] moving
tighter and tighter. Around this time, a trader informed Ms. Drew that he wanted to continue
trading in order to defend the position; Ms. Drew reacted strongly to this as well and informed
him that he was not permitted to do so. Either on Friday, March 23, or soon after, Ms. Drew
directed the traders to suspend trading, and shortly thereafter, trading in the Synthetic Credit
Portfolio largely stopped.
55
By this point, the Synthetic Credit Portfolio had assumed an overall
net-long credit-risk orientation on a CSW 10% basis.
56

On March 30, the executive responsible for the Synthetic Credit Portfolio requested
assistance from Firm-wide Market Risk in understanding the relationship between their trading
and RWA. In an e-mail to Mr. Hogan on the subject, the executive stated that the Synthetic
Credit Portfolios prox[y]ing of the IG-9 position as an offset of the high-yield short did not
work and resulted in almost total loss of hedging effectiveness. He also stated that he was no
longer confident in his teams ability to achieve the targeted RWA and their understanding of
the synthetic levers to achieve the RWA objectives. He therefore requested that an expert from

55
There was a change in position on March 28, when the IG-9 5-year short position was reduced by $4.2
billion notional, from $36.9 billion to $32.7 billion notional.
56
Even after these trades, the traders did not view the Synthetic Credit Portfolio as net long despite the
fact that the Synthetic Credit Portfolios CSW 10% profile showed a long risk bias.
46

the Investment Bank be assigned to CIO for the second quarter of 2012 to help the Synthetic
Credit Portfolio traders understand and meet their RWA targets.
2. Valuation
As noted, the Synthetic Credit Portfolio was experiencing regular mark-to-market losses
throughout much of the first quarter. We describe here the valuation process and how, from at
least mid-March through early April, the Synthetic Credit Portfolios losses appear to have been
understated.
One of the junior traders in CIO had responsibility for estimating the fair value of each
position in the Synthetic Credit Portfolio on a daily basis. Because the market for at least some
of these instruments is small and relatively illiquid, he like other market participants
generally could not simply look to a single definitive source to perform that task. Rather, he
collected data from a number of different sources about the value of the positions and, after
exercising judgment and often in consultation with another trader, assigned a value to each
position.
In general, the trader looked to three different sources in order to value the positions in
the Synthetic Credit Portfolio: (1) recently executed trades; (2) indicative, or non-binding, price
quotes received from dealers and counterparties (including for both the specific instrument and,
at times, similar instruments); and (3) his observations of and judgment regarding market
conditions, including the relationships between and among different instruments. The
information he received from other market participants was typically in the form of a bid-offer
47

quotation. However, in order to perform the daily valuation process, he was required to identify
a specific price. For each instrument, he therefore selected one quote (often among several he
received) and then assigned a price within the bid-offer spread for that quote. Once he had
identified a price for each position, he would input this data into a series of programs that would
generate an estimate of the daily profit or loss, known as the P&L Predict. He would also
draft, often together with another trader, an explanation for the gains or losses, which would be
included in the daily P&L Predict. The daily profit-and-loss numbers were circulated within
CIO and to certain personnel within the Firm-wide Risk organization. Ms. Drew received the
daily P&L information (although not the P&L Predicts themselves), and also received some or
all of the commentary in her daily reports.
At certain points throughout early 2012, the information the trader was collecting from
the market indicated losses in the Synthetic Credit Portfolio. But on a number of days beginning
in at least mid-March, at the direction of his manager, he assigned values to certain of the
positions in the Synthetic Credit Portfolio that were more beneficial to CIO than the values being
indicated by the market. The result was that CIO underreported the losses, both on a daily basis
and on a year-to-date basis. The traders variously referred to the aggregate differential between
the prices being assigned and the unadjusted mid-market price (i.e., the mathematical mid-point
between the best bid and best offer in the market, often referred to as the crude mid) as the
48

divergence, lag or distance.
57
In the view of one trader, the divergence resulted from the
fact that the price information supplied by this illiquid market was distorted. Along these lines,
the traders believed that CIOs counterparties had obtained information about the Synthetic
Credit Portfolios positions, and that CIOs counterparties were engaging in strategic pricing
behavior and intentionally providing prices that did not accurately reflect market values, i.e.,
they were not prices at which the counterparties would actually be willing to transact.
58

Furthermore, one trader expressed the belief that the market prices would ultimately correct,
vindicating the CIO valuations.
Notwithstanding any genuinely held views on the validity of quoted prices or the
integrity of counterparties trading activities, both U.S. GAAP and Firm policy required that CIO
make a good-faith estimate of the exit price
59
for a reasonably sized lot of each position, and

57
Certain traders also, at times, appeared to use the term lag to refer to the amount by which the
Synthetic Credit Portfolio was underperforming a theoretical or fundamental valuation of the positions
i.e., how far behind their expectations it was.
58
The prices provided by market participants that were considered in valuing certain positions in the
Synthetic Credit Portfolio were indicative, which meant that CIO could not expect counterparties to
transact at those prices. On occasion, CIO would attempt to transact at an indicated price, and a market
participant, who had posted the bid or offer, would decline. The Synthetic Credit Portfolio traders
referred to this behavior as the market participants framing prices.
59
Neither U.S. GAAP nor the Firm policy required CIO to mark to the crude mids. Accounting
Standards Codification paragraph 820-10-35-36C notes that if an asset or a liability measured at fair
value has a bid price and an ask price (for example, an input from a dealer market), the price within the
bid-ask spread that is most representative of fair value in the circumstances shall be used to measure fair
value . . . . While paragraph 820-10-35-36D notes that mid-market pricing is not precluded from being
used as a practical expedient, such conventions are not required and good faith estimates of the
appropriate exit price are necessary.
49

assign values reflecting those estimates.
60
At the direction of a more senior trader, however, the
relevant trader may not have always done so.
61
The Task Force has found no evidence that
others beyond three of the Synthetic Credit Portfolio traders were aware of or part of this
directive.
One instance of divergence occurred on or about March 12, when a trader informed
another trader that the crude mids had moved away from where he and the third trader
expected them to be. He told the trader that, as a result, the mark-to-market losses in the
Synthetic Credit Portfolio based on crude mids had grown to approximately $50 million, and
that he viewed these losses as a warning sign. He recommended that they reflect this as a loss on
the books, even though they could not explain the market movement. The trader in question
disagreed with his recommendation, apparently because he did not believe that the market moves
around this time were real. He then informed the first trader that they should discuss this issue
the following week.
According to a trader-maintained spreadsheet reflecting prices from March 12 to March
16, the divergence from the crude mids for at least some of the positions had grown to
approximately $292 million
62
year-to-date for the Synthetic Credit Portfolio.
63
On March 16, a

60
See n. 59. By convention, the exit price is estimated for normal trading size, and CIO was not required
to estimate the prices it would have received if it attempted to sell its entire (large) position at once.
61
As noted, the more senior trader may have believed that his view of the true value of these positions
would ultimately be realized once the market returned to normal.
62
This figure may include amounts by which the traders believed that the positions were underperforming
vis--vis their expectations, including as a result of market participants distorting the prices; it is not
50

trader informed another trader that he estimated that the divergence would likely reach $400
million in the near future.
By March 19, the relevant trader had showed a small loss on the daily P&L Predicts
every day for seven consecutive days. He told another trader that a more senior trader had
pressured him throughout this period not to show large losses in the Synthetic Credit Portfolio.
On March 20, that other trader apparently directed the relevant trader to show the full loss he had
calculated for that day and said that he himself would accept responsibility for the loss with the
more senior members of the team.
The relevant trader reflected a loss on his March 20 daily P&L Predict of approximately
$40 million. Shortly thereafter, a more senior trader called the other trader to discuss the loss.
The senior trader expressed two related concerns. First, he stated that the report would cause
problems for him during a meeting scheduled for the following day with Ms. Drew (the March
21 meeting described above), and stated that he wished that he could have raised the loss issue
with Ms. Drew in person during that meeting.
64
Second, he expressed concern that Ms. Drew
might prohibit his team from adding to their long positions.

necessarily a measure of the aggregate amount of any mis-mark since the crude mid is not necessarily
reflective of the price at which market participants are transacting.
63
The spreadsheet showing the divergence from March 12 to March 15 was circulated to a senior member
of the Synthetic Credit Portfolio team on March 15. The Task Force also located an additional copy of
the spreadsheet that included the divergence for March 16.
64
Ms. Drew would historically follow up with the more senior trader in the evening if the Synthetic
Credit Portfolio experienced losses greater than $5 million for a particular day.
51

The estimated mark-to-market losses continued to grow throughout the end of March.
On March 23, a trader sent another trader an informal loss estimate likely year-to-date of
$300 million using, for each position, the best bids or asks and $600 million using the mids.
The third trader also continued to report losses to him during this period, and continued to be
directed by the other trader to show them. The year-to-date losses reported by the traders totaled
about $400 million through March 29.
These valuation issues received additional attention from the traders on March 30, which
was the last trading day of the first quarter.
65
As shown by the following four sets of
conversations, one of the traders was very focused on the impact of showing significant losses on
that day.
First, throughout the day, that particular trader (who was more senior and to whom the
other traders reported) repeatedly discussed with a second trader the size of the estimated losses.
Early in the day, the second trader had informed the more senior trader that the daily loss would
be approximately $250 million. The senior trader asked him if he could reduce the loss to $200
million and encouraged him to trade, even though, as discussed above, Ms. Drew had just
ordered the team to stop trading. The second trader declined to continue trading. Nevertheless,
throughout the day, a third trader reported to the second trader that the prices he was observing in
the market were improving, and the second trader therefore reported improved numbers to the

65
The marks on the final trading day of the quarter are subject to VCG price-testing procedures described
below.
52

senior trader as the day progressed. Each time he or the third trader showed a smaller loss figure,
the senior trader urged him to reduce the size of the loss further.
Second, the more senior trader and Mr. Goldman discussed the estimated losses for the
day. During this conversation, Mr. Goldman pressed the trader for estimates, and he responded
that he was expecting the losses to be significant because he would not be defend[ing] the
position. He further stated that he did not want to fight and increase the position, and added
that they should have stopped doing this three months ago and just rebalanced the [Synthetic
Credit Portfolio].
66
He also asked Mr. Goldman (who had called him at Ms. Drews request)
not to share these estimates with Ms. Drew because the market had not yet closed and, given the
size of CIOs positions, a small movement could result in a significant change in the profits and
losses.
Third, at the end of the day, the same more senior trader directed another trader to stay
late and monitor prices until the markets closed in New York, in the hopes that he would be able
to use later and more advantageous prices in marking the Synthetic Credit Portfolio.
Fourth, the same more senior trader directed another (more junior) trader on March 30 to
use the best prices, which appears to have prompted that more junior trader to take two steps.
First, for at least one instrument, he selected the most beneficial dealer quote when marking his
positions. Another trader encouraged him to use this more beneficial quote which was more

66
This statement is difficult to reconcile with another traders statement that, at the same time, the more
senior trader was encouraging him to trade.
53

advantageous than the quotes he had received earlier in the day telling him that it was not too
aggressive and that it was very good. Second, the more junior trader priced many of the
positions at or near the most advantageous boundary of the bid-offer spread. And for at least one
position, he consulted with the other trader, who advised him to be slightly less aggressive.
Later in the evening of March 30, he reported an estimated loss for the day of $138 million.
Unlike the J anuary and February month-end prices, the marks for March 30 were not generally at
or near the mid.
The quarter-end prices generated on March 30 were to be used as the basis of the Firms
financial reporting. Accordingly, per standard practice in CIO, they were subjected to a separate
review by CIOs VCG, a price-testing group that is part of the Finance function and analyzes
market data to test month-end front office marks. VCG is responsible for confirming the traders
marks or making necessary adjustments to the front office marks to arrive at the fair value for
purposes of the U.S. GAAP for the Firms books and records.
Under the applicable policy, CIO VCGs price-testing procedures involved multiple
steps, including the following: First, the relevant member of the VCG team received the March
30 front office marks. Second, that individual reviewed information about the value of each
position derived from third-party sources principally, quotes from dealers, recent transaction
data, and consensus pricing data from third-party pricing services such as Markit and Totem
and generated a price (the VCG mid price) for each position. He then compared the traders
prices to the VCG mid price.
54

As noted above, Firm policy called for the positions to be marked at fair value, which in
accordance with accounting rules, it defines (consistent with U.S. GAAP) as the exit price for a
reasonably sized lot. CIO VCG recognized that, given the nature of the market, market
participants could arrive at different yet reasonable conclusions as to the fair value of a particular
position. When comparing the VCG mid price to a trader-provided price, CIO VCGs policy
was to consider a VCG-generated price-testing threshold designed to reflect the bid-offer spread
to the VCG mid. For example, if the CIO VCG mid price was 35 and the threshold was 2, the
acceptable valuation range for the trader-provided price would be 33 to 37. If the traders price
fell within that range, under the Firms policy, CIO VCG could adopt that price as final. If the
traders price fell outside that threshold, under the Firms policy, CIO VCG was to adjust the
price to the closest outer boundary of the threshold. Thus, in the above example, if the trader had
a price of 38, CIO would make a one-point adjustment to move the mark back to the closest
outer boundary of 37.
67
PwC was aware of CIO VCGs use of thresholds prior to the first
quarter of 2012.
CIO VCG conducted its price testing on the March 30 valuations for the Synthetic Credit
Portfolio in April. In the course of this price testing, it observed that many of the positions were
marked at or near the boundary of the bid-offer spread. However, because it concluded that they

67
VCG did not, as a technical matter, actually adjust the traders marks for individual instruments, rather
it provided information to the CIO Middle Office, which simply made an aggregate dollar amount
adjustment that resulted from the adjusted marks.
55

were within VCG thresholds (with exceptions for which an adjustment was made), it concluded
that the trader marks were acceptable.
68

Although CIO VCGs independent price-testing process, including the use of thresholds,
was appropriately designed to determine whether a traders mark is a reasonable estimate of fair
value, CIO VCG price testing had been identified as having some deficiencies and
inconsistencies in its price-testing practices. Specifically, on March 30, 2012, the Firms Internal
Audit group issued a report on EMEA CIO Credit Market Risk and Valuation Practices in which
it assigned a rating of Needs Improvement.
69
This assessment of CIO VCG was due, in part,
70

to the lack of a formally documented price sourcing hierarchy to govern the consistent use and
appropriate application of independent prices for price testing purposes and the lack of
formally documented/consistently applied price testing thresholds. With respect to the latter,
Internal Audit concluded that thresholds were applied by CIO VCG without sufficient
transparency or evidence. The root cause of the deficiencies and inconsistencies in CIO

68
VCGs calculation of the March month-end pre-adjustment difference between VCG prices and the
traders marks contained mathematical and methodological errors; as these errors were discovered, the
figure was revised upwards to $512 million on May 9. In J uly, the difference between the VCG mid and
the front office marks was adjusted to $677 million before the application of the thresholds, $660 million
after the application of thresholds, and $472 million after the subsequent application of a liquidity reserve.
See Section III.B.
69
Internal Audit issues three ratings: Satisfactory, Needs Improvement, and Inadequate. The latter two
are considered adverse ratings. CIO VCG received a Satisfactory rating in its prior audit of CIO
EMEA Credit on February 26, 2010.
70
As part of this same report, Internal Audit also identified weaknesses in CIOs risk management
practices, such as the use of unapproved risk and valuation models, a lack of documented stress testing
methodology, and a need to enhance controls around certain aspects of the VaR calculation.
56

VCGs price-testing practices was identified as insufficient assessment/formalisation of certain
price testing methodologies and poorly documented CIO VCG practices.
71

The Internal Audit report included an action plan for VCG to, among other things: (1)
define and implement a price sourcing hierarchy to ensure a consistent and appropriate price
sourcing and testing approach; (2) ensure price testing is performed consistently with front office
marking policy; (3) document the rationale for and clearly define certain price-testing thresholds;
and (4) improve evidence of certain price-testing processes. The individual who was the issue
owner for this action plan had a target date of J uly 31, 2012, to complete the action plan. As
part of his response to Internal Audits recommendation to more clearly demonstrate and
document the use of thresholds, this individual immediately made certain adjustments to
formulas in the spreadsheets he used. These changes, which were not subject to an appropriate
vetting process, inadvertently introduced two calculation errors, the effects of which were to
understate the difference between the VCG mid-price and the traders marks.
3. The London Whale Story and Senior Managements Response

On April 5, Ms. Drew sent an e-mail to the J PMorgan Operating Committee (which
included Messrs. Dimon and Braunstein) in advance of articles that the Wall Street Journal and
Bloomberg would be publishing the following day about one of the Synthetic Credit Portfolio

71
Although the report was formally issued on March 30, consistent with Internal Audits processes,
Internal Audit personnel interacted with CIO VCG, market risk management and Finance personnel
during the audit process. In mid-to-late March, members of the audit team shared findings,
communicated about managements action plan, and obtained other input from Messrs. Goldman,
Wilmot, Weiland and other members of CIO Market Risk, Finance and VCG, among others.
57

traders, whom the articles referred to as the London Whale. In her e-mail to the Operating
Committee, Ms. Drew provided a brief overview of CIOs investment strategies, explaining that
the strategies had turned pro-risk and the Synthetic Credit Portfolio was moved into a long
position, and that it had not performed as expected in 2012.
72
She acknowledged that (1) the
position was not sized or managed well; (2) mistakes were made, which she was in the process of
addressing; (3) the losses to date were approximately $500 million, which netted to negative
$350 million as a result of gains in other positions; and (4) Firm earnings for the first quarter had
not been affected since [CIO] realized gains out of the [$]8.5 billion of value built up in the
securities book.
Mr. Braunstein and Ms. Drew met the following day, on April 6. Mr. Braunstein asked
Ms. Drew to provide a detailed overview of the Synthetic Credit Portfolios position by the
following Monday, April 9. Later on April 6, Mr. Braunstein sent Mr. Dimon a brief update on
his discussions that day regarding the Synthetic Credit Portfolio. He informed Mr. Dimon that
he [s]poke with Ina. Would like to add a liquidity reserve
73
for [the] Series 9 Tranche Book
(approx 150mm). Wilmot will be sending e-mail detailing analysis. Mr. Braunstein also
informed Mr. Dimon of the overview he had just asked Ms. Drew to prepare by April 9, and
added that he was working with [the Investment Bank] to make sure there are no similar

72
Although the Synthetic Credit Portfolio had shifted to a net long position by early April under CSW
10%, it also continued to hold short risk positions and substantial jump-to-default protection.
73
A liquidity reserve is taken to mitigate uncertainty when a price is not available or where the exit cost
may be uncertain due to illiquidity.
58

positions in the [Investment Banks] book. Separately think we need to look at coordinating
between the CIO and [Investment Bank] approaches. Have talked to J ohn Hogan about this as
well.
74

Meanwhile, Ms. Drew reached out to a senior member of the Synthetic Credit Portfolio
team on the afternoon of April 6 and asked for a full diagnostic, explaining that the analysis
should be [m]ore focused on p [&] l than rwa at [the] moment[.]
75
This individual said he
would perform the work, and explained that any further losses would be the result of further
distortions and marks between the series where we are holding large exposures. He added that
he had no doubt that both time and events are healing our position, and stated that a trader with
whom he had consulted was convinced that our overall economic risk is limited. He also
noted that the traders were concerned that information about CIOs Synthetic Credit Portfolio
position had been leaked to the market a concern they had expressed previously suggesting
that the losses may have been driven by their counterparties who, they believed, knew of CIOs
positions and were distorting the market. In a separate e-mail to Ms. Drew, a trader estimated

74
Late on April 6, Mr. Braunstein also received an e-mail from Mr. Venkatakrishnan, via Mr. Hogan,
stating that Mr. Venkatakrishnan had noticed that the notional exposures at CIO were very large, totaling
about $10 trillion in each direction. Mr. Venkatakrishnan who had become involved in early March to
assist with RWA calculations was concerned about counterparty credit risk (i.e., risk that a counterparty
would fail), and pointed out that $6.5 trillion of these positions came from just four trades. Mr.
Venkatakrishnan subsequently determined that these numbers were incorrect, however (he had not
recognized that many of these trades were internal and thus netted out), and the total notionals were much
smaller than he had initially thought (although still large). Upon learning of this, on April 9, he informed
Messrs. Hogan and Goldman that he was more comfortable now.
75
This focus differed from the focus at the end of March, which at that time was principally on RWA.
59

that, although he would conduct a confirmatory analysis, the worst-case scenario for the second
quarter (excluding very adverse outliers) would involve losses of no more than -200 MM
USD . . . with the current book as it is.
Over the weekend of April 7 and 8, two of the traders prepared the requested analysis.
One of them initially attempted to formulate a loss estimate by constructing numerous loss
scenarios that were very harsh, and then evaluating how those scenarios would impact the
Synthetic Credit Portfolios positions. For example, he assessed how the market might behave in
a bond market crash or a Middle East shock, and then attempted to determine how that
market behavior could affect the Synthetic Credit Portfolio. In this way, he generated a number
of probability-weighted profit-and-loss estimates for the second quarter; the estimates ranged
from losses of $750 million to gains of $1.925 billion, with six of the nine scenarios generating
losses (the smallest of which was a loss of $350 million).
This trader sent his loss estimates to the other on April 7. According to the trader who
prepared the loss estimates, the other trader responded that he had just had a discussion with Ms.
Drew and another senior team member, and that he (the latter trader) wanted to see a different
analysis. Specifically, he informed the trader who had generated the estimates that he had too
many negative scenarios in his initial work, and that he was going to scare Ms. Drew if he said
they could lose more than $200 or $300 million. He therefore directed that trader to run a so-
called Monte Carlo simulation to determine the potential losses for the second quarter. A
Monte Carlo simulation involves running a portfolio through a series of scenarios and averaging
60

the results. The trader who had generated the estimates did not believe the Monte Carlo
simulation was a meaningful stress analysis because it included some scenarios in which the
Synthetic Credit Portfolio would make money which, when averaged together with the scenarios
in which it lost money, would result in an estimate that was relatively close to zero. He
performed the requested analysis, however, and sent the results to the other trader in a series of
written presentations over the course of the weekend. This work was the basis for a second-
quarter loss estimate of -$150 million to +$250 million provided to senior Firm management,
described below.
On April 8, the same trader sent a draft presentation prepared based on the Monte Carlo
analysis to the other trader, and advised him that [w]e should stress that some standalone
economic scenarios can cost up to 500M although, mixing all the stress scenarios we get to a
more decent number of 150 to 250 depending on whether spreads widen in Q2. The book keeps a
useful optionality [i]f things turn really bad again. This is what it is meant for. I am reviewing
now the names in IG on the run that could be damaging to us.. they are very few given that we
still have a short risk in IG14-IG15 and IG16 . . . .
On the afternoon of April 8, the trader who had generated the estimates was asked by a
more senior team member for an estimate of potential profit-and-loss for the second quarter, with
an 80% degree of confidence, assuming CIO held the positions and that they maintain the book
as balanced and neutral as possible . . . . The trader responded that he was 80pct confident
the pnl for q2 is going to range between -150m and 250m. This forecast includes the fact that I
61

am NOT optimistic for now about the impact of the recent press releases. I prefer to forecast q2
results in light of what happened in end of q1. His senior responded Got . . . it let[s] hope
it[s] true we must prove the point today[.]
76

That evening, Ms. Drew led a call with Mr. Goldman and the senior members of the
Synthetic Credit Portfolio team who, along with CIO Market Risk and others, had been
involved with the profit-and-loss analysis and discussions over the weekend to prepare for the
following days meeting with Mr. Braunstein. After the call, one of the attendees from the
Synthetic Credit Portfolio team e-mailed Ms. Drew, copying Messrs. Dimon, Braunstein and
others, and provided an overview of the trading strategies. He explained that CIO had decided to
neutralize the Synthetic Credit Portfolio at the end of 2011 because of large realized gains at the
end of 2011 from a corporate default, among other things. He stated that the attempt to
neutralize the book ha[d] been unsuccessful, and that they had lost $575 million on the high-
yield short positions, but the investment-grade trade meant to neutralize the high-yield short
position had delivered only $50 million in revenue, meaning that the Synthetic Credit Portfolio
had lost $525 million year-to-date. He offered two reasons that the price movements of long and
short positions had acted in what he characterized as an idiosyncratic manner and had not
correlated with each other as expected: (1) the off-the-run long positions (IG-9 and iTraxx 9)
steepened by 24 basis points because of excess liquidity and a pro-risk environment in the

76
The full text of the senior team members e-mail stated that they must prove the point today with as
much ambiguity as poss[ible]. It is the Task Force's understanding that he meant to say little rather
than much.
62

market; and (2) the series in which the Firm held key long positions (i.e., the IG-9)
underperformed other investment-grade indices. He also explained that we [had] chosen these
IG proxies to offset the short high-yield positions because they contained the very names that
we are short in the HY instruments, and that although thus far unsuccessful, these IG proxies
best neutralize and balance our synthetic books to event risk.
He concluded that the Synthetic Credit Portfolio was overall risk balanced, and for the
second quarter, he provided an estimate of a P&L range of -150MM to +250MM, with a
significantly positive upside potential in the event of corporate defaults. His statement about
default protection was consistent with a contemporaneous analysis that was being performed by
Mr. Venkatakrishnan and a member of Model Risk and Development, and provided to Messrs.
Dimon and Braunstein, which concluded that [t]oday there is considerable default protection
coming from IG9 tranches . . . , explaining that the IG-9 positions were currently positioned for
a gain of +146m on average per name to a loss of -572m per name post December 2012 for
each of the 121 names in the IG-9 index.
On April 9, Ms. Drew, Mr. Braunstein, Mr. Wilmot, and an executive from the Synthetic
Credit Portfolio team met to discuss the Synthetic Credit Portfolio. Ms. Drew told Mr.
Braunstein that the Synthetic Credit Portfolio was balanced, and Mr. Braunstein requested
additional follow-up, including a clear analysis of the positions maturities, balances, spreads
(current) and normalized. Mr. Braunstein updated Mr. Dimon by e-mail on this meeting, as
well as on a number of other press- and analyst-related topics. Shortly after the meeting, the
63

executive from the Synthetic Credit Portfolio also forwarded Mr. Braunstein a written
presentation on the Synthetic Credit Portfolio and information on a proposed liquidity reserve for
the IG-9 tranches in the Synthetic Credit Portfolio. The presentation summarized likely profit-
and-loss impacts under a variety of scenarios, all of which were viewed by Mr. Braunstein as
manageable.
That evening, Mr. Hogan e-mailed Mr. Dimon regarding CIO. Mr. Hogan had been
independently discussing the Synthetic Credit Portfolio with Mr. Venkatakrishnan and an
individual from Model Risk and Development, who were in London and had been assisting in
assessing certain aspects of the Synthetic Credit Portfolio. Among other things, Mr. Hogan told
Mr. Dimon that the current issue [relating to losses incurred by the Synthetic Credit Portfolio] is
fine and I understand the rationale for it, but added that he thought the CIO needed tighter
governance/controls/escalation protocols and that he believed Ms. Drew agreed. Messrs.
Braunstein and Hogan also received an analysis from Mr. Goldman regarding the Synthetic
Credit Portfolios counterparty risk (i.e., risk based on the creditworthiness of particular
counterparties and their ability to perform their contractual obligations).
The following day, one of the traders also e-mailed Ms. Drew, Mr. Wilmot, Mr.
Goldman, Mr. Weiland and an executive from the Synthetic Credit Portfolio team an explanation
of why his team had decided to increase their investment-grade position instead of reducing
high-yield short positions. He stated that they had been unable to trade out of the high-yield
short positions and viewed the addition of a long-risk position in IG-9 as the next best hedge.
64

Mr. Wilmot forwarded a slightly revised version of this explanation to Messrs. Dimon,
Braunstein, and Hogan.
Mr. Wilmot also e-mailed Mr. Dimon, Mr. Braunstein, Mr. Hogan, Ms. Drew, and others,
providing information on the size of the net positions in the Synthetic Credit Portfolio. The e-
mail stated that CIOs IG-9 position represented the equivalent of 10-15 trading days of 100% of
the average daily trading volume.
77
This e-mail (along with a subsequent April 12 e-mail
showing longer exit periods for certain of the IG-9 instruments) indicated that the positions were
large, but senior Firm management took comfort from the fact that CIO had no need to sell the
positions and could therefore wait until the market normalized.
April 10 was the first trading day in London after the London Whale articles were
published.
78
When the U.S. markets opened (i.e., towards the middle of the London trading day),
one of the traders informed another that he was estimating a loss of approximately $700 million
for the day. The latter reported this information to a more senior team member, who became
angry and accused the third trader of undermining his credibility at J PMorgan. At 7:02 p.m.
GMT on April 10, the trader with responsibility for the P&L Predict circulated a P&L Predict
indicating a $5 million loss for the day; according to one of the traders, the trader who circulated
this P&L Predict did so at the direction of another trader. After a confrontation between the

77
This estimate was prepared by CIO Market Risk, and initially circulated to Ms. Drew, Mr.
Venkatakrishnan, Mr. Goldman, Mr. Weiland and senior members of the Synthetic Credit Portfolio team.
The estimate does not account for the size of IG-9 tranche positions, and also does not reflect the potential
time required to exit the position, generally.
78
The markets were closed in London on Monday April 9 due to the Easter holiday.
65

other two traders, the same trader sent an updated P&L Predict at 8:30 p.m. GMT the same day,
this time showing an estimated loss of approximately $400 million. He explained to one of the
other traders that the market had improved and that the $400 million figure was an accurate
reflection of mark-to-market losses for the day.
After the markets closed, Ms. Drew notified Messrs. Dimon and Braunstein about the
days mark-to-market loss of $412 million. It was, she observed, an eight-standard-deviation
event that she attributed to the markets belief that J PMorgan would have to liquidate the
positions described in the articles.
79
Shortly thereafter, Ms. Drew circulated a second e-mail to
Messrs. Dimon, Braunstein, Hogan, Zubrow, Staley, Goldman, Wilmot and an executive from
the Synthetic Credit Portfolio, attaching the traders updated second-quarter profit-and-loss
summary and scenario analysis, which was to be discussed the following morning.
80
The
analysis showed an 80% likelihood of a second-quarter result in the range of -$250 million to
+$350 million for the Synthetic Credit Portfolio, with a 10% extreme result of -$650 million
and a 10% optimistic result of +$1.725 billion.
On April 11, Messrs. Dimon and Braunstein received updates related to the Synthetic
Credit Portfolio. Mr. Hogan also copied them on a description of the Investment Banks risk
limits for comparable products and expressed the view that these should be implemented in CIO

79
A senior member of the Synthetic Credit Portfolio team stated at the time that the losses were
attributable to the markets increased awareness of J PMorgans position and were thus part of an
aberrational pattern that would eventually mean revert.
80
The updated estimate noted that these scenarios do not include 10 April P&L, which would accrete
back into each scenario +$400MM, if re-calibrated for todays market moves.
66

as soon as possible. Mr. Hogan separately informed Mr. Braunstein that Mr. Venkatakrishnan
had informed him and had included in an analysis being prepared that in an extreme loss
scenario (of a steepening movement of 20 basis points), the total loss for the second quarter
could be up to $1 billion if certain offsetting hedges did not work, and up to $550 million if they
did work.
81

On April 11, Mr. Wilmot circulated to Messrs. Dimon, Braunstein and others a
presentation on the Synthetic Credit Portfolio that addressed, among other things, notional
exposure relative to various counterparties,
82
maturities, certain positions and profit-and-loss
scenarios, noting that it had been reviewed with J es Staley,
83
Mr. Braunstein, Ms. Drew, Mr.
Zubrow and Mr. Hogan. The presentation outlined second-quarter profit-and-loss estimates for a
number of scenarios, including a -$150 million Status Quo estimate and a +$350 million
Central Scenario estimate.
84
The presentation also detailed the extent of the Synthetic Credit
Portfolios considerable default protection coming from the IG-9 tranche positions. It further

81
The email circulating these materials reads: J amie, Attached please find a presentation on the synthetic
credit book that was reviewed this afternoon with Doug, J es, Ina, Barry and J ohn. It covers the relevant
data requests from the past several days. This presentation was created by a member of CIO Market
Risk, and initially circulated to Ms. Drew, Mr. Goldman, Mr. Wilmot, Mr. Weiland, Mr.
Venkatakrishnan, and members of the Synthetic Credit Portfolio and Model Risk and Development
teams, to use in an unspecified meeting.
82
The notional information appears to be directed at counterparty risk, and identifies (among other things)
the net notionals outstanding with other parts of the Firm ($13 billion), with an exchange through which
certain third-party trades are cleared ($96.7 billion) and with third parties for whom trades are not cleared
through the exchange ($47.5 billion).
83
Mr. Staley was, at this time, the Chief Executive Officer of the Investment Bank.
84
The presentation also outlined a 10% extreme result of a $650 loss million and a 10% optimistic
result of $1.725 billion gain.
67

included a description of Mr. Venkatakrishnans April 11 extreme loss scenario analysis,
described above.
85

Finally, Messrs. Dimon and Braunstein were provided an update on press activity. This
included a Wall Street Journal article entitled Making Waves Against the Whale, which
suggested that CIOs activity in the market had affected prices, first by driving down the price of
buying protection when it was selling a large amount of protection, and then causing the price of
protection to go back up when CIO completely stopped selling protection. Mr. Braunstein
forwarded the article to Ms. Drew and others and asked, [i]f the selling pressure impact
described in the article was accurate[,] then [might] the change in value [that is causing CIO to
lose money]be in part a return to a more normalized range post our selling activity. One of
the recipients responded by circulating an analysis from CIO Market Risk that, as he described it,
demonstrated that CIOs activity was not a big driver of the market moves.
That same day (April 11), Ms. Drew forwarded to Messrs. Dimon, Braunstein, Hogan,
Zubrow and others an Executive Summary e-mail written by one of the traders. This trader
characterized the Synthetic Credit Portfolio as balanced in terms of directionality. He

85
Mr. Venkatakrishnans estimate was based on an underlying analysis performed by CIO. Although not
evident on the face of the document, the Task Force has determined that the underlying analysis was
based on an incomplete analysis by CIO London of the potential risks presented by the Synthetic Credit
Portfolio. Specifically, the analysis is predicated on losses arising from a steepening of the credit curve,
and assumes the existence in the Synthetic Credit Portfolio of a significant flattening position that would
limit potential exposure. In fact, there was not a significant flattener in the Synthetic Credit Portfolio, and
the analysis also did not consider the impact of an outright movement in the curve. As a result, the
presentations estimate of the worst-case profit-and-loss scenarios was understated. Mr. Venkatakrishnan
was not aware of these issues when he assisted CIO.
68

acknowledged that the hedges in the Synthetic Credit Portfolio had not performed as expected
and that the market goes against all economic sense, but stated that, although it might take
some time, he remained very confident that the Synthetic Credit Portfolio would recover its
losses for three reasons: (1) because of the increased carry the Synthetic Credit Portfolio gained
as a result of market moves; (2) because of the possibility of future defaults that might generate
revenue; and (3) because the market for the positions that should have (but had not yet) offset the
losses would, in his view, mean revert and eventually begin to operate as expected. He also
suggested that the press coverage may have played a role in distorting the market value of the
positions. A chart attached to the e-mail shows that the Synthetic Credit Portfolio had almost
doubled its net notional amount of certain synthetic credit positions since J anuary 2012.
Messrs. Dimon and Braunstein also received additional data from Ms. Drew and Mr.
Goldman regarding the Synthetic Credit Portfolio on April 12, including additional information
about the Synthetic Credit Portfolios net notionals, background on the synthetic credit market,
the historic purpose of the Synthetic Credit Portfolio, and information regarding the size of
certain IG-9 and high-yield positions. On the evening of April 12, as is customary, the Firms
Executive Committee met in advance of the first-quarter earnings call that was scheduled for the
following day. Ms. Drew spoke about CIO-related issues that would likely be raised the next
morning. She stated that the Synthetic Credit Portfolio had significant value and was well-
balanced, and that the current issues were a media event that had pushed the market against CIO.
After the meeting concluded, Mr. Dimon confirmed with Ms. Drew that CIO could hold its
69

positions for as long as it wanted, and that no third party had a contractual right to force it to sell.
Mr. Dimon wanted to confirm that CIO could hold the positions until the market returned to
normal levels, and that there was no contractual risk that CIO would be required to sell unless it
wanted to do so.
The first-quarter earnings call was held on the morning of April 13. During the earnings
call, Mr. Braunstein addressed the Synthetic Credit Portfolio issues. While he had prepared
remarks regarding the Firms financial results, he had not planned on addressing Synthetic Credit
Portfolio positions, and thus did not have prepared remarks relating to CIO. However, shortly
before the call, the Global Head of Corporate Communications suggested that Mr. Braunstein
address the matter and he agreed to do so. Mr. Braunstein explained on the call that the
Synthetic Credit Portfolio had historically taken positions designed to manage the potential
losses that could result from a significant stress credit environment. Specifically, Mr. Braunstein
explained that:
. . . [W]e also need to manage the stress loss associated with that
portfolio, and so we have put on positions to manage for a
significant stress event in Credit. We have had that position on for
many years and the activities that have been reported in the paper
are basically part of managing that stress loss position, which we
moderate and change over time depending upon our views as to
what the risks are for stress loss from credit.
Mr. Braunstein further stated his belief that the Firm was very comfortable with the positions.
Mr. Dimon did not discuss the Synthetic Credit Portfolio in his opening remarks, but he
70

responded to analyst questions on the subject and agreed with an analysts characterization of the
issue as a tempest in a teapot.
Mr. Dimon had been briefed on the issue and the work being performed, although he had
not been involved firsthand in many of the discussions that had taken place during that period.
86

After the analyst call, Mr. Dimon sent an e-mail to Mr. Hogan asking why the Synthetic Credit
Portfolio team had decided to increase their investment-grade position instead of reducing the
high-yield position. Mr. Hogan responded that he and Mr. Braunstein had asked the same
question and had been told that increasing the position was [the] most efficient way to do it,
but that he (Mr. Hogan) thought that CIO had wanted to improve the carry on the book by
selling protection and taking in some premium.
4. Continued Declines and Internal Reviews
In the week after the April 13 earnings call, the Synthetic Credit Portfolio experienced
additional losses totaling approximately $117 million.
87
By the week of April 23, the losses
began to accelerate rapidly. On April 23, the Synthetic Credit Portfolio experienced a single-day

86
Mr. Dimon had not been in the office from April 2 until his return on April 12.
87
Mr. Goldman provided the DRPC on April 17 with an update on CIOs activity, focusing on recent
news reports regarding the so-called London whale. According to the meeting minutes, Mr. Goldman
reviewed the history of CIOs synthetic credit book and how it fits within CIOs overall hedging
strategy. He described the attributes of the IG-9 index and how purchasing of that index was used to
offset other existing positions. Mr. Goldman noted that recent news reports were based on an inaccurate
market perception that the portfolio was unhedged, based on a lack of knowledge of how CIO manages
the structural risk of the company; he reported that in fact the risk was balanced. In response to questions
from the Committee, Messrs. Braunstein and Hogan noted that the information they had received was
consistent with this analysis. Messrs. Goldman and Hogan also described an ongoing post mortem on
these trades that includes governance and market limits.
71

loss of approximately $161 million. This was followed by losses of approximately $82 million
and $188 million on April 24 and 25, respectively (with a total loss of almost $800 million over
the course of the six trading days ending on April 30). These losses were inconsistent with the
earlier loss estimates and prediction from one of the traders that the market would mean revert,
and they caused Messrs. Dimon, Braunstein and Hogan as well as Ms. Drew to question whether
the Synthetic Credit Portfolio team adequately understood the Synthetic Credit Portfolio or had
the ability to properly manage it.
Senior Firm management decided to commission a thorough review of the Synthetic
Credit Portfolio, conducted by personnel outside of CIO, in order to better understand the losses
it was experiencing and whether the Synthetic Credit Portfolio was being properly managed. On
April 26, Mr. Hogan directed a senior member of Firm-wide Market Risk to commence a
position-by-position review of the Synthetic Credit Portfolio. This individual, who was in New
York on business, returned to London on April 27 and began working with an experienced trader
from the Investment Bank and others to analyze the Synthetic Credit Portfolio. As requested by
Mr. Hogan, this team examined every position in the Synthetic Credit Portfolio, and attempted to
understand how each position was performing and how it was (or was not) correlated to the other
positions in the Synthetic Credit Portfolio. The team worked long hours on this review,
reporting back to senior Firm management on daily update calls. By Sunday, April 29, after
hearing its initial reports, Messrs. Dimon and Hogan asked the team to take over responsibility
for the Synthetic Credit Portfolio.
72

The team continued their intensive review (and the twice-daily update calls) throughout
the following week. The team, purposefully not taking into account CIOs views as to what they
had intended and how the Synthetic Credit Portfolio was supposed to work, independently
analyzed the correlations among the various positions under a range of market scenarios. Based
on this review, they concluded that the Synthetic Credit Portfolio was not as well protected
against various market scenarios as had been previously thought. In addition, they found that the
markets knowledge of the positions and a continued decrease in liquidity made risk reduction
even more challenging.
5. Disclosure of the Losses
The J PMorgan Audit Committee met on May 2 to review a draft of the first-quarter Form
10-Q. At that meeting, Ms. Drew made a presentation on the Synthetic Credit Portfolio and
explained the rationale for the trades that had been put on in the first quarter. Ms. Drew provided
the explanation given to her previously by one of the traders as to the increase in the notional
size of certain positions in the Synthetic Credit Portfolio, explaining (among other things) the
RWA reduction required by the upcoming Basel rules, the anticipated improvement of the
economy at the end of 2011, the purported difficulties encountered by the traders in unwinding
the positions, and the ensuing use of the IG-9 long position as an offset to the high-yield short
positions. She also explained that the Synthetic Credit Portfolio had, by the date of the meeting,
moved to a net long credit position.

73

The deadline for filing the Form 10-Q was May 10, and management noted at the May 2
meeting that it would continue its efforts to understand the Synthetic Credit Portfolios positions
and the likely losses as it prepared the Form 10-Q for filing. On May 10, J PMorgan filed its
first-quarter 2012 Form 10-Q, and on an analysts call disclosed that the Synthetic Credit
Portfolio had incurred approximately $2 billion in mark-to-market losses in the second quarter to
date, with the possibility of additional future losses and volatility as the positions were unwound.
As a result of the operational issues relating to the VaR model described in Appendix A, the
Firm also stated on May 10 that it had reverted back to its prior VaR model for CIO.
In addition to the review led by the senior individuals from Firm-wide Market Risk and
the Investment Bank, the Firm also performed substantial additional work from late April up
until the May 10 filing relating to the valuation of the positions in the Synthetic Credit Portfolio
to confirm that they had been priced consistently with Firm policy and U.S. GAAP. The review
had two primary components. First, a combination of individuals from CIO Finance, the Firms
internal accounting department, valuation experts from the Investment Bank, and others
examined the prices assigned by CIO to the positions in the Synthetic Credit Portfolio, including
at March 30.
88
This work included collecting market information about the positions in the
Synthetic Credit Portfolio; performing an analysis of the positions using the Investment Banks
valuation methodology and personnel; and obtaining explanations from the traders about the

88
Price validation analyses were conducted by (among others) the Head of J PMorgans Accounting
Policy Group for CIO EMEA.
74

bases for the prices assigned to the positions in question. The review of the pricing data
confirmed that the valuations of the positions in the Synthetic Credit Portfolio were within the
range of reasonable fair values for such instruments. Individuals working on the review
understood that, although the March 30 trader marks for the Synthetic Credit Portfolio were
aggressive, they were predominantly within the VCG thresholds.
89
And, when questioned about
the March 30 marks, the traders all confirmed that the marks at March 30 reflected their good-
faith estimation of the positions value, and one of them explicitly denied any bias.
Second, in addition to the review of the front office marks, the Firm also conducted a
review of the VCG process related to the valuation of the Synthetic Credit Portfolio. As a result
of its work, the Firm confirmed that PwC was aware of the CIO VCG process and the Firm
concluded that the process including the identification of a mid-market price and application of
a threshold around that price was designed to result in marks that were compliant with U.S.
GAAP. The Firm therefore concluded, after consultation with PwC (which was conducting its
quarterly review procedures), that the marks were determined in accordance with U.S. GAAP
and Firm policy.
During its subsequent efforts to obtain and understand all the facts relating to the CIO
losses, the Task Force became aware of facts that caused it (and the Firm and PwC) to revisit

89
There were some marks that had been outside the thresholds, but those had been adjusted by VCG in
early April to the threshold, for a total adjustment of approximately $17 million.
75

these conclusions.
90
With respect to the front office marks, the Task Force learned that not all of
the marks appeared to reflect an unbiased assessment by the front office of exit prices and
instead that some of the marks reflected, at least in part, pressure exerted by one of the traders to
minimize the losses shown. This new information, which was uncovered in electronic
communications and recorded conversations subsequent to the May 10 filing, was shared with
PwC, and the Firm decided following analysis and consultation with PwC to restate its
financial statements for the first quarter to reflect the valuations that would have been employed
if the positions had been marked to an objectively determined mid valuation.
91
The
announcement of the restatement was made on J uly 13.
D. Risk Limits and Excessions
The three primary categories of risk metrics applicable to CIO were VaR, stress, and non-
statistical credit-spread widening metrics (Credit Spread Basis Point Value (CSBPV)
92
and
CSW 10%
93
). Pursuant to Firm policy, each of these metrics was subject to certain limits.
Limits are classified by type, as Level 1, Level 2, or threshold. A limits type determines who
is responsible for approving the limit, who receives notice of any excessions, and who within the
Firm is responsible for approving any increases. The CIO Global 10-Q VaR and CIO stress

90
Much of this subsequently discovered information is described in Section II.C.2 of this Report (among
other places) and includes the discovery of the divergence, as well as the March 30 and April 10
valuation-related events.
91
The Firm re-marked the positions to objectively determined mid valuations, which the Firm believes
was reasonable under the circumstances.
92
See Section II.D.2.
93
See Section II.D.3.
76

limits were Level 1 limits, while the CIO CSBPV and CIO CSW 10% limits were Level 2 limits.
Any excessions of Level 1 or Level 2 limits had to be reported to the signatories to the limit, the
Risk Committee for the line of business, and the Market Risk Committee or Business Control
Committee for the line of business.
94
Under Firm policy, all excession notifications should
include (1) a description of the limit excess, (2) the amount of the limit, (3) the exposure value
(i.e., the amount by which the limit has been exceeded) and the percentage by which the limit has
been exceeded, and (4) the number of consecutive days the limit has been exceeded. Excessions
are addressed differently depending on type, but in the event of an active limit excess, which
occurs when a business unit exceeds its own limit, the business unit must take immediate steps
to reduce its exposure so as to be within the limit, unless a one-off approval is granted. A
one-off approval refers to a temporary increase for a limited period of time; it must be
provided by the persons who were responsible for setting the original limit.
Limits are not rigid restrictions, and some excessions are expected. The excession
process, however, serves an important function: triggering discussion and analysis of the reasons
for an excession and of the limit that has been exceeded.
95

94
There was no specific number of days by which the notifications were required to be distributed at the
time, although Market Risk Management typically sent such notifications within a matter of days of a
limit having been exceeded. As described in Section IV.B.2, as part of its remedial measures, the Firm
has instituted a policy specifying procedures, including time limits, for escalation of limit excessions.
95
An earlier limit breach within CIO appears to have been part of the impetus for a review of CIOs limit
structure begun by CIOs Head of Market Risk in the summer of 2011, described below. Beginning in
March 2011, CIOs aggregate stress loss limit was in breach for some time. The breach, which was
discussed among the Chief Investment Officer, the Firm-wide Chief Risk Officer, and the CIO Head of
77

At various points and for different reasons, discussed in further detail below, the limits
for each of these metrics were exceeded in the first quarter of 2012. The CIO Global 10-Q VaR
limit was exceeded in the second half of J anuary. These excessions were addressed by position
changes and by implementation of a new VaR model, which had been in process for almost six
months when the CIO VaR began to be exceeded. The other excessions of CIO limits in the first
quarter of 2012, namely, the CSBPV limit, the CSW 10% limits, and the stress loss limits, were
the subject of discussion within CIO, and, in the case of the stress loss limit, among senior Firm
management. However, the trading had largely ceased by the time the aggregate CSW 10% limit
and the stress loss limits, in particular, were exceeded in late March and April 2012.
96

1. Value at Risk
VaR is a statistical estimate of the risk of loss on a portfolio of assets. A portfolios VaR
represents an estimate of the maximum expected mark-to-market loss over a specified time
period, generally one day, at a stated confidence level, assuming historical market conditions.
Beginning in mid-J anuary 2012, CIO breached its VaR limit on multiple days, which also
contributed to breaches of the Firms VaR limit. CIO explained to Mr. Hogan and Firm-wide
Market Risk that the breaches were being addressed in two ways: (1) continued management of
CIOs positions, and (2) implementation of a new, improved VaR model for CIO. In response

Market Risk, appears to have been caused principally by activity unrelated to the Synthetic Credit
Portfolio, in CIOs international rates sector.
96
CIOs mark-to-market CSW 10% limit was first exceeded on March 22, 2012, the day before Ms. Drew
gave the instruction to stop trading. The aggregate CSW 10% limit was not exceeded until April 10,
2012.
78

to the notification of a second consecutive breach in the Firm-wide VaR limit on J anuary 18
(which was primarily driven by position changes in CIO), Mr. Hogan requested that Mr.
Weiland and a senior member of Firm-wide Market Risk look into the factors driving the
increase in the CIO VaR and report back with a recommendation. Mr. Weiland advised Firm-
wide Market Risk that it was CIOs intention to bring the VaR down, even under the current
VaR model, and another member of CIO Market Risk further advised that they expected the
breach of the VaR limit to be resolved through active risk management, meaning by trading in
a manner expected to reduce the risk profile of the portfolio. In an e-mail to Mr. Hogan on
J anuary 20, Mr. Goldman explained that position offsets to reduce [the CIO] VaR were
happening daily. With respect to the implementation of a new VaR model, Mr. Weiland
informed Firm-wide Market Risk that CIO was in the final phase of a model review for a new
VaR model for the tranche book (meaning the Synthetic Credit Portfolio) and that the new
model was expected to result in a lower VaR for CIO.
Mr. Weiland recommended a temporary, one-off increase in the Firm-wide VaR limit,
with an expiration set to coincide with the expected timing of the VaR model approval. A
subsequent e-mail from Market Risk Reporting on J anuary 23 requested Messrs. Dimon and
Hogans approval for a temporary increase in the Firms 10-Q VaR limit
97
from $125 million to
$140 million, expiring on J anuary 31, 2012. The request noted that there was an approval

97
The Firms 10-Q VaR is the VaR for all the Firms mark-to-market positions; it includes CIOs
Global 10-Q VaR.
79

pending for a new model for the CIO Synthetic Credit Portfolio and that the new model was
expected to reduce Firm-wide VaR back below the $125 million limit.
98
Messrs. Dimon and
Hogan approved the temporary increase in the Firm-wide VaR limit, and Ms. Drew approved a
temporary increase in CIOs 10-Q VaR limit. In an e-mail to Mr. Hogan on J anuary 25, Mr.
Goldman reported that the new model would be implemented by J anuary 31 at the latest and
that it would result in a significant reduction in the VaR. On J anuary 28, in response to an
inquiry from Mr. Hogan about the change in methodology, Mr. Goldman advised him that the
new model had been approved by the Model Review Group and that the Model Review Group
considered it to be superior to the model used by the Investment Bank. There was no
corresponding change made to the CIO Global 10-Q VaR limit at the time of the new models
implementation i.e., it remained at $95 million.
99
Following implementation of the new model,
the CIO VaR fell below the limit, as expected.

98
As explained in further detail in Appendix A, a significant reduction in the CIO VaR was expected
upon implementation of the new model, which had been in development throughout the Fall of 2011. The
previous model was viewed as too conservative and the VaR that it was producing thus was considered to
be too high. The new model was thought to be a substantial improvement that would more accurately
capture the risks in the portfolio.
99
A reduction in the CIO VaR limit was being considered at this time as part of a broader ongoing
discussion about a revised limit structure for CIO. For example, in a J anuary 25, 2012 e-mail exchange,
Mr. Hogan asked Mr. Goldman whether CIO had any intention of further increasing its temporary VaR
limit or recommending an increase in the Firm-wide VaR limit in response to the ongoing breaches in the
CIO and Firm-wide VaR limits. Mr. Goldman replied, The new VaR model was approved today and we
will get a significant reduction under the limit when implemented J anuary 31
st
at the latest. I do not
think its worth changing limits till [the new] model is implemented. Although a proposal to reduce the
VaR limit and to change the limit structure of CIO was under active discussion at this time (Messrs.
Goldman and Weiland presented a version of it to Ms. Drew in February 2012 and Mr. Weiland made a
presentation to the CIO Risk Committee in March), a new CIO limit structure was not implemented until
80

2. Credit Spread Basis Point Value
CSBPV is one measure of the sensitivity of a portfolio to a one basis point move. With
respect to the Synthetic Credit Portfolio, it reflected an aggregation of the CSBPV sensitivities of
all the credit products (e.g., investment-grade and high-yield), unadjusted for correlations.
Although Ms. Drew did not regularly receive reports with CIOs CSBPV figures or receive
notifications from Market Risk Reporting when the limit was exceeded (because it was a Level 2
limit and she was not a signatory to it), there was discussion among other personnel within the
CIO Risk Management function when the CSBPV limit began to be exceeded in the first quarter.
For example, when the CSBPV limit was first breached on J anuary 6, 2012, an individual from
CIO Market Risk, in an e-mail to Mr. Goldman, Mr. Weiland and two senior members of the
Synthetic Credit Portfolio team noted that CIO was actively taking steps to reduce risk in order
to move within the CSBPV threshold. This individual continued to monitor the CSBPV limit
status and to update his manager. Ms. Drew was aware, by virtue of an e-mail she received from
Mr. Goldman on February 13, 2012, that the CIO Global Credit Spread CSBPV limit had been in
breach for most of the year. She responded that she had no memory of this limit and that, in any
case, it needed to be recast with other limits because it was old and outdated. It was one of

May 2012, and those limits were substantially different from and more detailed than the limits that had
been included in Mr. Weilands proposal.
81

the limits that was to be adjusted or replaced altogether as part of a proposal by Mr. Weiland to
revise the CIO limit structure, which was pending at that time.
100

At various times, beginning in February, CIO Market Risk suggested a temporary
increase in the mark-to-market (MTM) CSBPV limit, from $5 million to $20 million, $25
million or $30 million. On March 1, Firm-wide Market Risk Management e-mailed Mr. Weiland
and a senior member of the Synthetic Credit Portfolio team (the signatories to the limit)
requesting their approval to temporarily increase the aggregate and MTM CSBPV limits until
March 31.
101
Although Mr. Weiland agreed with the suggestion to increase the limit, neither he
nor his co-signatory from the Synthetic Credit Portfolio approved the request for a temporary
increase and no such increases were implemented. An e-mail from Market Risk Management to
the same signatories on March 26 advised that CIO had been breaching its aggregate and MTM
CSBPV limits from February 21 through March 21 and that the breaches were the result of
portfolio and hedge rebalancing since start of 2012. The notification went on to point out that
the CSBPV had certain flaws that made it less reliable than the CSW 10% (i.e., that it was not
normalized for the level of spreads and did not capture convexity) and that a full limit review
was underway for the CIO business, which would result in a proposal that was expected to
address those issues.

100
See n. 99.
101
The CSBPV for both the mark-to-market portfolio and part of the asset-backed securities portfolio are
included in the calculation of the aggregate CSBPV metric. The MTM CSBPV limit takes into account
only the CSBPV for the mark-to-market portfolio.
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3. Credit Spread Widening 10% and Stress Loss
The CIO CSW 10%
102
aggregate and mark-to-market limits and the aggregate and mark-
to-market stress loss limits began to be exceeded in late March. CSW 10% stresses all credit
spreads in a book wider by 10% for example, a CDS currently marked at 100 basis points will
be revalued at 110 basis points and then calculates the profit-and-loss effect.
The CSW 10% mark-to-market limit began to be exceeded on March 22, 2012, and the
CSW 10% aggregate limit began to be exceeded on April 10, 2012. The MTM limit breach was
first reported in the CIO Daily Limit Report on March 26, 2012, and the aggregate limit breach
was reported on April 11, 2012. The Daily Limit Report was distributed within CIO to, among
others, Mr. Goldman and Mr. Weiland, although it was not distributed to Ms. Drew. It included
a Position Limit and Loss Advisory Summary Report that provided detail on each of CIOs
limits, including the amount of each limit, the limits current level of utilization, the percentage
by which a limit was in excess, if any, the amount of each limit in the previous four trading days,
and the monthly trend for each limit. Both CIO CSW 10% limits continued to be exceeded
throughout April. The excessions were attributed to portfolio and hedge rebalancing since [the]
start of 2012.
On March 29, 2012, the aggregate and mark-to-market stress limits for CIO, which were
tested weekly, also began to be exceeded. Stress testing is used to measure the Firms
vulnerability to losses under adverse and abnormal market environments. Its purpose is to assess

102
For an explanation of CSW 10%, see n. 6.
83

the magnitude of potential losses resulting from a series of plausible events in these hypothetical
abnormal markets. Stress testing is performed by applying a defined set of shocks, which vary in
magnitude and by asset class, to a portfolio. For example, weekly testing stresses the Firms
positions under a number of hypothetical scenarios such as a credit crisis, an oil crisis, and an
equity collapse. On March 29, CIO exceeded its aggregate stress loss limit threshold, with the
oil crisis stress test resulting in the worst case scenario. This excession and those that
followed reflected the potential loss that was calculated by stressing the underlying positions. As
described above, the notional value of the Synthetic Credit Portfolio grew over time during the
months preceding March 29. The increase in notional value in turn resulted in a higher
hypothetical stress loss when the Firm ran the Synthetic Credit Portfolio through its various
stress scenarios. The stress loss excessions were reported in the first weekly stress report that
followed, on April 6, 2012.
103
CIOs mark-to-market stress limit continued to be exceeded
throughout April. By then, however, the trading that precipitated the losses in the Synthetic
Credit Portfolio had ceased.
III. Key Observations
The Task Force agrees with Mr. Dimons public acknowledgement that CIOs trading
strategies for the Synthetic Credit Portfolio in the first quarter of 2012 were poorly conceived
and vetted, CIO did not have the requisite understanding of the risks [it] took, and risk

103
The report was circulated to Mr. Dimon, Mr. Staley, Mr. Hogan, Mr. Zubrow, Ms. Drew, Mr.
Goldman and Mr. Weiland, among others.
84

control functions were generally ineffective in challenging the judgment of CIOs trading
personnel.
A. CIO Judgment, Execution and Escalation in the First Quarter of 2012 Were
Poor

The Task Force has identified six areas in which CIO failed in its judgment, execution
and escalation of issues in the first quarter of 2012: (1) CIO management established competing
and inconsistent priorities for the Synthetic Credit Portfolio without adequately exploring or
understanding how the priorities would be simultaneously addressed; (2) the trading strategies
that were designed in an effort to achieve the various priorities were poorly conceived and not
fully understood by CIO management and other CIO personnel who might have been in a
position to manage the risks of the Synthetic Credit Portfolio effectively; (3) CIO management
(including CIOs Finance function) failed to obtain robust, detailed reporting on the activity in
the Synthetic Credit Portfolio, and/or to otherwise appropriately monitor the traders activity as
closely as they should have; (4) CIO personnel at all levels failed to adequately respond to and
escalate (including to senior Firm management and the Board) concerns that were raised at
various points during the trading; (5) certain of the traders did not show the full extent of the
Synthetic Credit Portfolios losses; and (6) CIO provided to Firm management excessively
optimistic and inadequately analyzed estimates of the Synthetic Credit Portfolios future
performance in the days leading up to the April 13 earnings call. In addition, the Task Force has
considered the impact of the Firms compensation structure on the events in question.
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1. The Priorities
By early 2012, CIO management, including Ms. Drew, had imposed multiple priorities
on the Synthetic Credit Portfolio. These priorities included (1) balancing the risk in the
Synthetic Credit Portfolio, (2) reducing RWA, (3) managing profits and losses, (4) managing or
reducing VaR, and (5) providing jump-to-default protection. These priorities were potentially
in conflict, and the requirement that the traders satisfy all of these goals appears to have
prompted at least some of the complicated trading strategies that led to the losses. Rather than
imposing a multitude of potentially competing priorities on the traders, CIO management should
have determined (or engaged senior Firm management on the question of) which of these
priorities should take precedence, how they could be reconciled, and how CIO intended to
execute on the priorities. That did not occur and instead, CIO management imposed inconsistent
and potentially competing priorities on its traders.
2. The Trades
The trading strategies that were put in place in early 2012 were poorly conceived and
vetted, and neither the trading nor its impact on RWA were fully understood by CIO
management or the traders. The Firm expected them to subject CIO trading strategies to rigorous
analysis and questioning prior to implementation, and to understand the risks inherent in the
trading strategies. Here, they did not, and instead put in place the trading strategy without fully
understanding what risks were being taken on, particularly in light of the size of the positions
being built over the course of the first quarter of 2012.
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3. The Reporting
The Firms Chief Investment Officer did not receive (or ask for) regular reports on the
positions in the Synthetic Credit Portfolio or on any other portfolio under her management, and
instead focused on VaR, Stress VaR, and mark-to-market losses. As a result, she does not appear
to have had any direct visibility into the trading activity, and thus did not understand in real time
what the traders were doing or how the portfolio was changing. And for his part, given the
magnitude of the positions and risks in the Synthetic Credit Portfolio, CIOs CFO should have
taken steps to ensure that CIO management had reports providing information sufficient to fully
understand the trading activity, and that he understood the magnitude of the positions and what
was driving the performance (including profits and losses) of the Synthetic Credit Portfolio.
4. The Concerns
A number of CIO employees, including Ms. Drew, Mr. Goldman, Mr. Wilmot, Mr.
Weiland and members of the Synthetic Credit Portfolio team became aware of concerns about
aspects of the trading strategies at various points throughout the first quarter.
104
However, those
concerns failed to be properly considered or escalated, and as a result, opportunities to more
closely examine the flawed trading strategies and risks in the Synthetic Credit Portfolio were
missed. Examples include (but are not limited to):

104
See Section II.C.1.
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December 2011
One of the traders raised concerns with senior members of the Synthetic Credit
Portfolio team about P&L volatility that could accompany an effort to reduce
RWA by selling protection.
January 2012
In late J anuary, Mr. Wilmot expressed concern to Mr. Goldman about the VaR
levels.
On J anuary 30, one of the traders wrote to another trader expressing concerns
about the lack of liquidity in the market and the fact that any additions to the
positions, notwithstanding any near-term benefits, would ultimately increase the
risks and size of the Synthetic Credit Portfolio, as well as its sensitivity to price
moves and trading costs.
On J anuary 31, a senior member of the Synthetic Credit Portfolio team forwarded
to Ms. Drew an e-mail exchange between himself and one of the traders, which
included an e-mail from another of the traders. That senior member expressed the
view that the Synthetic Credit Portfolio was not behaving as intended and that
financial performance was worrisome; the traders underlying e-mail noted that
the losses were large because the notional size of the positions was large, and that
the Synthetic Credit Portfolio was losing money on a number of positions.
February 2012
On February 2, according to one of the traders, he advised Ms. Drew and another
trader that the Synthetic Credit Portfolio could experience additional losses of
$100 million, and explained that it was possible that they did not have the right
long position in light of the characteristics of the IG-9 position and the relevant
market dynamics.
On February 2, Mr. Weiland sent an e-mail to one of the traders regarding VaR
and RWA measurements for the Synthetic Credit Portfolio, expressing concern
that that trader had provided an overly optimistic view of the likelihood that the
Firms RWA model would be changed and the forward projection for RWA
reduction.
88

On February 13, Mr. Goldman e-mailed Ms. Drew and noted that the CIO Global
Credit Spread CSBPV limit had been in breach for most of the year.
On February 15, Mr. Weiland noted for a member of CIO Market Risk (among
others) that CIO had, since mid-J anuary, been in breach of its CSBPV limits,
primarily as a result of position changes in the Synthetic Credit Portfolio.
March 2012
On March 1, one senior member of the Synthetic Credit Portfolio team expressed
concern to another such member that the traders would be unable to defend their
positions if they were forced to effect an unwind in order to meet RWA targets.
On March 7, Mr. Venkatakrishnan wrote to Ms. Drew, Mr. Hogan, Mr. Goldman,
Mr. Weiland and Firm-wide Market Risk that the Synthetic Credit Portfolios
RWA had increased by approximately $3 billion between J anuary and February
as a result of a $33 billion increase in notionals in long index risk.
On March 20, Ms. Drew and Mr. Goldman presented an overview of CIO to the
DRPC. Neither of them raised the increasing mark-to-market losses, the
substantial change in the trading strategy, the recent and ongoing breaches in
certain of CIOs risk limits, the significant growth in the Synthetic Credit
Portfolios notionals, or the delay in the trading-based RWA reduction effort. The
change in the VaR model and breaches of the CIO and Firm-wide VaR limits that
had occurred in J anuary 2012 were also not discussed.
By late March, one of the traders informed Ms. Drew that he was considering
adding to the size of the Synthetic Credit Portfolio in order to defend their
position.
April 2012
In early April, Mr. Wilmot raised questions with Ms. Drew about whether the
traders could effect the RWA reduction without an unwind of positions.
These concerns were not fully explored. At best, insufficient inquiry was made into them
and, at worst, certain of them were deliberately obscured from or not disclosed to CIO
management or senior Firm management. Although in some instances, limited steps were taken
89

to raise these issues, as noted above, no one pressed to ensure that the concerns were fully
considered and satisfactorily resolved.
5. The Marks
From at least mid-March through at least March 30, the traders did not provide good-faith
estimates of the exit prices for all the positions in the Synthetic Credit Portfolio.
105
That practice
concealed from Ms. Drew and others their good-faith view of the market price of these positions,
and it deprived management of a possible opportunity to curtail the trading before late March
and potentially avoid some of the ensuing losses. When questioned about the marks in late April
and early May prior to the Firms filing of its first-quarter Form 10-Q, they maintained that the
marks had represented their good-faith judgments regarding fair value of the positions. The Task
Forces subsequent discovery that these statements were likely untrue caused the Firm to restate
its earnings and re-file financial reports.
6. The Estimates
CIO provided in early April what in hindsight were overly optimistic and inaccurate
analyses regarding the potential losses to which the Synthetic Credit Portfolio was exposed.
These estimates all predicted that any losses would be in a range that was manageable for the
Firm, and they were accompanied by assurances from CIO that the market was temporarily
dislocated. The estimates generally predicted that the market would recover or mean revert,

105
The Task Force has noted that some of the marks on the Synthetic Credit Portfolios positions at
March 30 were within the bid/offer spread, but were to the benefit of the portfolios positions.
90

meaning that the market prices were distorted and that the prices would return to their historic
average relationships to other instruments. CIO advised senior Firm management that the
Synthetic Credit Portfolio was overall risk balanced, and for the second quarter, showed a
P&L range of -150MM to +250MM, with a significantly positive upside potential in the event
of defaults. In fact, this profit-and-loss range turned out to be significantly off-the-mark, and the
record uncovered during the Task Forces subsequent investigation revealed that this profit-and-
loss estimate was largely based on a Monte Carlo analysis in which the person performing the
analysis did not have confidence, and which appears to have been selected by his supervisor
specifically because it generated more positive profit-and-loss estimates. Against the backdrop
of the concerns that had been expressed internally at various points during the first quarter of
2012 by (or to) Ms. Drew, Mr. Wilmot, and members of the Synthetic Credit Portfolio team, the
optimistic estimates failed to provide Messrs. Dimon, Braunstein and Hogan with a complete
picture of how the team managing the Synthetic Credit Portfolio viewed it and the concerns they
had previously raised within CIO. This failure was especially critical in early April when senior
Firm management was focused on preparations for the April 13 earnings call and was relying on
Ms. Drew to provide and explain information regarding the Synthetic Credit Portfolio.
It bears mention that, although these faulty estimates were largely initially generated by a
trader (working with another more senior trader), there were other employees in CIO, including
in its Risk, Finance and management functions, who were positioned to consider and question
the validity of these estimates. They failed to do so adequately, and instead, accepted these
91

estimates together with the assertions that the Synthetic Credit Portfolio was balanced and
passed them along to senior Firm management. On this score, senior members of the Synthetic
Credit Portfolio team, including Ms. Drew, as well as CIO Finance and CIO Risk Management,
should have more thoroughly questioned, tested and/or caused others to test the estimates and
conclusions being presented.
7. Compensation Issues
Incentive-based compensation systems are premised on the basic assumption that one of
the factors that influence individuals performance and conduct is financial reward. When
employees take steps such as those that led to the losses in the Synthetic Credit Portfolio, the
question naturally arises whether something in the compensation framework incentivized them to
do so and whether the Task Force should be recommending adjustments to that framework.
Based on the Task Forces review, however, there does not appear to be any fundamental flaw in
the way compensation was and is structured for CIO personnel.
106
What the incident does
highlight is the particular importance of clear communication to front office personnel engaged
in activities not expected to generate profits (such as the winding down of a trading portfolio)
that they will nonetheless be compensated fairly for the achievement of the Firms objectives,
including effective risk management.

106
To this end, the Task Force believes that even if the traders and others had received only a fixed salary
and no incentive compensation, they nevertheless might have harbored concerns about the consequences
of losses on their future salary and professional prospects in light of the Synthetic Credit Portfolio
unwind.
92

CIO does not have its own incentive compensation system; instead, it participates in the
Firm-wide annual incentive plan that is reviewed and overseen by the Compensation and
Management Development Committee of J PMorgans Board of Directors. Awards under the
plan are discretionary and non-formulaic, and compensation is dependent on multiple factors that
can be adjusted and modified depending on the particular circumstances. These factors include
financial performance for the Firm, for the business unit and for the individual in question
but they also consider how profits are generated, and compensation decisions are made with
input from Risk Management and other control functions (as was the case for CIO).
107

The Task Force has found little in the form of direct evidence to reveal what Ms. Drew
and the other Synthetic Credit Portfolio managers and traders were thinking about their own
specific compensation as they made decisions with respect to the Synthetic Credit Portfolio.
Throughout the relevant period, however, at least two of the traders clearly maintained a strong
focus on daily, monthly and quarterly profit-and-loss numbers, and were acutely concerned about
mounting losses in the Synthetic Credit Portfolio. At the beginning of 2012, a priority for CIO
was to reduce RWA, and the Synthetic Credit Portfolio was a significant user of RWA. There
was also a belief that CIO should neutralize the credit exposure of the Synthetic Credit Portfolio.
And there was recognition, reflected in the February 2012 CIO Business Review, that [d]espite
the effectiveness of the Tail Risk Book hedging credit portfolio, the change in regulatory capital

107
Risk management personnel were asked to provide input on the traders during their 2011annual
performance reviews. None of the input raised risk-oriented concerns.
93

regime is likely to force a re-size / run-off of synthetic portfolio in order to maintain RWA
targets for the Firm. Ms. Drew and other senior members of the Synthetic Credit Portfolio team
knew that winding down the portfolio brought with it the likely prospect of significant trading
costs (that is to say, from a profit-and-loss perspective) in implementing this priority.
As a result, the Task Force believes that the CIO management, including Ms. Drew,
should have emphasized to the employees in question that, consistent with the Firms
compensation framework, they would be properly compensated for achieving the RWA and
neutralization priorities even if, as expected, the Firm were to lose money doing so. There is
no evidence that such a discussion took place. In the future, when the Firm is engaged in an
exercise that will predictably have a negative impact (either in absolute terms or relative to past
performance) on a front office employees or business units contribution to the Firms profits
and losses, the Firm should ensure those personnel are reminded that the Firms compensation
framework recognizes that losses (as well as profits) are not necessarily the measure of success.
This approach is fully consistent with the current incentive compensation structure, but should be
reinforced through clear communication.
B. The Firm Did Not Ensure that the Controls and Oversight of CIO Evolved
Commensurately with the Increased Complexity and Risks of Certain CIO
Activities
The Task Force believes that the Firm did not ensure that the controls and oversight of
CIO evolved commensurately with the increased complexity and risks of CIOs activities. As a
94

result, there existed significant risk management weaknesses within CIO that played a key role in
allowing the flawed, risky trading strategies to be pursued.
For a significant period of time prior to the first quarter of 2012, CIO was subjected to
less rigorous scrutiny than client-facing lines of business. The lower level of oversight
engendered weak risk management and infrastructure within CIO, which performed ineffectively
at a time when robust, effective controls were most needed. Granular limits were lacking, and
risk managers did not feel adequately empowered. These matters became even more critical
once the Synthetic Credit Portfolio grew in size, complexity and risk profile during the first
quarter of 2012. Further, by the time the Firms new Chief Risk Officer was appointed in
J anuary 2012 and launched an effort to compare and improve practices throughout the Firm, it
was too late to build the risk controls and develop the structure that may have helped to prevent
the losses in CIO.
The Task Force has identified six factors that it believes may have led to less rigorous
scrutiny for CIO. First, CIO and the Synthetic Credit Portfolio had largely performed very well
in the past. Neither had a history of significant losses and, as Mr. Dimon has explained, there
was a little bit of complacency about what was taking place [in CIO] and maybe
overconfidence. Moreover, CIO EMEA Credit the unit in which the Synthetic Credit
Portfolio was located had not previously experienced major control issues. In particular, CIO
EMEA Credit received Satisfactory ratings in prior audits. Nevertheless, senior Firm
management did not take sufficient steps to confirm the belief that CIO was subject to
95

appropriate oversight and risk limits, nor did they confirm how the Firm-wide Risk organization
was monitoring and overseeing CIOs activities.
Second, CIO is not a client-facing business and does not involve the host of regulatory,
risk and other limits applicable to dealings between the lines of business and their clients, which
require more attention from various control functions, including compliance, audit, legal and
finance. There was no meaningful effort to ensure that, notwithstanding this fact, CIO was
subject to appropriately rigorous risk and other limits and was updating those limits on a regular
basis.
Third, the more conservative nature of the majority of CIOs portfolio, as well as its
overall mandate to invest the Firms investment portfolio in top of the capital structure
instruments, may have suggested to senior Firm management that CIO did not present significant
risks.
Fourth, the large size of CIOs overall portfolio may explain the lack of an aggressive
reaction of numerous people, including senior Firm management, to the relative size of the
Synthetic Credit Portfolio. When coupled with representations of CIO traders and management
that the Synthetic Credit Portfolio was balanced (as well as the fact that CIO could hold the
positions for a long period), the notional numbers that were being discussed at the time were
large but not alarming. But, the growth in the notional size of the Synthetic Credit Portfolio
during the first quarter of 2012 should have prompted additional scrutiny by the Risk
96

organization (at both the Firm and CIO level) into both the trading strategies that had caused this
growth and the proposed exit strategy.
Fifth, the implementation of a new model that significantly reduced CIOs VaR likely
distracted focus from the increase in VaR that occurred in J anuary 2012. Absent the new model,
or if VaR limits had been promptly adjusted downward following the implementation of the new
model, breaches of the CIO Global 10-Q VaR limit would have continued, and could have
triggered a more rigorous analysis by Risk Management personnel both inside and outside CIO
potentially leading to earlier discovery of the risks in the Synthetic Credit Portfolio and
modification or termination of the trading strategies that persisted through late March.
Sixth, the CIO Risk organization did not mature into the type of robust and independent
function that is needed for trading activities that involve significant risk. The CIO Risk function
was not staffed with as many experienced or strong personnel as it should have been. The Firm-
wide Risk organization bears responsibility for not having built, over time, a strong, independent
Risk function within CIO. This failure meant that notwithstanding the new Chief Risk Officers
efforts beginning in early 2012 to improve controls and oversight, the necessary infrastructure
was not in place when the need arose and the CIO Risk function was tested. CIO management
also bears responsibility for this weakness in the CIO Risk function.
In addition to these risk-related controls, the Task Force has also concluded that the Firm
and, in particular, the CIO Finance function, failed to ensure that the CIO VCG price-testing
procedures an important financial control were operating effectively. As a result, in the first
97

quarter of 2012, the CIO VCG price-testing procedures suffered from a number of operational
deficiencies. For example, CIO VCG did not have documentation of price-testing thresholds. In
addition, the price-testing process relied on the use of spreadsheets that were not vetted by CIO
VCG (or Finance) management, and required time-consuming manual inputs to entries and
formulas, which increased the potential for errors.
C. CIO Risk Management Was Ineffective in Dealing with Synthetic Credit
Portfolio
CIO Risk Management lacked the personnel and structure necessary to properly risk-
manage the Synthetic Credit Portfolio, and as a result, it failed to serve as a meaningful check on
the activities of the CIO management and traders. This occurred through failures of risk
managers (and others) both within and outside of CIO.
CIOs Risk Management group faced key organizational challenges during the relevant
period from the end of 2011 through the first quarter of 2012 and in particular was faced with
transitions in key roles. The position of Chief Risk Officer within CIO was filled by Mr.
Goldman in J anuary 2012. Previously, Mr. Weiland, the head of CIO Market Risk, had overseen
Risk Management within CIO since the principal risks taken by CIO were market risks. In his
capacity as de facto Chief Risk Officer for CIO, Mr. Weiland had reported to Mr. Zubrow, who
served as the Firms Chief Risk Officer until J anuary 13, 2012.
108
Mr. Weiland participated in

108
After Mr. Goldman took over as CRO for CIO, Mr. Weiland maintained his responsibilities for CIO
Market Risk but reported to Mr. Goldman rather than Mr. Zubrow, with dotted line reporting to Firm-
wide Market Risk in February 2012.
98

Mr. Zubrows management team meetings and sat on the Firm-wide Risk Working Group,
chaired by Mr. Zubrow.
Prior to Mr. Goldmans appointment as CIO Chief Risk Officer, his previous experience
had been as a trader and as a manager and executive responsible for corporate strategy. His only
previous direct experience with risk management was as chair of the Fixed Income Trading Risk
Management Committee at another large firm, a position he had held more than 10 years
earlier.
109
As a result, although he had been working in another role within CIO before being

109
Mr. Goldman was previously Head of Strategy for CIO. Before joining J PMorgan, Mr. Goldman held
several roles at Cantor Fitzgerald. He served first as Chief Executive Officer and President of debt capital
markets and asset management, and then as Chief Executive Officer and President of Cantors broker
dealer, where he oversaw that firms strategy and global expansion. After leaving Cantor Fitzgerald in
2007, Mr. Goldman was hired by Ms. Drew as a portfolio manager in CIO in J anuary 2008. He
subsequently took a leave of absence in J une 2008, and later resigned, in order to respond to a New York
Stock Exchange investigation involving allegations that Cantor Fitzgerald had failed to supervise Mr.
Goldman because he had traded stocks in his personal accounts while simultaneously trading in those
same stocks in Cantor Fitzgeralds proprietary accounts. After the New York Stock Exchange inquiry
concluded with no action against Mr. Goldman, Ms. Drew hired him to work directly for her on strategic
projects, primarily related to asset allocation. In late 2010/early 2011, Ms. Drew and Mr. Zubrow, whose
wifes sister is married to Mr. Goldman, began a search to fill the newly created position of Chief Risk
Officer of CIO. Ms. Drew and Mr. Zubrow created the position because CIO had been growing and their
view was that they needed to enhance CIOs Risk staffing. They engaged an executive search firm,
which met with nearly a dozen individuals. However, none of the candidates who advanced to interviews
with CIO management was deemed to be right for the position, and in late 2011, the search was put on
hold. Shortly after learning of Mr. Hogans impending appointment as Chief Risk Officer for the Firm,
Mr. Zubrow and Ms. Drew discussed Mr. Goldman for the role of Chief Risk Officer of CIO. Ms. Drew
believed that Mr. Goldman was a good choice for the job, based on, among other things, his
understanding of markets. She secured Mr. Hogans assent to the appointment. While others at the Firm
were aware of Mr. Goldmans background and relationship with Mr. Zubrow and Ms. Drew and Mr.
Zubrow may have assumed Mr. Hogans awareness, Mr. Hogan did not in fact know of the relationship
between Messrs. Zubrow and Goldman, or of the earlier New York Stock Exchange investigation. Mr.
Hogan considered the hiring of Mr. Goldman as CIO Chief Risk Officer as effectively Mr. Zubrows last
personnel appointment rather than as his first. Nevertheless, in reliance on the recommendations of Mr.
Zubrow and Ms. Drew, Mr. Hogan believed that Mr. Goldman was a good fit for the CIO CRO position,
99

appointed CIO Chief Risk Officer, he was still climbing the learning curve when much of the
trading at issue was conducted.
110

Meanwhile, other senior risk management positions were in transition during this time,
including the Firms Chief Risk Officer (Mr. Hogan) and the Firms Head of Market Risk. (Mr.
Hogan was appointed Chief Risk Officer in J anuary 2012.) Having both previously served in the
Investment Bank, these individuals were still in the process of becoming acquainted with CIOs
activities and Risk Management function, as well as that of other parts of the Firm, at the time
the relevant trading strategies were being executed.
The CIO Risk function had also been understaffed for some time, and CIO management,
rather than the Risk function, had been the driving force behind the hiring of at least some of the
risk personnel. Although CIO had long-tenured Risk personnel in less senior positions (such as
Mr. Weiland), they appear not to have been expected, encouraged or supported sufficiently by
CIO management or by the Firm-wide Risk organization to stand up forcefully to the CIO front
office and to vigorously question and challenge investment strategies within CIO. Rather, at

and was comfortable that Mr. Goldmans broad managerial and trading experience had provided him with
the necessary skill set for the position. The Task Force notes that the Firm should have a more formal
process in place, with the participation of the Firms Human Resources personnel, to assure that, in
connection with the hiring of Operating Committee members and their direct reports, the Firm and all
appropriate personnel are aware of all relevant background information. If, with that additional
information, Mr. Hogan had any concerns or reservations about Mr. Goldman, he could have taken any
steps he deemed necessary to satisfy himself.
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The Task Force has considered whether former traders are qualified to serve as risk managers, and
believes that they can be, as trading experience is highly relevant. Indeed, some of the Firms best risk
managers have backgrounds as traders.
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least with respect to some Risk managers, such as Messrs. Goldman and Weiland, there was a
sense that they were accountable first and foremost to CIO managers rather than to the Firms
global Risk organization. They generally did not feel empowered to take the kinds of actions
that risk managers elsewhere within the Firm believed that they could and should take.
Responsibility for this failure lies not only with CIO Risk managers, but with Ms. Drew as well.
Further, the CIO Risk Committee met only three times in 2011. There was no official
membership or charter for the CIO Risk Committee and attendees typically included only
personnel from CIO, such as the regional Chief Financial Officers and Chief Investment
Officers, the Chief Risk Officer, the Chief Operating Officer, the Global Chief Financial Officer,
and Ms. Drew. Although Mr. Zubrow regularly was invited to attend CIO Risk Committee
meetings, he typically did not do so, in contrast with his frequent participation in Investment
Bank Risk Committee meetings. Had there been senior traders or risk managers from outside
CIO or had the CIO Risk Committee met more often, the process might have been used to more
pointedly vet the traders strategies in the first quarter of 2012. As it was, the Committee was
too slow to recognize the need to put in place risk limits specific to the Synthetic Credit Portfolio
or an updated limit structure for CIO as a whole.
111

111
Internal Audits report dated March 30, 2012, which examined CIO EMEA Credits control structure
as of year-end 2011, stated that CIO is currently undertaking a comprehensive review of the risk
measurement limits framework across all asset classes to assess potentially required enhancements
including whether additional risk factors are required for inclusion. As a result, although Internal Audit
noted that CIO did not explicitly measure the portfolio sensitivity to certain potentially applicable risk
measures such as bond/CDS basis, index basis and prepayment risk, a detailed assessment was not
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CIO Risk Management personnel fell well short of the Firms expectations. First,
contrary to Firm policy, they did not conduct any review of the adequacy of CIOs risk limits
between 2009 and 2011.
112
Second, they failed to appreciate and to escalate the significance of
the changes in the nature and size of positions that were occurring in the Synthetic Credit
Portfolio, despite having been presented with information and metrics that could have alerted
them to a problem earlier, and dismissed too easily breaches of existing limits. Third, as
discussed in Appendix A, they were not sufficiently engaged in the development and subsequent
implementation and operation of the VaR model. They took passive roles in the models
development and review and took no steps to ensure that the action plans required by the model
approval were completed or that the model was implemented as intended. Similarly, although a
proposal was under consideration to lower the VaR limit contemporaneously with the VaR
model change in J anuary, it was not acted upon until May 2012. Fourth, CIO Risk managers

performed of the market risk limits as part of this audit and the existing limits were not identified as
significantly outdated.
112
Under the Market Risk Limits Policy applicable to CIO before May 2011, the review of limits and
limit utilizations was required only annually, as opposed to semi-annually. Notwithstanding this
requirement, prior to May 2011, the last review of all CIO limits was conducted by CIO in 2009. A new
Market Limits Policy became effective in May 2011. Under the more recent policy, limits are required to
be established by Market Risk and business heads, and certain of these are required to be reviewed at least
annually by the Board and semi-annually within each line of business. In the first quarter of 2012, Mr.
Weiland was in the process of developing a proposal to revise the CIO limit structure. He began that
process in J uly 2011, recognizing that a semi-annual review of the limits had not yet been conducted and
that certain of CIOs limits need to be revised and/or updated. He discussed an early version of his
proposal at one of his weekly meetings with Ms. Drew in the summer of 2011. When Mr. Goldman
became CIOs Chief Risk Officer in J anuary 2012, he became involved in the process as well. Although
the proposal was the subject of active discussion in the first quarter of 2012 and a version of it was
presented to the CIO Risk Committee in late March, new limits were not implemented until May 2012.

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themselves fell short of expectations in implementing a strong Risk function. In particular, they
did not establish a relationship with CIO management that enabled Risk personnel to feel
comfortable voicing opposition to management.
The Task Force notes that, although it believes that primary control failures were risk
management failures, it has also considered whether the CIO Finance organization and in
particular its former CFO could or should have done more. The primary responsibility of the
CFO of CIO, like the CFO of the lines of business, is to oversee the Finance organization within
that unit and ensure that effective financial controls are in place. As described above, the Task
Force notes that the CIO Finance organizations VCG process, while appropriately designed,
suffered from operational shortcomings that became more pronounced in the first quarter of 2012
as the size and characteristics of the Synthetic Credit Portfolio changed. In addition, the failure
to have robust reporting protocols, including sufficient circulation of daily trading activity
reports, made early detection of problems less likely.
In addition to the core responsibility of overseeing the line of business Finance function,
the Task Force believes that a line of business CFO like all members of senior management of
a unit bears additional responsibility for identifying and reacting to significant financial risks.
To this end, the Task Force believes that, although primary responsibility for managing risk lies
with the business head and Risk organization, the CFO of CIO (like the other members of CIO
senior management) missed a number of opportunities during the first quarter to meaningfully
challenge the trading strategy.
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D. Risk Limits for CIO Were Not Sufficiently Granular
The risk limits in place before May 2012 applied to CIO as a whole (and not to the
Synthetic Credit Portfolio in particular) and were insufficiently granular. There were no limits
by size, asset type or risk factor for the Synthetic Credit Portfolio; indeed, there were no limits of
any kind specific to the Synthetic Credit Portfolio. When contrasted against the granular and
tailored risk limits that are applied elsewhere in the Firm, it is evident that the Firm-wide Risk
organization failed to ensure that CIO was subject to appropriately rigorous risk controls.
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The risk limits for the Synthetic Credit Portfolio should have been specific to that
portfolio and should have applied to the specific risks being taken. For example, these more
granular limits should have included specific controls on notional size (particularly for less liquid

113
Prior to 2009, Single Name Position Risk (SNPR) limits applied to the Investment Bank, but CIO
did not trade in any single names and hence did not have any single name limits. The Firms SNPR
policy thus exempted the following assets, among others, from its scope: (1) investments managed by
CIO as part of the Firm's Strategic Asset Allocation investment portfolio; and (2) CIO index and index
tranche activity. Messrs. Zubrow and Weiland agreed that these assets should be exempt from the policy
because they were longer-term, strategic investments and because calculating single name default
exposure for a portfolio of indices and tranches is extremely complex. As CIO began to add positions
with exposures to single names, Messrs. Zubrow and Weiland approved sets of name-specific limits for
the particular names to which CIOs indices and tranches had single name exposure. These limits were
separate from the SNPR limits applicable to the Investment Bank, and trading in these instruments by
CIO did not result in SNPR limits usage. By late 2011 and early 2012, CIOs exposure to single names
grew to the point that Mr. Weiland and Firm-wide Market Risk agreed that it made sense to include the
calculation of that exposure within the SNPR policy, because the amount and aggregation of those
exposures were becoming more significant. In early 2012, they began to discuss how to include CIOs
index and index tranche activity within the SNPR. The exact means by which that would be done were
the subject of ongoing discussion throughout the first quarter of 2012, due to the complexity of the
calculations and the fact that including the short positions in the Synthetic Credit Portfolio in the SNPR
would have had the effect of creating more availability for the limit (in part, because CIO owned equity
protection, meaning that it earned money on individual defaults).
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positions) as well as specific limits on credit risk and on counterparty risk. More numerous and
specific limits may have increased focus on the risks in the Synthetic Credit Portfolio earlier.
E. Approval and Implementation of CIO Synthetic Credit VaR Model Were
Inadequate
In a number of respects, the process surrounding the approval and implementation of the
new VaR model was inadequate. First, inadequate resources were dedicated to the development
of the model. The individual who was responsible for the models development had not
previously developed or implemented a VaR model, and was also not provided sufficient support
which he had requested in developing the model.
Second, the Firm model review policy and process for reviewing the new VaR model
inappropriately presumed the existence of a robust operational and risk infrastructure similar to
that generally found in the Firms client-facing businesses. It thus did not require the Model
Review Group or any other Firm unit to test and monitor the approved models implementation.
Back-testing was left to the discretion of the Model Review Group before approval and was not
required by Firm policy. In this case, the Model Review Group required only limited back-
testing of the new model, and it insufficiently analyzed the results that were submitted.
Third, and relatedly, the Model Review Groups review of the new model was not as
rigorous as it should have been and focused primarily on methodology and CIO-submitted test
results. The Model Review Group did not compare the results under the existing Basel I model
to the results being generated under the new model. Rather, it theorized that any comparison of
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the numbers being produced under the two models was unnecessary because the new model was
more sophisticated and hence was expected to produce a more accurate VaR.
Fourth, the model was approved despite observed operational problems. The Model
Review Group noted that the VaR computation was being done on spreadsheets using a manual
process and it was therefore error prone and not easily scalable. Although the Model
Review Group included an action plan requiring CIO to upgrade its infrastructure to enable the
VaR calculation to be automated contemporaneously with the models approval, the Model
Review Group had no basis for concluding that the contemplated automation would be possible
on such a timetable. Moreover, neither the Model Review Group nor CIO Risk followed up to
determine whether the automation had in fact taken place.
Fifth, CIO Risk Management played too passive a role in the models development,
approval, implementation and monitoring. CIO Risk Management personnel viewed themselves
more as consumers of the model than as responsible in part for its development and operation.
Sixth, CIOs implementation of the model was flawed. CIO relied on the model creator,
who reported to the front office, to operate the model. Data were uploaded manually without
sufficient quality control. Spreadsheet-based calculations were conducted with insufficient
controls and frequent formula and code changes were made. Inadequate information technology
resources were devoted to the process. Contrary to the action plan contained in the model
approval, the process was never automated.
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IV. Remedial Measures

J PMorgan has taken a broad range of remedial measures to respond to and act on the
lessons it has learned from the events described in this Report.
A. CIO Leadership, Governance, Mandate and Processes Revamped.
1. Team
Once it discovered the source and scope of the Synthetic Credit Portfolios losses, the
Firm responded by accepting the retirement of Ms. Drew and terminating the employment of
some members of the Synthetic Credit Portfolio team, and accepting resignations from others,
including Messrs. Goldman, Wilmot,
114
and Weiland.
115
In addition, the Firm announced on J uly
13 that it would pursue the maximum clawback of compensation from three individuals, each of
whom subsequently acceded to the Firms demands regarding the cancellation and recovery of
the relevant awards. This equates to approximately two years worth of each individuals total
compensation. In the Task Forces view, these steps were appropriate given each individuals
role in the losses at issue. Ms. Drew agreed voluntarily to the cancellation and recovery of her
awards that were subject to clawbacks. Senior Firm management, in consultation with the
Board, has also reduced compensation for other employees, and the incentive compensation pool
for all of CIO was reduced as well.

114
Mr. Wilmot has announced his resignation and is expected to leave the Firm in 2013.
115
Mr. Zubrow has also announced his retirement.
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The Firm has put in place a new CIO leadership team. Matthew Zames, who had served
as co-Head of Fixed Income in the Investment Bank, replaced Ms. Drew as the Firms Chief
Investment Officer. He occupied that role from May 14, 2012 through September 6, 2012. Mr.
Zames is now the co-Chief Operating Officer of the Firm and oversees, among other things, both
the CIO and Treasury functions. Craig Delany replaced Mr. Zames as Chief Investment Officer
and currently reports to him. Other key appointments include Marie Nourie (CFO for CIO);
Chetan Bhargiri (Chief Risk Officer for CIO, Treasury and Corporate); Brendan McGovern (CIO
Global Controller, a position that had been open since J anuary 2012); Diane Genova (General
Counsel for CIO and General Counsel for Markets in the Corporate and Investment Bank); Pat
Hurst (Chief Auditor); and Ellen Yormack (Senior Audit Manager). These are experienced,
tested professionals, with knowledge of best practices that they are able to bring to bear in their
new roles in CIO. Resources were also increased in key support functions; within the Risk
function alone, Mr. Bhargiri has added 20 new employees since May 2012. With these new
appointments, the Firm has reconfigured the entire CIO management team with strong and
knowledgeable individuals who are expected to bring more rigor to the management of CIO. At
the same time, this new team has established stronger linkages within CIO by introducing formal
lines of communication across the various regions, and the practical result has already been
increased dialogue and consistency in each of the three regions reporting to Mr. Delany.
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2. Governance
The Firm has enhanced governance within CIO and the Corporate sector more generally.
New and more robust committee structures have been instituted, including weekly CIO
Investment Committee meetings run by Mr. Delany, with a set schedule and set attendees. There
are also now monthly Business Control Committee meetings and a monthly Valuation
Governance Forum (VGF), both of which are new structures.
The CIO Valuation Governance Forum, whose membership includes Ms. Nourie, Mr.
Bhargiri and Mr. McGovern, is responsible for understanding and managing the risks arising
from valuation activities within CIO and for escalating key issues to a Firm-wide VGF, which
was established in 2012 as part of a Firm-wide initiative to strengthen the governance of
valuation activities. The CIO VGF has recently overseen the integration of CIO VCG staff into
the Investment Bank VCG reporting structure, the review of CIO VCG processes (including a
review of all manual spreadsheets and the implementation of enhanced controls for key
spreadsheets), and the enhancement of other CIO VCG procedures based on the Investment Bank
VCGs guidelines and best practices. The Firm has also increased the CIO VCG headcount and
hired a new head of EMEA VCG for CIO.
Beyond new structures within CIO, the Firm has implemented additional linkages among
CIO, Corporate Treasury and other Corporate activities. In particular, Mr. Zames is now in
charge of CIO, Treasury and Corporate, so that overall management of these related functions
has been brought together. Similarly, Mr. Bhargiri is now the Chief Risk Officer for CIO,
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Treasury and Corporate. Furthermore, Corporate Business Reviews of CIO are to be conducted
with increasing frequency and with the same structure as they are performed in the Firms client-
facing businesses. The Firm will also expand the CIO VGF in 2013 into a Corporate VGF,
which will cover Treasury and other Corporate functions in addition to CIO.
Finally, the Firm has modified and expanded the criteria that will allow it to claw back
certain equity awards in the event of poor performance by CIO. Under the Firms protection-
based vesting provisions, the Firm is entitled to conduct a discretionary review of certain senior
personnel and, in the event of certain types of poor financial performance, cancel certain equity
awards to which those personnel might otherwise have been entitled. Historically, senior CIO
personnel were only subject to such a review upon poor performance by the entire Firm, whereas
senior personnel from the lines of business were subject to these reviews upon poor performance
by their line of business (and not just the entire Firm).
116
The Firm has determined to modify the
protection-based vesting trigger for 2013 equity awards for senior-level CIO personnel, and it
now includes a CIO-specific trigger. The Firms intent is to ensure that, based upon significantly
poor performance in CIO, the Firm has the ability to recover certain previously granted equity
awards from those responsible.

116
The protection-based vesting program is distinct from the Firms other compensation recovery
programs, which have been employed against CIO personnel in this matter and allow the Firm to claw
back prior equity awards for other reasons such as termination for cause and improper or grossly
negligent risk assessments.
110

3. Mandate
Under the leadership of Mr. Zames and now Mr. Delany, CIO has refocused on its core
mandate of traditional asset-liability management. As part of this refocusing, the Firm moved a
substantial portion of the Synthetic Credit Portfolio from CIO to the Investment Bank, and
effectively exited the remainder of the Synthetic Credit Portfolios positions in the third quarter
of 2012. As a result of these changes and others, CIO no longer engages in the type of trading
that generated the losses, and any CIO synthetic credit positions in the future will be simple and
expressly linked to a particular risk or set of risks.
4. Reporting and Controls
Since the appointment of the new management team in May, CIO has also enhanced its
key business processes and reporting. For example, the CIO Executive Management Report and
Global Daily Risk Report now contain trading and position reports and are more appropriately
distributed so that this content reaches the appropriate managers. The Global Daily Risk Report
provides management with a consolidated and transparent view of all risk positions; its
distribution includes the Firm-wide CEO, CRO, Deputy CRO and co-COO in addition to senior
managers within CIO (including CIO Finance). In addition, Ms. Nourie and her team have spent
substantial time since May reviewing and revising basic policies and procedures with respect to
valuation and price verification. That initiative has improved the quality control of the VCG by
enhancing CIO senior finance management supervision of the valuation control process,
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implementing more formal reviews of price-testing calculations, and instituting more formal
procedures around the establishment and monitoring of price-testing thresholds.
Beyond these specific steps, the new CIO leadership team as well as senior Firm
management recognizes the importance of an open and transparent culture, including in its
communications with the Firms regulators. The Firm has been working to improve CIOs
culture and its communications both internally and with regulators to ensure regulators
consistently have full and timely visibility into CIOs activities. More broadly, senior Firm
management continues to be committed to enhancing a culture of prompt and complete
disclosure to its regulators in accordance with regulators expectations.
In addition, the Firm has recently established a new Oversight and Control Group that is
especially dedicated to solidifying an effective control framework, and looking within and across
the lines of business (and CIO) to identify and remediate control issues. Oversight and Control
will work closely with all control disciplines partnering with Compliance, Risk, Audit and
other functions in order to provide a cohesive and centralized view of and from all control
functions. Among other things, Oversight and Control will allow the Firm to detect problems
and escalate issues quickly, get the right people involved to understand the common threads and
interdependencies among various businesses, and then remediate these issues across all affected
areas of the Firm.
117

117
While the Oversight and Control function will facilitate a Firm-wide view of the control framework
and operational risk across the Firm, serving as both a partner and a check and balance to line of business
112

B. Risk Self-Assessment and Risk Management Changes
In the wake of the Synthetic Credit Portfolios losses, in May 2012 the Firm under the
guidance of its Chief Risk Officer mandated a self-assessment of the Risk function within each
line of business and CIO. As part of the self-assessment process, the Firm identified three
general categories for review and improvement: Model Governance and Implementation,
Market Risk and Governance, and Risk Independence. Within each category, the Firm identified
specific areas of focus. In Model Governance and Implementation, the Firm focused on
conducting a spot check of significant drivers of the Firms VaR and broadening the model
approval process to encompass implementation and ongoing monitoring. Within the category of
Market Risk and Governance, the areas of focus were: (1) the appropriateness of the limit
structure relative to risks undertaken; (2) the appropriateness of the risks undertaken; (3) policy,
response, and escalation process concerning limit breaches; and (4) consideration within line of
business risk committees of liquidity and concentration in positioning. Within the category of
Risk Independence, the Firm reviewed its risk committee structure.
Mr. Hogan directed each of the Firms lines of business to review these areas of focus to
assess whether any of the issues identified in CIO existed elsewhere across the Firm and, if so, to
remediate those issues immediately. The Chief Risk Officer for each line of business was
required to attest to the completion of the necessary actions identified in that businesss review,

management and Corporate functions, it will not remove ultimate responsibility for the effectiveness of
the control environment from the line of business CEOs and Corporate Functional Heads.
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and to provide documentation supporting completion of remediation. Each line of business CEO
also was required to sign off on completion of the action plan, along with the line of business
Risk Committee, and Mr. Hogan and Firm-wide Market Risk.
The Firm has now undertaken, or is in the process of undertaking, substantial remedial
measures, described in further detail below, to address the concerns arising from this self-
assessment in each of these areas.
1. Model Governance and Implementation
In the area of Firm-wide Model Governance and Implementation, the Firm has
substantially reformed its model risk policy, which governs model development, review,
approval, and monitoring. It is working to minimize model differences for like products; capture
all of its models in a central database; improve functionality and support for that central
database; review its old or rarely used models; and identify its most significant models. It also
will emphasize model implementation testing and comparisons to benchmark models, and
institute a formal escalation process for model reviews, as necessary. The Model Review Group
is now required to sign off on closure of all action plan items.
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In addition, the Firm is
enhancing staffing of the Model Review Group, and is working to implement and staff a model
governance function.
With respect to VaR in particular, the Firm has conducted a spot review of significant
drivers of VaR throughout the Firm, including in CIO, to ensure accuracy of the Firms 10-Q

118
For more information on action plans, see Appendix A below.
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VaR. In CIO, that spot review involved confirming that all of the positions comprising the CIO
10-Q VaR were being captured accurately, and included a comprehensive one-day check to
ensure accurate data feeds into the CIO VaR model; a horizontal review to identify data quality
issues among key data streams and a comparison with third-party data sources, where possible; a
comparison of calculators identified in approved model reviews with those actually employed; a
review of the process used to identify and separate 10-Q VaR vectors; and resolution of then-
outstanding model issues identified as high importance.
2. Market Risk and Governance
The Firm has now substantially reconstituted the Risk function within CIO. First, as
noted above, it has appointed Mr. Bhargiri to replace Mr. Goldman as Chief Risk Officer for
CIO, Treasury and Corporate. Mr. Bhargiri came to this role with substantial experience as a
managing director of Market Risk at the Investment Bank, and the Firm has ensured that Mr.
Bhargiris functional reporting practices conform to his official reporting lines. Second, it has
authorized Mr. Bhargiri to hire additional risk management officers, including senior level
officers, to extend the capacity of the Risk function within CIO, Treasury and Corporate, and he
has made 20 such hires since May 2012. The CIO Risk team has added product expertise in
emerging markets, securitized products, credit (single name), municipal bonds, and interest rates
and currency trading.
The Firm has reviewed and, where appropriate, revised market risk limits across all of its
lines of business and introduced additional granular and portfolio-level limits. As part of its
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ongoing risk management governance, it continues to conduct periodic reviews of the
effectiveness of existing limit structures. CIO now has in place a total of 260 limits.
Enhancements to the limits structure (as of December 6) include 67 redesigned VaR, stress and
non-statistical limits, including both global and regional Level 1 and Level 2 limits; 80 new asset
class concentration limits for the AFS securities portfolio, applicable to both CIO and Treasury;
60 new single name limits for the CIO Municipal AFS portfolio; and 53 new country exposure
limits, also applicable to both CIO and Treasury, as a subset to the Firm-wide Country Exposure
Limits. New limits related to geographic concentration, curve risk, single name risk, and
compression risk were made specifically applicable to the Synthetic Credit Portfolio during the
second and third quarters of 2012 (while it continued to be held by CIO, before it was transferred
to the Investment Bank and effectively closed out).
In addition, the Firm has strengthened its processes across all businesses to deal with
limit excessions. Aged or significant excessions must be further escalated to senior management
and to risk committees. All valid
119
or under investigation limit excessions, whether at the
lines of business or Firm-wide level, that are in excess for three business days or longer, or over
limit by 30% will be escalated to the line of business CEO, Chief Risk Officer, and Market Risk
Head, as well as to the Firms CEO, CRO, co-COO and Deputy CRO/Head of Firm-wide Market
Risk, and to the Firm-wide Risk Committee.

119
In contrast to valid excesses, invalid excesses are caused by data quality issues and do not require
remedial steps.
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3. Risk Independence
The Firm has reviewed its Risk Operating Committee structure and governance and
restructured the Risk Operating Committee to increase focus on identifying and implementing
best practices where appropriate across lines of business. The Firms Risk Governance structure
was enhanced to include the creation of the Firm-wide Risk Committee and Risk Governance
Committee.
Within CIO, the Firm has overhauled the CIO Risk Committee which, as noted,
previously had met only infrequently, without any official membership, and was composed
entirely of personnel from within CIO. There is, in its place, a CIO, Treasury and Corporate
Risk Committee, which conducts weekly meetings chaired by Messrs. Zames and Bhargiri. It
includes representatives from CIO, Treasury, and Corporate as well as other key senior
management from within and outside of CIO, including the Firms CRO, Deputy CRO, and
CFO, in order to ensure greater consistency across the Firms various lines of business.
C. Firm-wide Risk Governance and Organization
In addition to the specific improvements described above in the areas of focus addressed
by the Firm-wide risk self-assessment, the Firm has conducted a review of its entire Risk
organization in response to the events in CIO and has made or is making changes to that Risk
organizations governance, organizational structure and interaction with the Board.
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1. Risk Governance
In the area of risk governance, the Firm created the new roles of Deputy CRO/Head of
Firm-wide Market Risk and Wholesale Chief Credit Officer (WCCO). The role of Deputy
CRO/Head of Market Risk involves review and assessment of Firm-wide market risk. The
incumbents responsibilities include managing the Firms risk appetite and risk limits, risk
mitigation strategies, and working with Mr. Hogan to lead and develop the Firms Risk
organization. He is also responsible for directing the Firms market risk coverage resources.
Stephen Eichenberger, who also currently serves as Chief Credit Risk Officer for the Investment
Bank, assumed the newly created role of WCCO in J uly 2012. The WCCO reports to Mr. Hogan
and is responsible for credit risk across all wholesale businesses. In this capacity, the WCCO
will chair a Wholesale Credit Risk forum to ensure better communication between each business
and across all Risk functions; work with line of business Chief Risk Officers to identify and
effectively manage key credit risks and concentrations across the wholesale businesses; and
partner with the line of business Chief Risk Officers to engage in initiatives across wholesale
lines of business, including defining credit risk appetite and setting appropriate limits, supporting
key growth initiatives while maintaining strong credit risk management controls, coordinating
regulatory responses, building a credit risk stress framework, and enhancing credit risk reporting
and credit risk systems.
2. Risk Organization
Four Firm-wide risk committees have been added and will focus on risk themes.
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The Risk Governance Committee will meet monthly and will focus on risk governance
and other policy matters, risk analytics, model governance, Basel/Regulatory issues, risk
appetite, and updates to Firm-wide risk programs in the areas of compliance, liquidity, and
operational risks. Required attendees at these meetings include the Firms CRO, CFO,
Controller, line of business CROs, Chief Investment Officer, and personnel from Legal,
Compliance, Audit, and Regulatory Policy.
The Firm-wide Risk Committee will focus on business activity, including by conducting
periodic reviews of Firm-wide risk appetite and certain aggregate risk measures, serving as an
escalation point for matters arising in the line of business Risk Committees and for certain limit
breaches pursuant to the limits policy, and considering relevant business activity issues escalated
to it by line of business Chief Risk Officers and CEOs. It will meet monthly and required
attendees include the Firms CEO, CFO, CRO, Deputy CRO/Head of Market Risk, line of
business CEOs, CIO Head, General Counsel, Chief Auditor, Compliance Head, Regulatory
Policy Head, Consumer Risk CRO, Wholesale Credit Risk CRO, Model Risk and Development
Reputation Risk Officer, Country Risk Head, Corporate Risk CFO and Chief Administrative
Officer and line of business risk officers.
The Risk Management Business Control Committee will meet quarterly and will focus on
the control environment, including outstanding action plans, audit status, operation risk statistics
(such as losses, risk indicators, etc.), compliance with critical control programs, and risk
technology. Required attendees at these meetings include the CRO, the Deputy CRO, the line of
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business CROs, the Risk CFO and Risk Chief Administrative Officer, the Operational Risk
Head, and personnel from Model Review and Development, Audit, and Compliance.
Finally, the Risk Operating Committee will focus on risk management, including setting
risk management priorities, escalation of risk issues, and other issues brought to its attention by
line of business Chief Risk Officers and the Risk Team. Mr. Hogan will direct these bi-weekly
meetings, which will also include Risk Human Resources and Risk Chief Technology Officers.
In addition to these Risk committees, the Firm established a Valuation Governance
Forum in J une 2012 to oversee the management of risks arising from valuation activities
conducted across the Firm. The Firm-wide VGF is chaired by the Firm-wide head of VCG, and
its membership includes the Corporate Controller; the Deputy CRO; the CROs and Controllers
of the Investment Bank, Mortgage Bank, and CIO; the CFOs of the Investment Bank, CIO, and
Asset Management; and the Firm-wide Head of Model Risk and Development. The Firm-wide
VGF will meet twice per quarter to review issues and matters relating to valuation, the VCG
function, and related issues, and to address issues elevated to it by line of business VGFs.
Finally, the Firm is continuing its efforts to improve the process for highlighting key
issues to the DRPC, with an emphasis on conveying information in a manner that is more timely,
useful and focused.
V. Conclusion
The Task Force does not believe that the CIO losses stemmed from any one specific act
or omission. Rather, as described in this Report, the Task Force has concluded that the losses
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were the result of a number of acts and omissions, some large and some seemingly small, some
involving personnel and some involving structure, and a change in any one of which might have
led to a different result. This experience, as we hope is clear from this Report, has caused
substantial and healthy introspection at the Firm and recognition of the need for continued
improvement in multiple areas. Ultimately, the Task Force believes that this incident teaches a
number of important lessons that the Firm is taking very seriously.

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Appendix A: VaR Modeling

VaR is a metric that attempts to estimate the risk of loss on a portfolio of assets. A
portfolios VaR represents an estimate of the maximum expected mark-to-market loss over a
specified time period, generally one day, at a stated confidence level, assuming historical market
conditions. Through J anuary 2012, the VaR for the Synthetic Credit Portfolio was calculated
using a linear sensitivity model, also known within the Firm as the Basel I model, because it
was used for purposes of Basel I capital calculations and for external reporting purposes.
The Basel I model captured the major risk facing the Synthetic Credit Portfolio at the
time, which was the potential for loss attributable to movements in credit spreads. However, the
model was limited in the manner in which it estimated correlation risk: that is, the risk that
defaults of the components within the index would correlate. As the tranche positions in the
Synthetic Credit Portfolio increased, this limitation became more significant, as the value of the
tranche positions was driven in large part by the extent to which the positions in the index were
correlated to each other. The main risk with the tranche positions was that regardless of credit
risk in general, defaults might be more or less correlated.
This limitation meant that the Basel I model likely would not comply with the
requirements of Basel II.5, which originally had been expected to be formally adopted in the
United States at the end of 2011. One of the traders responsible for the Synthetic Credit
Portfolio therefore instructed an expert in quantitative finance within the Quantitative Research
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team for CIO International to develop a new VaR model for the Synthetic Credit Portfolio that
would comply with the requirements of Basel II.5. That individual (henceforth referred to in this
Report as the modeler) began work on developing that model in or around August 2011.
The trader who had instructed the modeler to develop the new VaR model (and to whom
the modeler reported at the time), CIO Market Risk, and the modeler himself also believed that
the Basel I model was too conservative that is, that it was producing a higher VaR than was
appropriate.
120
The modeler believed that an improved model should both (1) adequately capture
correlation risk in the Synthetic Credit Portfolio, and (2) produce a lower and more accurate
VaR.
A. Development of the New VaR Model
The modeler is a London-based quantitative expert, mathematician and model developer.
In addition to the considerable responsibility of developing a new VaR model, he continued to
perform his existing responsibilities in providing analytical support to the Synthetic Credit
Portfolio traders. On a number of occasions, he asked the trader to whom he reported for
additional resources to support his work on the VaR model, but he did not receive any.
Early in the development process, CIO considered and rejected a proposal to adopt the
VaR model used by the Investment Banks credit hybrids business for the Synthetic Credit

120
As noted above, VaR is a metric that attempts to estimate the risk of loss on a portfolio of assets. Both
the modeler and a member of the CIO Market Risk team who was also involved in the new models
development were of the view that the Basel I model might be overstating the VaR for the Synthetic
Credit Portfolio, in part because the amount of losses had exceeded the stated VaR limit less frequently
than would be expected based on the stated confidence level.
123

Portfolio. Because the Investment Bank traded many bespoke (i.e., customized), illiquid CDS,
its VaR model mapped individual instruments to a combination of indices and single name
proxies, which CIO Market Risk viewed as less accurate for CIOs purposes than mapping to the
index as a whole. He believed that, because the Synthetic Credit Portfolio, unlike the Investment
Bank, traded indices and index tranches, the Investment Banks approach was not appropriate for
CIO. The Model Review Group agreed and, in an early draft of its approval of the model,
described CIOs model as superior to that used by the Investment Bank in that it [was] a full
revaluation approach.
From September to November 2011, the modeler corresponded regularly with the
relevant individuals from the Model Review Group, and on November 25, 2011, he submitted
his new methodology (known internally as the full revaluation or Basel II.5 model) for
formal approval. The Model Review Group performed only limited back-testing of the model,
comparing the VaR under the new model computed using historical data to the daily profit-and-
loss over a subset of trading days during a two-month period. The modeler informed the Model
Review Group that CIO lacked the data necessary for more extensive back-testing of the model
(running the comparison required position data for the 264 previous trading days, meaning that a
back-test for September 2011 would require position data from September 2010). Neither the
Model Review Group nor CIO Market Risk expressed concerns about the lack of more extensive
historical position data.
124

During the review process, additional operational issues became apparent. For example,
the model operated through a series of Excel spreadsheets, which had to be completed manually,
by a process of copying and pasting data from one spreadsheet to another. In addition, many of
the tranches were less liquid, and therefore, the same price was given for those tranches on
multiple consecutive days, leading the model to convey a lack of volatility. While there was
some effort to map less liquid instruments to more liquid ones (i.e., calculate price changes in the
less liquid instruments derived from price changes in more liquid ones), this effort was not
organized or consistent.
By the end of 2011, some of the pressure to complete the review of the new model
appears to have abated because it became clear that Basel II.5 would not be implemented on the
previously anticipated timetable. However, as described in Section II.D.1, CIO exceeded its
Global 10-Q VaR limit at several points between J anuary 16 and J anuary 26, 2012, which in turn
caused a breach in the overall Firm 10-Q VaR limit. The Synthetic Credit Portfolio was the
primary driver of each of those excessions. A temporary limit increase was requested
121
and
required approval of senior Firm management. CIO recommended a temporary limit increase on
the grounds that it was taking steps to reduce the VaR and that, in any event, the newly
developed model was about to come online that would show a substantially reduced VaR.

121
Firm-wide Market Risk raised the possibility of a temporary limit increase to Mr. Hogan on J anuary
20, 2012. On J anuary 21, 2012, the then-head of the Risk Reporting and Finance function told Mr.
Hogan We are working towards a temporary one-off for CIO and the Firm proposed as follows: J PMC
$140mm (vs. $125mm permanent limit) CIO $105mm (vs. $95mm permanent limit. Mr. Weiland also
e-mailed Mr. Hogan on J anuary 22, 2012 regarding a proposed temporary VaR limit increase.
125

Mr. Weiland and another member of CIO Market Risk contacted the Model Review
Group regularly in the last two weeks of J anuary to inquire into the progress of the model
approval and, in a J anuary 23, 2012 e-mail to the modeler, the trader to whom the modeler
reported wrote that he should keep the pressure on our friends in Model Validation and
[Quantitative Research]. There is some evidence the Model Review Group accelerated its
review as a result of this pressure, and in so doing it may have been more willing to overlook the
operational flaws apparent during the approval process.
On J anuary 26, the Model Review Group discovered that, for purposes of a pricing step
used in the VaR calculation, CIO was using something called the West End analytic suite
rather than Numerix, an approved vendor model that the Model Review Group had thought was
being used. The Model Review Group had never reviewed or approved West End, which (like
Numerix) had been developed by the modeler.
122
CIO provided the Model Review Group with a
reconciliation test, based on a limited number of days, showing that the valuations from West
End and Numerix were in good agreement, and the Model Review Group committed to
conduct a full review of West End separately, but not before approving the VaR model. The
Model Review Group did not examine West End until early May 2012 (the results of which are
discussed below).

122
The modeler had previously worked at Numerix. While there, the Numerix repricing model was
developed under his supervision.
126

On J anuary 30, the Model Review Group authorized CIO Market Risk to use the new
model for purposes of calculating the VaR for the Synthetic Credit Portfolio beginning the
previous trading day (J anuary 27). Once the new model was implemented, the Firm-wide 10-Q
VaR limit was no longer exceeded. Formal approval of the model followed on February 1. The
formal approval states that the VaR calculation would utilize West End and that West End in turn
would utilize the Gaussian Copula model
123
to calculate hazard rates
124
and correlations. It is
unclear what, if anything, either the Model Review Group or CIO Market Risk did at the time to
validate the assertion that West End would utilize the Gaussian Copula model as opposed to
some other model, but that assertion later proved to be inaccurate.
125

As part of its approval of the new model, the Model Review Group included an action
plan with respect to two of the risk areas that were identified. First, it mandated automation of
the VaR model by J anuary 31, 2012 (i.e., contemporaneously with the models approval).

123
The Gaussian Copula is a commonly accepted model used to map the approximate correlation between
two variables.
124
A hazard rate is the probability of failure per unit of time of items in operation, sometimes estimated as
a ratio of the number of failures to the accumulated operating time for the items. For purposes of the
model, the hazard rate estimated the probability of default for a unit of time for each of the underlying
names in the portfolio.
125
A March 30, 2012 Internal Audit report on the Market Risk and Valuation Practices in CIOs credit
portfolios (including the Synthetic Credit Portfolio) assigned a rating of Needs Improvement due in part
to CIOs use of unapproved models in the calculation of risk (including VaR). The reference to the use
of unapproved models in the calculation of the VaR is to West End, which, as the Internal Audit report
noted, had not been submitted to the Model Review Group for Review. The Internal Audit report
included an action plan for CIO to document the West End analytics engine and submit to the Model
Review Group with a target completion date of J une 30, 2012. While the Internal Audit report also noted
problems with the control processes surrounding the VaR calculation, Internal Audit found no specific
examples of incomplete or inaccurate data.
127

Second, it required monitoring of illiquid tranches to assess whether mapping to more liquid
tranches would be necessary, and ultimately development and submission to the Model Review
Group of a risk mapping methodology. Neither of these action plans was completed. The Model
Review Group and CIO Market Risk apparently believed that work was already underway to
complete automation but took no steps to determine that automation had in fact been completed.
The modeler likewise did not submit, nor was he ever required to submit, a complete risk
mapping methodology.
B. Operation of the VaR Model
From February to April, the new VaR model was in operation. A CIO employee who
reported to the modeler was responsible for daily data entry and operation of the new model. In
April, an employee from the IT Department (who had previous experience as a senior
quantitative developer) also began to provide assistance with these tasks. Notwithstanding this
additional assistance, a spreadsheet error caused the VaR for April 10 to fail to reflect the days
$400 million loss in the Synthetic Credit Portfolio. This error was noticed, first by personnel in
the Investment Bank,
126
and by the modeler and CIO Market Risk, and was corrected promptly.
Because it was viewed as a one-off error, it did not trigger further inquiry.

126
On April 18, a member of the market risk team for the Investment Bank obtained information on the
Firm-wide and CIO VaR calculations to determine the impact of the April 10 loss on the Firm-wide VaR.
Upon discovering that the loss was not reflected in the CIO VaR, he reported his findings to Firm-wide
Market Risk, who in turn reported to Mr. Hogan that CIOs VaR appeared to have an error.
128

C. Discovery of Problems with the New VaR Model and Discontinuance
In early May 2012, in response to the recent losses in the Synthetic Credit Portfolio, Mr.
Venkatakrishnan asked an employee in the Model Review Group to perform a review of the
West End analytic suite, which, as noted, the VaR model used for the initial steps of its
calculations. The West End analytic had two options for calculating hazard rates and
correlations: a traditional Gaussian Copula model and a so-called Uniform Rate model, an
alternative created by the modeler. The spreadsheet that ran West End included a cell that
allowed the user to switch between the Gaussian Copula and Uniform Rate models.
The Model Review Group employee discovered that West End defaulted to running
Uniform Rate rather than Gaussian Copula in this cell, including for purposes of calculating the
VaR, contrary to the language in the Model Review Group approval. Although this error did not
have a significant effect on the VaR, the incident focused the reviewers attention on the VaR
model and ultimately led to the discovery of additional problems with it.
After this re-review, a decision was made to stop using the Basel II.5 model and not to
rely on it for purposes of reporting CIO VaR in the Firms first-quarter Form 10-Q. Following
that decision, further errors were discovered in the Basel II.5 model, including, most
significantly, an operational error in the calculation of the relative changes in hazard rates and
correlation estimates. Specifically, after subtracting the old rate from the new rate, the
spreadsheet divided by their sum instead of their average, as the modeler had intended. This
error likely had the effect of muting volatility by a factor of two and of lowering the VaR,
129

although it is unclear by exactly what amount, particularly given that it is unclear whether this
error was present in the VaR calculation for every instrument, and that it would have been offset
to some extent by correlation changes. It also remains unclear when this error was introduced in
the calculation.

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