Bruno Iksil, the man dubbed the London Whale, has finally spoken out. Iksil, a former trader for JPMorgan Chase & Co. (JPM), was blamed for up to $6.2B in losses—a massive sum, hence the nickname. Unlike others involved, however, Iksil has been able to avoid prosecution after reaching a deal in which he agreed to help U.S. authorities with their cases and testify against others involved.
In a letter to Bloomberg, Iskil said that managers in the London chief investment office “repeatedly” told him to execute the strategy that led to the losses. He noted that the nickname he was given, “London Whale,” implies that one person was responsible for the trades involved when, he contends, others were involved in the debacle. Iksil said that his responsibility was to execute a strategy that senior management had put forth, approved, supervised, and ordered.
He maintains that he told superiors that there was a risk of huge loss with a trading strategy that they wanted him to execute, in part to lower the unit’s risk-weighted assets. Despite his concerns, said Iksil, his supervisors continued to tell him to continue with the strategy.
The trades involved were credit-swap index tranches. Tranches let investors bet on different levels of risk among a number of companies. If a borrower doesn’t meet its obligation, then the credit swaps must pay the buyer at face value. If t debt is defaulted, then the value the buyer must be paid is less.
The London Whale scandal in 2012 lead to numerous government probes, over $900M in regulatory sanctions against JPMorgan, and a significant salary reduction for CEO Jaime Dimon for a year. Probes determined that lapses in risk management and internal oversight played a part.
Last year, the U.K. Financial Conduct Authority decided not to fine Iksil $1.4M for his role. FCA also decided not to ban him from the securities industry. Iksil, in his letter, said that seeing as he has not been prosecuted, this should show that he was not at fault.
Iksil was the credit-derivatives book’s chief trader at JPMorgan’s London branch. He hedged against corporate-bond defaults as the U.S. economy failed. For over five years up to 2011, he made a $2.5B profit.
It was just earlier this month that ex-JPMorgan executive Achilles Macris was fined $1.1M for not telling authorities that he had been worried about the bank’s activities related to the London Whale trades. In January, U.S. District Judge George Daniels in New York preliminarily approved a $150 settlement from the firm to resolve investor claims alleging that JPMorgan had concealed the losses related to the fiasco. Daniels will decide whether to grant final approval at a later date.
The investors, which are pension funds, accused the firm of running a secret hedge fund that caused the massive losses. They contend that even though they were told that the unit was mainly managing risk, they were, in fact, taking part in trades to make money. The plaintiffs said they sustained millions of dollars in losses.
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JPMorgan’s ‘London Whale’ Surfaces to Say ’12 Loss Not His Fault, Bloomberg, February 22, 2016
Who Is the London Whale? Meet JPMorgan’s ‘Humble’ Trader Bruno Iksil, New York Magazine, May 11, 2012