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JPMorgan Chase, the biggest US bank by assets, announced Friday that the trading loss from derivatives bets made by its Chief Investment Office had reached $5.8 billion, nearly three times the amount the company had revealed in May.
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Weiland compared efforts to reduce Iksil’s outsized position to the difficulty of trying to safely land a Boeing 747 without flying lessons, one executive said. The position was so large and illiquid, Weiland said he couldn’t get the plane below 35,000 feet, the executive said.
By 2010 Iksil’s value-at-risk, or VaR -- a formula used by banks to assess how much traders might lose in a day -- already was $30 million to $40 million, a person with knowledge of the matter said. At times the figure surpassed $60 million, the person said, about as high as the level for the firm’s entire investment bank, which employs 26,000 people.
The natural response: fudge the VaR calculation of course. After all JPM is exception: the rules that apply to everyone else, do not apply to it.
Early this year, as the size and volatility of its trades were growing, the bank changed the computer-based mathematical formulas for calculating the chief investment office’s VaR. The new model had the effect of understating the risk of losses from Iksil’s trades: It showed an average daily VaR within the CIO of $67 million, about where it stood in the fourth quarter of 2011.