JPMorgan's 'London Whale' lost $6.2B — and the risk model had a spreadsheet error

In 2012, JPMorgan Chase, the largest bank in the United States, disclosed that its Chief Investment Office in London had lost at least $6.2 billion on credit derivative trades. The trader, Bruno Iksil — nicknamed the 'London Whale' for the size of his positions — had built a portfolio of over $150 billion in credit default swap indices.

The positions were supposed to be a hedge, but they grew far beyond any hedging purpose. The risk model that should have flagged the danger had been changed, and a spreadsheet error in the new model — a copy-paste mistake that divided by the sum instead of the average — made the risk appear half of what it actually was.

JPMorgan CEO Jamie Dimon, who had previously testified to Congress about the bank's superior risk management, called the loss 'a tempest in a teapot' before the full scale emerged. The bank paid $920 million in regulatory fines. The case exposed that even the most sophisticated risk management can be undermined by a spreadsheet error and a culture that rewards risk-taking.