JP Morgan Chase & Co. suffered a (USD) $7 billion loss (plus another $1 billion in government fines) from highly speculative investments by a handful of traders in its London office. The ill-fated trades occurred in JP Morgans chief investment office (CIO), a special unit whose original objec- tive was to use the banks own money to conservatively hedge against its investment risks. With top managements approval, however, the CIO became an active profit centre by investing in higher risk derivatives. The units portfolio tripled over three years to $350 billion (15 percent of JP Morgans total assets) and apparently generated more than 10 percent of the banks net income. It had gained senior managements highest respect. JP Morgan monitored risk compliance among its cli- ent-serving trading groups, whereas the CIO traders were under much less scrutiny, possibly because their assets were the banks money, not clients money. One U.S. government investigator quipped that supervision of CIO trades was little more than a rubber stamp. CIO traders reported their results less often than did other groups. Due to the complex- ity of these products, the CIO traders also had considerable discretion to estimate the size of those gains and losses. One U.S. senator remarked that the traders seemed to have more responsibility and authority than the higher-up executives. Bruno Iksil, the lead trader in the CIO groups London operations, had developed a reputation for making bold, but ultimately profitable, bets on whether companies would default on their bond payments. A few years ago, traders nicknamed Iksil the Caveman for his aggressive trading style. Later, Iksil became known as Voldemort after the powerful Harry Potter villain, because his trades namelessly moved the markets in which he bet. But Iksils most famous nickname was the London Whale because of his mammoth $100 billion credit default bet that ultimately cost the bank $7 billion. Iksil was revered for his trading success and rep- utation, which likely gave him considerable power to initiate trades that may have otherwise required higher authority. 2. What influence tactics were evident in this case study? Would you define any of these influence activities as organizational politics? Why or why not? 3. Suppose you are a consultant invited to propose a solu- tion to the problems facing this organizations prod- uct delays. What would you recommend, particularly regarding power dynamics among the executives and departments? But Iksils considerable power couldnt save his over- sized credit default position. Hedge funds noticed how his trades distorted the market, so they bet against those trades, which eventually created huge losses rather than profits for JP Morgan. Iksils trading losses on one day alone were more than a half-billion dollars. We are dead, Iksil texted to his assistant. They are going to trash/destroy us. You dont lose $500 million without consequences. As those losses mounted, Iksil and his assistant avoided scrutiny from head office by underestimating the size of those losses. They distorted or hid information about their trading losses, hoping that this would buy them time to recoup those losses before top management discovered the problem. U.S. government documents indicate that Iksils boss actively encouraged this practice, even after Iksil eventually refused to continue the charade. When Iksil did eventually refuse to under-report the losses, his boss told him to leave for the day so a junior trader could file a lower loss amount. The losses were revealed only after the bank completed one if its regular reviews. Until then JP Morgans chief invest- ment officer claimed no knowledge of the problems in the London CIO office. She later complained that some mem- bers of the London team failed to value positions properly and that they hid from me important information regarding the true risks of the book. After he was fired, Iksil claimed that CIOs senior management were involved in these trades. The losses suffered by the CIO were not the actions of one person acting in an unauthorized manner, wrote Iksil in a public letter. My role was to execute a trading strategy that had been initiated, approved, mandated and monitored by the CIOs senior management. When JPMorgans top executives did become aware of Iksils losses, they apparently delayed informing the board of directors. JPMorgans senior management broke a car- dinal rule of corporate governance and deprived its board of critical information it needed to fully assess the companys problems, concluded a senior U.S. government official. Bruno Iksil, his boss, the banks chief investment officer, and several others have since left the bank.

1) What sources and contingencies of power gave Bruno Iksil considerable power in the CIO group at JP Morgan?

2) What influence tactics, if any, were used to hide the financial losses?

3) Was organizational politics evident in the events described in this case? If so, what were the characteristics of those actions that identified them as organizational poultices?