Derivatives are financial weapons of mass destruction.

- Warren Buffet

…undoubtedly improved national productivity growth and standards of

living. - Alan Greenspan

Based on the BIS Semi-Annual Derivatives Statistics end June 2012 World GDP estimate from the IMF World Economic Outlook Database

in USD million

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Source: Bloomberg

Nominaal USD (2012) Onderneming Instrument Jaar Wie

USD 9 bn USD 8.67 bn Morgan Stanley Credit Default Swaps 2008 Howie Hubler

EUR 4.9 bn USD 6.95 bn Société Générale European Index Futures 2008 Jérôme Kerviel

USD 6.5 bn USD 6.69 bn Amaranth Advisors Gas Futures 2006 Brian Hunter

USD 4.6 bn USD 5.85 bn LTCM Interest Rate and Equity Derivatives 1998 John Meriwether

USD 5.80 bn USD 5.80 bn JPMorgan Chase Credit default swaps 2012 Bruno Iksil

JPY 285 bn USD 3.46 bn Sumitomo Copper Futures 1996 Yasuo Hamanaka

BRL 4.62 Bn USD 2.43 bn Aracruz FX Options 2008 Isac Zagury, Rafael Sotero

USD 1.7 bn[12] USD 2.38 bn Orange County Leveraged bond investments 1994 Robert Citron

DEM 2.63 bn USD 2.28 bn Metallgesellschaft Oil Futures 1993 Heinz Schimmelbusch

JPY 166 bn USD 2.14 bn Showa Shell Sekiyu FX Forwards 1993

JPY 1536 bn USD 2.09 bn Kashima Oil FX Forwards 1994

USD 2 bn USD 1.83 bn UBS Equities ETF and Delta 1 2011 Kweku Adoboli

HKD 14.7 bn USD 1.82 bn CITIC Pacific Foreign Exchange Trading 2008 Frances Yung

GBP 827 mio USD 1.78 bn Barings Bank Nikkei Futures 1995 Nick Leeson

USD 1.8 bn USD 1.74 bn Deutsche Bank Derivatives 2008 Boaz Weinstein

Source: Wikipedia

Data Source: Bloomberg

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 JPMorgan. 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

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.

Report of JPMorgan Chase & Co. Task Force Regarding 2012 CIO Losses, p.64

In USD Trillion Ult 2012

The combined nominal derivatives position of JPM en BoA equals 9x US GDP.

Derivatives / Equity 393x

Derivatives / Equity 278x

Source: IMF Working Paper WP/12/282, Fig 4 p. 37 – Data for ult. 2009

Source: IMF Working Paper WP/12/282, Table 1 p. 11 – Data for ult. 2009

Numbers between brackets: market share

Institution

Collateral

postings for

CDS (a)

Payments

Sec Lending

(b) Total

As a share

of capital

end 2008 c)

Goldman Sachs 8.1 4.8 12.9 29.1%

Société Générale 11.0 0.9 11.9 28.9%

Deutsche Bank 5.4 6.4 11.9 37.4%

Barclays 1.5 7.0 8.5 20.0%

Merrill Lynch 4.9 1.9 6.8 77.4%

Bank of America 0.7 4.5 5.2 9.1%

UBS 3.3 1.7 5.0 25.2%

BNP Paribas … 4.9 4.9 8.3%

HSBC 0.2 3.3 3.5 5.3%

12.0 [18.1%]

in USD billions

[memo: Bank of America after its merger with

Merill Lynch]

OECD Journal: Financial Markets Trends, Vol 2011 - Issue 1

(a) Direct payments from AIG through end 2008 plus payments by Maiden Lane III

(b) Sept 18 to December 12,2008

c) Common equity net of goodwill, net of all intangible assets for ML and HSBC

Source: Global SIFIs, Derivatives and Financial Stability

US Government payouts to AIG CDS counterparty losses

Exposure Chart taken from “CCR Measurement Under Basel II” A presentation by ISDA, Asia 2007

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A

B F

E C

D

CCP

Bilateral A

B F

E C

D

Central

membership criteria, e.g. capital requirement

margin: variation, intraday and initial

default fund contribution of member

default fund contribution of CCP

remainder of default fund contributions

replenishment of default fund

resolution or re-start of the CCP

USE, BUT WITH CAUTION

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