Risk management, internal audit, and counterparty credit staff can read how losses arose from hedge design, the operation of limits, and margin management, and relate them to their own work.

The four cases and how they were chosen

This page covers the four cases in the table below. The cases were chosen because readable sources exist for them. The sources are reports by a state auditor and a Senate subcommittee, a central bank letter, and an academic paper.

The four cases differ in where the loss centered. At Metallgesellschaft it was hedge design and funding, at Orange County an investment enlarged by borrowing, at JPMorgan the valuation of credit derivatives and limits, and at Archegos the management of margin with counterparties. Reading them in chronological order shows how the center of the losses shifted, and you can also start with the case closest to the work you do.

Case Year Who took the loss Loss (figure from the source) Central trading
Metallgesellschaft losses 1993 US subsidiary of a German corporate group 1993 derivatives losses reported as USD 1.25 billion Long-term fixed-price sales of refined oil products, hedged with short-term futures and swaps
Orange County losses 1994 Investment pool of a county in California, US USD 1.69 billion Repo borrowing and holdings of structured notes
JPMorgan's London credit derivatives losses 2012 Investment unit of a US bank At least USD 6.2 billion Trading in credit derivative indices (CDS indices)
Bank losses from the Archegos default 2021 Several large counterparty banks Over USD 10 billion (total across several banks) Total return swaps
December1993Metallgesellschaft is effectivelybankruptDecember 61994Orange County files for protectionunder Chapter 9 of the U.S.Bankruptcy CodeMay 102012JPMorgan discloses a USD 2 billioncredit derivatives loss (at leastUSD 6.2 billion by year-end)March 262021Archegos defaults
Figure 1Main dates of the four cases
Figure description

The four cases are listed oldest first. The filled dots mark the collapse, the bankruptcy filing, and the default; the disclosure of the credit derivatives loss is the one event not highlighted. Years separate the cases, yet the figure spaces them evenly.

Summaries of the four cases and where to read more

Metallgesellschaft (1993)

Metallgesellschaft became effectively bankrupt in December 1993. A paper from the University of Cologne reports 1993 derivatives losses of USD 1.25 billion1. Researchers disagree on whether the cause was the hedge design or funding. How the trades worked and how the views differ are in The Metallgesellschaft Loss (1993).

Orange County (1994)

The investment pool of Orange County, California, used repo borrowing to enlarge its assets to about 2.7 times its base portfolio, and it held structured notes. When interest rates rose in 1994, the loss was put at USD 1.69 billion in a review in January 19952, and the county filed for protection under Chapter 9 of the US Bankruptcy Code on December 6, 19943. What the pool invested in, and the causes the state auditor's report gave, are in The Orange County Investment Pool Loss (1994).

JPMorgan (2012)

The credit derivatives portfolio run by the Chief Investment Office (CIO) of JPMorgan Chase lost at least USD 6.2 billion in 20124. The bank disclosed a USD 2 billion loss on May 105. The Senate subcommittee pointed to mark-to-market valuation, limit breaches, and limited information given to the regulator. The course and the problems the subcommittee's report took up are in The JPMorgan London Whale Credit Derivatives Loss (2012).

Archegos (2021)

Archegos Capital Management defaulted on March 26, 2021, causing over USD 10 billion in losses at several large banks6. The Federal Reserve issued a letter asking firms to review counterparty information, internal governance, and margin terms. How the trades worked and the causes the sources gave are in Bank Losses from the Archegos Default (2021).

What this page does not cover

Rogue trading, mis-selling, the failure of a hedge fund, the 2008 crisis, and the manipulation of benchmark rates are not covered on this page.

Notes

  1. Mark Wahrenburg, "Hedging Oil Price Risk: Lessons from Metallgesellschaft" (University of Cologne), page 2 ("1 Introduction"). The USD 1.25 billion is the figure the paper reports, and in footnote 1 the paper gives MG's special audit report (1995) as its source. ↩

  2. Report of the California State Auditor (Bureau of State Audits), "Orange County: Treasurer's Investment Strategy Was Excessively Risky and Violated the Public Trust" (March 1995), PDF pages 10–11 (loss revision) and page 19 (2.7 times the base portfolio). ↩

  3. The same report, PDF pages 9–10. ↩

  4. Report of the Senate Permanent Subcommittee on Investigations (included in Volume 1 of S. Hrg. 113-96), page 1 (PDF page 170). ↩

  5. The same report, page 14 (PDF page 183). ↩

  6. Federal Reserve (FRB) supervisory letter SR 21-19 (December 10, 2021; revised on January 9, 2026 to remove references to reputational risk), opening paragraph. What the letter asked firms to review comes from the letter's text (three concerns about fund information, risk management and governance, and margin terms). ↩