OCC’s Q1 Bank Trading and Derivatives Activity

The Office of the Currency Comptroller [OCC] released today its Q1 bank trading and derivatives activities report. Summary of findings:

From OCC: U.S. commercial banks reported record trading revenues of $9.8 billion in the first quarter of 2009, compared to losses of $9.2 billion in the fourth quarter of 2008..

“Banks continued to benefit from solid client demand and wide intermediation spreads in the first quarter, and from lower write-downs on legacy assets,” Deputy Comptroller for Credit and Market Risk Kathryn E. Dick said…

The notional value of derivatives held by [top 5 U.S. commercial banks: JPMorgan, BofA, Citi, Goldman and HSBC]-

– increased $1.6 trillion in the first quarter, or 1%, to $202.0 trillion, due to the continued migration of investment bank derivatives business into the commercial banking system.
…
Interest rate contracts increased $5 trillion to $169 trillion, while credit derivatives fell 8 percent to $15 trillion..Revenues from interest rate contracts were a record $9.1 billion, a $12.5 billion advance from a $3.4 billion loss in the fourth quarter.
…
Derivative contracts remain concentrated in interest rate products, which comprise 84% of total derivative notional values. The notional value of credit derivative contracts decreased by 8% during the quarter to $14.6 trillion.

[N]et current credit exposure, the primary metric the OCC uses to measure credit risk in derivatives activities, decreased $105 billion, or 13 percent, to $695 billion.
…
The number of commercial banks holding derivatives increased by 53 in the quarter to 1,063.

Another factor that prompted revenues higher, noted the report, was the recognition of changes in the value of trading liabilities. When bank credit spreads increase, as they did in q1, banks reflect the declining value of their liabilities as trading revenues. While trading performance was strong even when excluding the liability value changes, this source did add materially to first quarter trading performance.

Graphs: OCC

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