The Office of the Comptroller of the Currency has released its quarterly report on bank trading and derivatives activities for Q2 2009, and as usual, it makes for interesting reading.
Some highlights:
- The notional value of derivatives held by US commercial banks increased $1,500bn in the first quarter, or 0.7 per cent, to $203,500bn
- US commercial banks reported revenues of $5.2bn trading cash and derivative instruments in the second quarter of 2009, compared with a record $9.8 billion in the first quarter and a loss 0f $9.2bn at the end of Q4 08. The OCC’s deputy comptroller for credit and market risk, Kathryn Dick, said the revenues generated in the second quarter “were the sixth strongest since we’ve been keeping records.”
- Net current credit exposure - the amount that would be owed to banks if all of their derivatives contracts were immediately liquidated, and the primary metric the OCC uses to measure credit risk in derivatives activities - decreased 20 per cent to $555bn. At the end of Q4 08, that metric stood at $800bn.
On that:
“Rising interest rates and falling credit spreads have combined to reduce the fair values of both derivatives receivables and payables,” Ms. Dick said. “As a result, we have seen material reductions in net current credit exposure over the past two quarters, although by any standard these exposures remain very high.”
- Derivative contracts remain concentrated in interest rate products, which comprise 85 per cent of total derivative notional values; interest rate contracts increased $2,500bn to $1,71903bn. The notional value of credit derivative contracts decreased by 8 per cent during the quarter to $13440bn. Credit default swaps are the dominant product in the credit derivatives market, representing 98 per cent of total credit derivatives .
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- Revenues from interest rate contracts were $1.1bn, compared with the record $9.1bn reported in the first quarter. Revenue from credit contracts continued to improve: banks reported $1.9bn in credit trading revenues in the second quarter, versus a first quarter loss of $3.2bn.
- Foreign exchange revenues fell 13 per cent to $2.1bn. Commodity revenues fell 18 per cent to $281m. Banks posted losses of $279m trading equity contracts.
- Derivatives contracts are concentrated in a small number of institutions. The largest five banks – JP Morgan Chase, Goldman, Bank of America, Citigroup and Wells Fargo - hold 97 percent of the total notional amount of derivatives, while the largest 25 banks hold nearly 100 percent. This tallies with what Fitch reported back in July.
- The number of commercial banks holding derivatives increased by 47 in the quarter to 1,110.
Worth reading in full.
[SMI updated this post to correct a conversion error]