Trading revenue at U.S. commercial banks fell 66 percent in the fourth quarter, the Office of the Comptroller of the Currency said on Friday, as uncertainty over pending derivatives legislation added to a seasonal slowdown in trading.
Revenue fell to $1.9 billion from $5.7 billion in the third quarter as banks also adjusted the credit-related value of derivatives payables and receivables, which are recorded as part of trading revenue, said the OCC, the top U.S. regulator for large, national banks.
Trading revenue for 2009 rose to a record $22.6 billion, compared with a $836 million loss in 2008.
The previous high was in 2006 when banks generated $18.8 billion of trading revenue, though the mix of institutions included in the OCC report changed in late 2008 and early 2009, due to large investment banks Goldman Sachs Group and Morgan Stanley becoming bank holding companies.
Regulators are seeking to bring derivatives under the purview of regulators after the contracts, often interconnected between banks, were blamed for exacerbating the credit crisis.
Derivatives take their value from underlying assets such as bonds, currencies or commodities, or can be tied to changes in interest rates.
Exposures in the contracts remained highly concentrated, with the largest five banks continuing to account for 97 percent of overall exposure and 88 percent of net credit exposure, the OCC said.
Net current credit exposure, which is the amount banks risk losing upon the possible collapse of counterparties on their derivatives trades, and a closely watched statistic by regulators, declined 18 percent during the quarter to $398 billion.
Revenue from interest rate and foreign exchange products declined by 65 percent to $1.4 billion in the fourth quarter, from $3.9 billion in the third quarter, the OCC said.
Credit trading generated only $27 million in the fourth quarter, compared with $1.2 billion in the third quarter, while equity contracts yielded $144 million, a slight drop from $154 million in the third quarter.
Commodity and other contracts earned $389 million in the fourth quarter, down from $446 million in the third quarter.
Interest rate derivatives remained the largest asset class, accounting for 84 percent of total derivatives volumes. Credit derivative volumes, meanwhile, rose 8 percent in the third quarter to $14 trillion.
JPMorgan Chase & Co., Bank of America Corp., Goldman Sachs, Citigroup Inc. and Wells Fargo & Co., have the largest derivatives exposures of U.S. commercial banks.
As of December 31, these banks' notional derivative exposures stood at $78.55 trillion, $44.32 trillion, $41.6 trillion, $37.55 trillion and $4.18 trillion, respectively, the regulator said.
JPMorgan, Bank of America, Goldman Sachs, Morgan Stanley and Citi had the largest derivative exposures of all holding companies, at $78.66 trillion, $72.53 trillion, $48.85 trillion, $41.51 trillion and $39.35 trillion, respectively.
Of the large banks, Goldman again got the largest overall boost from its trading revenue, which represented 72 percent of the bank's gross revenue in the quarter, the OCC said.
JPMorgan and Bank of America's trading revenue represented 3 percent and 2 percent, respectively, of their gross revenue while Citigroup recorded a loss of 12 percent in gross revenue from its trading revenue.
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