US banks' Q1 trading revenue rises to $8.3 bln-OCC

NEW YORK, June 25 (Reuters) - Trading revenue at U.S. commercial banks jumped 328 percent in the first quarter, compared with the fourth quarter of 2009, as banks benefited from improving credit markets, the Office of the Comptroller of the Currency said on Friday.

Revenues from trading derivatives and cash securities rose to $8.3 billion, from $1.9 billion in the fourth quarter, when uncertainty over pending derivatives legislation and a seasonal slowdown in trading dampened earnings. They fell 15 percent from a record $9.8 billion generated in the first quarter of 2009, the OCC said.

"The improved first quarter 2010 trading performance was due to a sharp rebound in credit trading results," the OCC said in a release. "During the financial crisis, credit trading had been the source of material trading losses."

Credit trading in the quarter generated $2.7 billion, the strongest result since banks began reporting the credit separately in 2007, the OCC said. Banks lost $3.2 billion from credit trading in the first quarter of 2009, and earned only $27 million from the asset class in the fourth quarter of 2009.

Exposures in the derivatives contracts remained highly concentrated, with the largest five banks continuing to account for 97 percent of overall exposure and 86 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 10 percent during the quarter to $359 billion.

Derivatives trading is one of the most profitable activities for banks. U.S. lawmakers late on Thursday passed rules that will allow banks to continue trading interest rate derivatives, the largest privately traded derivatives market, in their main banking unit.

Laws will, however, require banks to spin off trading operations for commodity and equity derivatives and some credit default swaps. For details, see [ID:nN25341158]

Interest rate derivatives accounted for 84 percent of total derivatives volumes in the quarter, the OCC said.

Revenue from interest rate and foreign exchange products rose to $4.3 billion in the first quarter, from $1.4 billion in the fourth quarter, the OCC said.

Commodity and other contracts earned $297 million in the first quarter, down from $389 million in the fourth quarter.

Derivatives take their value from underlying assets such as bonds, currencies or commodities, or can be tied to changes in interest rates.

LARGEST BANKS

JPMorgan Chase & Co (JPM.N), Bank of America Corp (BAC.N), Citigroup Inc (C.N), Goldman Sachs (GS.N), and Wells Fargo & Co (WFC.N), have the largest derivatives exposures of U.S. commercial banks.

As of March 31, these banks' notional derivative exposures stood at $76.46 trillion, $46.64 trillion, $41.12 trillion, $41.12 trillion and $3.76 trillion, respectively, the regulator said.

JPMorgan, Bank of America, Goldman Sachs, Citigroup and Morgan Stanley (MS.N) had the largest derivative exposures of all holding companies, at $76.89 trillion, $71.16 trillion, $49.14 trillion, $42.31 trillion and $40.73 trillion, respectively.

(Reporting by Karen Brettell; Editing by Diane Craft)