US banks lost $10 bln in 4th qtr trading revenue

WASHINGTON (Reuters) - U.S. commercial banks lost nearly $10 billion trading foreign exchange, interest rate and other derivative instruments in the fourth quarter of 2007 because of write-downs on subprime-linked securities, the government said on Wednesday.

For all of 2007, commercial banks had $5.5 billion in trading revenues, down sharply from a record $18.8 billion in 2006, the Office of the Comptroller of the Currency said in its quarterly report on bank trading activities.

The agency said trading losses in the final months of 2007 were expected.

"The large losses in the fourth quarter are the result of well-publicized write-downs on the super senior tranches of collateralized debt obligations backed by subprime residential mortgage securities," Deputy Comptroller for Credit and Market Risk Kathryn Dick said in a statement.

For credit trading alone in the fourth quarter, banks lost $11.8 billion, the comptroller said. Year-on-year comparison data was not available because banks did not break out credit trading revenues for the comptroller until the beginning of 2007.

The net current credit exposure, a key measurement of credit risk in derivatives trading, rose $57 billion, or 22 percent, during the fourth quarter to $309 billion, the agency said. The measurement is up 67 percent from the end of 2006.

"The decline in interest rates and widening credit spreads have caused sharp increases in derivatives fair values, and netting benefits have not kept pace the past two quarters," Dick said.

The comptroller's office, which oversees most big U.S. commercial banks, also said the notional amount of derivatives held by banks fell $8 trillion in the fourth quarter to $164 trillion. The largest five U.S. banks hold 97 percent of the total notional amount of derivatives, it said.

The quarterly report included the following data:

COMMERCIAL BANKS' DERIVATIVES TRADING REVENUE

2007 2006 Pct Q4 Q4 Pct

Change 2007 2006 Change Int. rate 7,902 4,618 71 (357) 1,151 -131 Forex 6,974 7,953 -12 1,873 1,613 16 Equity 2,991 4,952 -40 205 1,216 -83 Comdty/Other 295 1,265 -77 88 (111) 179 Credit * (12,673) -- -- (11,780) -- -- Total 5,489 18,787 -71 (9,970) 3,869 -358

* Banks did not report credit trading revenue numbers until Q1 2007.

The comptroller's quarterly report is available on the Web here .

(Reporting by Julie Vorman; Editing by Dan Grebler)