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Banks 1st q 2012

Banks 1st q 2012

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Published by: annawitkowski88 on Aug 07, 2012
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Comptroller of the Currency Administrator of National Banks
Washington, DC 20219
OCC’s Quarterly Report on Bank Trading and Derivatives ActivitiesFirst Quarter 2012
Executive Summary
Insured U.S. commercial banks and savings associations reported trading revenues of $7.0 billion in thefirst quarter, 5% lower than $7.4 billion in the first quarter of 2011. Trading revenues in the firstquarter of 2012 were 178% higher than in the fourth quarter of 2011.
Credit exposure from derivatives fell in the first quarter. Net current credit exposure decreased 12%, or$53 billion, to $377 billion.
Trading risk exposure, as measured by Value-at-Risk (VaR), at the 5 largest trading companies totaled$564 million, 16.7% lower than in the first quarter of 2011.
For the third consecutive quarter, the notional amount of derivatives held by insured U.S. commercialbanks and savings associations fell. Notional derivatives fell $3 trillion, or 1.2%, from the fourth quarterof 2011, to $228 trillion. Notional derivatives continue to fall due to trade compression efforts in creditand interest rate contracts.
Derivative contracts remain concentrated in interest rate products, which comprise 81% of totalderivative notional amounts. Credit derivatives, which represent 6% of total derivatives notionals, fell5% to $14 trillion.The OCC’s quarterly report on trading revenues and bank derivatives activities is based on Call Reportinformation provided by all insured U.S. commercial banks and trust companies, reports filed by U.S. financialholding companies, and other published data. Beginning in the first quarter of 2012, savings associationsreported their financial results in the Call Reports. As a result, their trading and derivatives activity is nowincluded in the OCC’s quarterly derivatives report. A total of 1,291 insured U.S. commercial banks and savings associations reported derivatives activities at theend of the first quarter, an increase of 213 (of which 192 were savings associations) from the prior quarter.Derivatives activity in the U.S. banking system continues to be dominated by a small group of large financialinstitutions. Four large commercial banks represent 93% of the total banking industry notional amounts and81% of industry net current credit exposure.The OCC and other supervisors have examiners on-site at the largest banks to continuously evaluate the credit,market, operational, reputation, and compliance risks of bank derivatives activities. In addition to the OCC’s on-site supervisory activities, the OCC continues to work with other financial supervisors and major marketparticipants to address infrastructure issues in OTC derivatives, including development of objectives andmilestones for stronger trade processing and improved market transparency across all OTC derivativescategories.
Insured U.S. commercial banks and savings associations reported $7.0 billion in trading revenues in the firstquarter, 178% higher than in the fourth quarter of 2011, but 5% lower than $7.4 billion in the first quarter of 2011. Improvements in the general macroeconomic and risk outlook led to healthy client demand that
supported first quarter trading revenues. Trading revenues in the first quarter are typically the strongest of theyear, as business demand and trading volume increase from the seasonally slow year-end period. In the 12 fullyears beginning in 2000, first quarter trading revenues have been the strongest of the year 7 times, and secondstrongest 4 times. Over that same period, 37% of total trading revenues have come in the first quarter.Relative to the fourth quarter, stronger first quarter revenues were driven by seasonal rebounds in interestrate/foreign exchange and commodity trading revenues. Combined interest rate and FX revenues, typically thedriver of bank trading revenues, totaled $7.1 billion, 224% higher than $2.2 billion in the fourth quarter. Credittrading revenues, the most volatile component of overall trading revenues, were $1.0 billion lower.The 5% ($390 million) fall in trading revenues compared to the first quarter of 2011 resulted from weaker credittrading results. Revenues from credit intermediation activities were $2.5 billion lower in the first quarter of 2012 than in 2011, which was offset by a $2.5 billion increase in interest rate/FX revenues. Revenues fromequity intermediation were $0.5 billion lower.
Commercial Bank Trading Revenue
Bank Trading Revenue$ in millions1Q124Q11Interest Rate5,6272535,3742127%4,5871,04023%Foreign Exchange1,5051,940(435)-22%351,4704222%Equity260(119)379319%743(483)-65% Commodity & Other41225815460%3159731%Credit(784)193(978)-506%1,729(2,514)-145% Total Trading Revenues7,0192,5254,494178%7,409(390)-5%% Change1Q12 vs.1Q11% Change1Q12 vs.4Q11Change1Q12 vs.4Q111Q11Change1Q12 vs.1Q11
1Q12 AvgHi LowAvgHi LowInterest Rate5,6272,7361,4359,099(3,420)2,8435,627145Foreign Exchange1,5051,7611,4974,261(1,535)1,4614,261(1,047) Equity2608224031,829(1,229)5191,442(119) Commodity & Other412214163789(320)271558(25) Credit*(784)(347)N/A2,707(11,780)7881,840(784) Total Trading Revenues7,0195,881
*Credit trading revenues became reportable in 1Q07. Highs and lows are for available quarters only.
Past 8 Quarters ALL Quarters Since Q4 1996Bank Trading Revenue$ in millions Avg Past12 Q1's
Note: Beginning 1Q07, credit exposures are broken out as a separate category.Data Source: Call Reports.
Holding Company Trading Revenues
To get a more complete picture of trading revenues in the banking system, it is useful to consider consolidatedholding company trading performance. As illustrated in the table below, consolidated holding company tradingrevenues of $18.9 billion in the first quarter of 2012 were 268% higher than fourth quarter revenues, and 151%higher ($11.4 billion) than in the first quarter of 2011. Trading revenues were sharply higher across productsectors in the first quarter of 2012. Interest rate and FX revenues were $9.6 billion this quarter, compared to$3.4 billion in the fourth quarter and $2.6 billion in last year’s first quarter. Equity revenues of $5.7 billion inthe first quarter of 2012 were 87% higher than in both the fourth quarter and the first quarter of 2011.Prior to the financial crisis, bank trading revenues typically ranged from 60-80% of consolidated holdingcompany trading revenues. Since the financial crisis, and the adoption of bank charters by the formerinvestment banks, the percentage of bank trading revenues to consolidated company revenues has fallen into arange of 30-50%. This decline reflects the significant amount of trading activity by the former investmentbanks that, while included in holding company results, remains outside the insured commercial bank. More
The OCC’s Quarterly Report on Bank Trading and Derivatives Activities focuses on the activity and performance of insured commercialbanks. Discussion of consolidated bank holding company activity and performance is limited to this section, as well as the data in Table 2and Graph 5D.
Interest RateForeign ExchangeEquityCommodity & OtherCreditTotal
    (    $   i   n   m   i    l    l   i   o   n   s    )
Quarterly Bank Trading Revenues
Holding Co. Trading Revenue$ in millions1Q124Q11Interest Rate7,6083247,2842248%(1,595)9,203577%Foreign Exchange2,0053,034(1,028)-34%4,194(2,188)-52% Equity5,6843,0472,63787%3,0352,64987%Commodity & Other2,2651,64661938%1,62264340%Credit1,333(2,912)4,245146%2711,063393%Total HC Trading Revenues18,8965,13913,757268%7,52611,370151%% Change1Q12 vs.1Q11Change1Q12 vs.4Q11% Change1Q12 vs.4Q111Q11Change1Q12 vs.1Q11

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