U.S. banks' derivatives top $50 trillion
By Greg Morcroft, CBS.MarketWatch.com
Last Update: 1:01 PM ET Sept. 6, 2002
NEW YORK (CBS.MW) -- U.S. banks and their customers continued to pour money into derivatives in the second quarter, as the total value of the specialized contracts passed $50 trillion.
Derivative investments generally rise during times of economic uncertainty, and the recent scandals, concerns about a possible war with Iraq and volatile share prices all inspired investors to hedge risk through derivatives.
In a report issued by the U.S. comptroller of the currency, the total amount of derivatives in U.S. insured commercial bank portfolios rose by $3.8 trillion in the second quarter, to $50.1 trillion. See the OCC report.
Bank earnings from derivatives rose to $3.4 billion in the second quarter, a 7.1 percent jump from the first quarter, and a highly unusual move according to the OCC's Michael Brosnan.
"This is the first time we've been looking at the data that second-quarter revenues increased from the first quarter," Brosnan said, adding that the large rise in total value of derivative positions caused the jump.
The top seven banks accounted for 85 percent of total trading revenue, compared to 84 percent in the first quarter.
During the second quarter of 2002, banks charged off $25 million from derivatives, or 0.005 percent of the total credit exposure from derivative contracts, the report said. That compares to banks' second-quarter charge-offs totaling 0.82 percent of loans.
Seven commercial banks account for about 96 percent of the total amount of derivatives, with more than 99 percent held by the top 25 banks, the report said.
The banks with the largest derivative positions were J.P. Morgan (JPM: news, chart, profile), with $25.9 trillion, up from $23.5 trillion in the first quarter; Bank of America (BAC: news, chart, profile), with $10.3 trillion, compared to $9.8 trillion last quarter; and Citigroup's (C: news, chart, profile) Citibank, with $7.4 trillion, versus $6.7 trillion in the first quarter.
For all banks, the fair value of contracts past due 30 days or more totaled $31 million, or .006 percent of total credit exposure from derivatives contracts, the report said.
Interest rate contracts increased by $3.4 trillion, to $42.7 trillion during the second quarter. Foreign exchange contracts rose by $183 billion to $5.8 trillion, excluding spot foreign exchange contracts, which increased by $332 billion to $504 billion, the report said.
Equity, commodity and other contracts jumped $85 billion, to $1.1 trillion, and credit derivatives increased by $54 billion, to $492 billion.
Interest rate contracts accounted for 85 percent of the total amount of derivative positions, foreign exchange made up another 12 percent and the balance comprised equity, commodity and credit derivatives.
The number of commercial banks holding derivatives increased by 12, to 391, the OCC said. |
