U.S. banks and savings institutions’ $7.5 billion in trading revenue made the first quarter the fourth highest on record as they rebounded from credit losses, the Office of the Comptroller of the Currency said in a report.
While the industry averaged credit-trading losses of $329 million over the past eight quarters, first-quarter revenue was $889 million, according to the OCC. The gain from credit helped offset a 24 percent year-over-year drop in foreign-exchange and interest-rate trading, which still represents the largest share of revenue.
“First-quarter trading revenues were quite strong,” Kurt Wilhelm, director of the OCC’s Financial Markets Group, said in a statement released today with the agency’s Quarterly Report on Bank Trading and Derivatives Activities. Total trading revenue was up 7 percent from a year earlier, and it was 72 percent higher than the previous quarter.
An improving economy and low interest rates pushed “significant capital raising activity in the bond markets,” Wilhelm said in the statement. That meant demand was up for products that could help investors hedge against potential monetary policy changes.
The notional amount of derivatives at U.S. commercial banks was up 4 percent from the previous quarter to $232 trillion, ending a two-year decline. Four of the biggest commercial banks -- JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc. and Goldman Sachs Group Inc. -- represent 93 percent of the industry’s total notional amounts.
Credit exposure from derivatives was down 7 percent, the report said. Wilhelm said there has been some slip in the quality of collateral that banks hold against their credit exposure. Over the year, the share of collateral banks had in cash fell to 76.6 percent from 81.3 percent. He said the collateral quality is still “very high.”