Comptroller of the Currency and Bloomberg.com: Banks Lose $836 Million in First Derivatives Loss

[Slimprofits]

U.S. commercial banks lost $836 million in 2008 from trading over-the-counter cash and derivatives contracts, compared with a $5.5 billion gain in 2007, the Office for the Comptroller of the Currency said today in a report. Among the five largest banks trading derivatives, only Goldman Sachs Group Inc.’s bank unit reported a revenue gain in the fourth quarter.

Banks lost $9.2 billion in the quarter ending Dec. 31, with $9 billion stemming from credit market losses. Foreign exchange generated $4.1 billion in gains, with commodity trading producing $338 million in revenue. Interest-rate trading declined $3.4 billion, with equities losing $1.2 billion, OCC said.

[..]

The notional amount of derivatives rose 14 percent to $24.5 trillion as Goldman Sachs and Morgan Stanley, both of New York, were included in the report for the first time after converting to banks in September.

The top five banks were New York’s JPMorgan Chase & Co.; Bank of America Corp. of Charlotte, North Carolina; New York- based Citigroup Inc., Goldman Sachs, and London-based HSBC Corp. Wachovia Corp. of Charlotte, was pushed out of the top five by Goldman Sachs.

The five banks accounted for 96 percent of the $200 trillion in derivatives contracts held by U.S. banks, according to the OCC report.

Goldman Sachs had revenue of $40 million in the fourth quarter from cash and derivative trading, OCC said. That compares with a $1.79 billion loss at JPMorgan, a $2 billion decline at Bank of America and Citibank’s $4.49 billion shortfall. HSBC lost $1.46 billion in the quarter.

JPMorgan remained the largest user of derivatives among its competitors, with $87.4 trillion in notional value, more than Bank of America and Citibank combined. Goldman Sachs held $30.2 trillion in derivatives at the end of the fourth quarter, OCC said.

The OCC reports shows the comparable size of the privately traded over-the-counter market and what is traded on regulated U.S. exchanges. About 97 percent of JPMorgan’s trading in the fourth quarter occurred in the over-the-counter market, with Bank of America at 94 percent and Citigroup at 98 percent.

http://www.bloomberg.com/apps/news?p...qMY&refer=news

“While banks reported reasonably strong client demand and wide intermediation spreads in the fourth quarter, large write-downs on legacy credit positions continued to take a toll on trading results,” Deputy Comptroller for Credit and Market Risk Kathryn E. Dick said. “Trading results continue to reflect large changes in the fair values of derivatives receivables and payables, based upon market participants’ views of the credit quality of both banks and their counterparties.”

http://www.occ.treas.gov/ftp/release/2009-34.htm

A copy of the OCC’s Quarterly Report on Bank Trading and Derivatives Activities: Fourth Quarter 2008 is available on the OCC’s Web site at: http://www.occ.gov/ftp/release/2009-34a.pdf.

[Slimprofits]

Re: Comptroller of the Currency and Bloomberg.com: Banks Lose $836 Million in First Derivatives Loss

Weiss Research: The FDIC’s “Problem List” of troubled banks includes 252 institutions with assets of $159 billion. The updated review by Weiss Research, however, shows that 1,816 banks and thrifts are at risk of failure, with total assets of $4.67 trillion, compared to 1,568 institutions, with $2.32 trillion in total assets in the prior quarter.

At yearend 2008, Bank of America’s total credit exposure to derivatives was 179 percent of its risk-based capital; Citibank’s was 278 percent; JPMorgan Chase’s, 382 percent; and HSBC America’s, 550 percent, according to the Comptroller of the Currency (OCC). In addition, in the fourth quarter, Goldman Sachs began reporting as a commercial bank, revealing an alarming total credit exposure of 1,056 percent, or more than ten times its capital. Although the banking authorities have not defined how much exposure is considered excessive, Weiss believes that, as a rule, bank exposure to any single risk category should be limited to 25 percent of capital. Goldman Sachs has exceeded that limit by a factor of 42 to 1.

“Equally alarming,” writes Dr. Weiss, “is the fourth quarter OCC data demonstrating that record bank losses are spreading to interest-rate derivatives. Until now, bank derivatives losses have been limited almost exclusively to credit defaults swaps (CDS), which represent only 7.8 percent of the notional value U.S. derivatives held by all U.S. banks. In the fourth quarter, although the CDS losses continued at a near-record pace, we also witnessed record losses in the interest-rate sector, which represents 82 percent of the derivatives market: The nation’s banks lost $3.4 billion in interest-rate derivatives, or more than seven times their worst previous quarterly loss in this category.

http://www.moneyandmarkets.com/jpmor...-failure-33058

http://www.itulip.com/forums/showthread.php?t=5498

[grapejelly]

Re: Comptroller of the Currency and Bloomberg.com: Banks Lose $836 Million in First Derivatives Loss

I would imagine that if you take the entire history of credit derivative "gains" and add them up against the current and future losses, you would find all the gains wiped out and the losses far larger than the gains.

Of course, all the Wall Street bonuses and earnouts and carried interest paid out won't be paid back, so it won't matter on a human level, will it?

I predict that the next year or two will be so horrendous in real terms, that it will recapture all prior "profits" from financial firms. All of them. And then some

[we_are_toast]

Re: Comptroller of the Currency and Bloomberg.com: Banks Lose $836 Million in First Derivatives Loss

Weiss Research: The FDIC’s “Problem List” of troubled banks includes 252 institutions with assets of $159 billion. The updated review by Weiss Research, however, shows that 1,816 banks and thrifts are at risk of failure, with total assets of $4.67 trillion, compared to 1,568 institutions, with $2.32 trillion in total assets in the prior quarter.

From 90 -> 117 in Aug 2008 -> 171 in Nov 2008 -> 252 in Feb 2009.

I thought the recent market rally was because the banks are recovering? Not exactly how I pictured a recovery.