FOR IMMEDIATE RELEASE
September 21, 2015
Contact: William Grassano
OCC Reports Second Quarter Bank Trading Revenue of $5.5 Billion
WASHINGTON — Insured U.S. commercial banks and savings institutions reported trading revenue of $5.5 billion in the second quarter of 2015, $2.2 billion lower (28 percent) than in the first quarter, the Office of the Comptroller of the Currency (OCC) reported today in the OCC's Quarterly Report on Bank Trading and Derivatives Activities. Trading revenue in the second quarter was $0.9 billion lower (14 percent) than in the second quarter of 2014.
“The expected seasonal decline in trading revenue showed up on schedule in the second quarter,” said Kurt Wilhelm, Director of the Financial Markets Group. “The fall in second quarter trading revenue was a little more than the average 25 percent decline we’ve seen in second quarters since 2009, as there is still pressure on revenue from interest rate and foreign exchange products.” When assessing bank trading performance on an historical basis, Mr. Wilhelm noted that 2009 is an appropriate starting point. “That’s when investment banks took banking charters or were acquired by bank holding companies. The set of large trading banks changed quite significantly at that point.”
Trading revenue from interest rate and foreign exchange (FX) products, the driver of bank trading revenue, was $4.3 billion in the second quarter, $0.2 billion lower (4 percent) than the average for second quarters since 2009. “As long as we fail to see growth in revenue from rates and FX, trading results will struggle to keep pace with what we’ve seen in the past.” Mr. Wilhelm emphasized the seasonal aspect of bank trading revenue, as “only once since 2009 has trading revenue increased in the second quarter.”
For the first six months of 2015, trading revenue totaled $13.2 billion, $0.6 billion higher (5 percent) than in 2014. “The favorable comparison in 2015 is more a reflection of relative weakness in 2014 rather than strength this year,” said Mr. Wilhelm.
Credit exposures from derivatives fell sharply in the second quarter. Net current credit exposure (NCCE), the primary metric the OCC uses to measure credit risk in derivatives activities, fell $97 billion, or 19 percent, to $406 billion. “The back-up in longer-term interest rates in the second quarter took some of the pressure off of receivables from rate contracts, which represent the lion’s share of derivatives receivables. But, additionally, FX receivables had one of the largest declines we’ve ever seen,” said Mr. Wilhelm. After rising sharply in the first quarter, Mr. Wilhelm noted that the U.S. dollar weakened in the second quarter, translating into a sharp decline in receivables.
The report shows that the notional amount of derivatives held by insured U.S. commercial banks declined $5 trillion, or 3 percent, during the second quarter to $198 trillion. “While trade compression continues to reduce notionals, this quarter it was a decline in forward contracts, rather than swaps, that caused notionals to fall,” said Mr. Wilhelm. “Swap contracts had declined by a cumulative $31 trillion in the fourth quarter of 2014 and the first quarter of 2015. This quarter, however, they were virtually unchanged. Forward contracts, on the other hand, fell by nearly $5 trillion, explaining the entire notional decline.”
The OCC also reported:
A copy of the OCC’s Quarterly Report on Bank Trading and Derivatives Activities: Second Quarter 2015 is available on the OCC’s Web site.
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