U.S. commercial banks reported record trading revenue in the first quarter of 2009, benefiting from wide trading margins and gains from interest rate products, the Office of the Comptroller of the Currency said on Friday.

Banks generated a record $9.8 billion in revenue from trading derivatives and cash instruments, compared with a loss of $9.2 billion in the fourth quarter of 2008, the OCC said.

Interest rate products, including derivatives, generated the strongest revenue, rising to a record $9.1 billion, compared with a $3.4 billion loss in the previous quarter, the OCC said. Credit trading was the only asset class to generate a loss, of $3.2 billion, trimmed from a fourth-quarter loss of $8.9 billion.

Foreign exchange revenue fell to $2.4 billion from $4.1 billion in the fourth quarter, while equity trading generated $1 billion in trading revenue compared to a fourth quarter loss of $1.2 billion, the OCC said.

Trading revenue were boosted as banks wrote down fewer losses from bad loans and recorded the declining value of their debt as a liability. Banks can book the deteriorating value of their own debt as trading revenue.

While trading performance was strong even without the liability value changes, this source did add materially to first quarter trading performance, the OCC said.

Notional volumes in all derivatives markets increased by $1.6 trillion in the quarter to $202 trillion, as more derivative contracts were recorded by commercial banks that had formerly been investment banks.

The notional volume does not represent the actual amount of risk as it includes a number of trades that offset each other. Eighty-nine percent of derivatives exposures at commercial banks were eradicated from netting positions in the first quarter, the OCC said.


JPMorgan Chase & Co, Goldman Sachs Group Inc , Bank of America Corp , Citigroup and HSBC Bank USA, part of HSBC Holdings , have the largest derivatives exposures of U.S. commercial banks and account for 96 percent of total exposures, the OCC said.

As of March 31, their notional derivative exposures stood at $81.2 trillion, $39.9 trillion, $38.9 trillion, $29.6 trillion and $3.5 trillion, respectively.

Of these banks, Goldman had by far the largest credit exposure relative to its risk-based capital, at 1,048 percent, the OCC said. HSBC, JPMorgan, Citibank and Bank of America's ratios stood at 475 percent, 323 percent, 216 percent and 169 percent, respectively.

Goldman also got the largest overall boost from derivatives and cash trading revenue, which represented 69 percent of the bank's gross revenue in the quarter, the OCC said.

Trading revenue for JPMorgan represented 13 percent of its gross revenue and contributed 8 percent of both Citigroup and Bank of America's gross revenues. HSBC Bank USA's gross revenue lost 4 percent from trading revenue.

JPMorgan, Bank of America, Goldman Sachs, Morgan Stanley and Citigroup had the largest derivative exposures of all holding companies, at $81.1 trillion, $77.9 trillion, $47.7 trillion, $39.1 trillion and $31.7 trillion, respectively.

(Reporting by Karen Brettell; Editing by Padraic Cassidy)