Source: Bloomberg; could not find a link for the story. Follows below.

The U.S. banking industry had its first loss in derivatives trading last year... 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 in a report released today.

Among the five largest banks trading derivatives, only Goldman Sachs Group Inc.’s bank unit reported a revenue gain in the fourth quarter.


Because of government intervention, the value of what banks had to pay to trading partners increased, causing losses to mount, according to the report.

The amount the banks would be owed if all derivatives contracts were liquidated, known as the net current credit exposure, soared 84 percent from the third quarter to a record $800 billion, largely because of a drop in interest rates that increased the value of swaps protecting against rate fluctuations. Interest rate derivatives make up 82 percent of all contracts.

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 to 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.

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