- NEW YORK (CBS.MW) -- U.S.
banks and their customers continued to pour money into derivatives in the
second quarter, as the total value of the specialized contracts passed
$50 trillion.
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- Derivative investments generally rise during times of
economic uncertainty, and the recent scandals, concerns about a possible
war with Iraq and volatile share prices all inspired investors to hedge
risk through derivatives.
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- In a report issued by the U.S. comptroller of the currency,
the total amount of derivatives in U.S. insured commercial bank portfolios
rose by $3.8 trillion in the second quarter, to $50.1 trillion. <http://www.occ.treas.gov/ftp/deriv/dq202.pdf>See
the OCC report.
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- Bank earnings from derivatives rose to $3.4 billion in
the second quarter, a 7.1 percent jump from the first quarter, and a highly
unusual move according to the OCC's Michael Brosnan.
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- "This is the first time we've been looking at the
data that second-quarter revenues increased from the first quarter,"
Brosnan said, adding that the large rise in total value of derivative positions
caused the jump.
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- The top seven banks accounted for 85 percent of total
trading revenue, compared to 84 percent in the first quarter.
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- During the second quarter of 2002, banks charged off
$25 million from derivatives, or 0.005 percent of the total credit exposure
from derivative contracts, the report said. That compares to banks' second-quarter
charge-offs totaling 0.82 percent of loans.
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- Seven commercial banks account for about 96 percent of
the total amount of derivatives, with more than 99 percent held by the
top 25 banks, the report said.
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- The banks with the largest derivative positions were
J.P. Morgan
- For all banks, the fair value of contracts past due 30
days or more totaled $31 million, or .006 percent of total credit exposure
from derivatives contracts, the report said.
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- Interest rate contracts increased by $3.4 trillion, to
$42.7 trillion during the second quarter. Foreign exchange contracts rose
by $183 billion to $5.8 trillion, excluding spot foreign exchange contracts,
which increased by $332 billion to $504 billion, the report said.
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- Equity, commodity and other contracts jumped $85 billion,
to $1.1 trillion, and credit derivatives increased by $54 billion, to $492
billion.
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- Interest rate contracts accounted for 85 percent of the
total amount of derivative positions, foreign exchange made up another
12 percent and the balance comprised equity, commodity and credit derivatives.
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- The number of commercial banks holding derivatives increased
by 12, to 391, the OCC said.
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- Greg Morcroft is New York news editor of CBS.MarketWatch.com.
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