U.S. banks' trading profits fell 84 percent in the first quarter as they continued to be slammed by losses on mortgage-linked securities and other complex financial instruments.
The trading gains of banks, including Charlotte's Bank of America Corp. and Wachovia Corp., were down to $1.13 billion from $7 billion in the year-ago period, according to a report released Thursday by the Treasury Department's Office of the Comptroller of the Currency.
Still, the results were up from trading losses of nearly $10 billion in the fourth quarter of 2007 – the first-ever such loss for U.S. banks.
Trading activity, which is concentrated among large U.S. commercial banks, includes bets on interest rates, foreign currency, commodities and credit instruments.
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The total credit exposure – the amount owed if all contracts were immediately liquidated – rose to $465 billion, up 159 percent from a year earlier.
Lower interest rates, brought on by the Federal Reserve's rate cuts, allowed the banks to make larger bets, the report said.
The top five banks involved in the trading market were JPMorgan Chase & Co., Bank of America, Citigroup Inc., Wachovia and HSBC Holdings, a British bank with a large U.S. operation. The greatest level of exposure was found at HSBC and JPMorgan, according to the report.
The credit crisis started out last year as defaults rose among subprime loans made to U.S. borrowers with poor credit. It has since spread to other types of loans and securities backed by those loans.
Total global losses from the mortgage and credit problems are projected to approach $1 trillion.