The latest numbers make a strong case that NationsBank Corp. should be counted among the top players in derivatives trading, a business traditionally dominated by the money-center banks.
Thanks to a second-quarter jump of 47.1% in the notional amount of derivatives contracts outstanding, the aggressive Charlotte, N.C., company moved past First Chicago Corp. into seventh place among derivatives traders, according to data released last week by the Comptroller of the Currency.
"They're growing the business, and they're a player," said Carole Berger, a bank analyst with Salomon Brothers Inc.
In its release, the OCC reported that Chemical Bank continued to have the largest notional amount of derivatives among U.S. banks, with $3.7 trillion. Morgan Guaranty Trust Co. took over second place on the list from Citibank, thanks to a 7.3% increase in its positions, to just over $3 trillion.
The notional amount is the face value on which contracts like interest rate swaps are based. The statistic does not measure the replacement value or the credit exposure of the contracts.
Still, the 47.1% jump in notional amount at NationsBank came as other banks were reducing their portfolios. While three of the four largest derivatives banks - Chemical, Citibank, and Bankers Trust Co. - reported declines in notional amounts from the first quarter, NationsBank's positions jumped from $627 billion to $923 billion.
Most of the growth occurred in the futures and options traded through a Chicago unit that it acquired about two years ago. The focus on futures and options "relates to where we see trading opportunities," said Bill Maxwell, president of NationsBanc Capital Markets. "We do a lot of arbitrage business on the exchanges, which doesn't have a lot of risk," Mr. Maxwell added.
NationsBank's 49.2% increase in futures positions, to $240.1 billion, gave it the third-largest total in the industry, while a 95.3% jump in exchange-traded options, to more than $277 billion, put it in second place behind Morgan Guaranty.
In fact, 56% of NationsBank's portfolio was in exchange-traded contracts, the highest level of any big derivatives bank. Bankers Trust had the second-largest concentration of exchange contracts of the big nine banks, with 18.7%.
And whereas the other eight large bank players have diversified their positions among interest rate, foreign exchange, and other contracts, 85.2% of NationsBank's positions were in interest rate contracts.
Mr. Maxwell said the bank's strategy is to focus on plain-vanilla products, which produce narrower margins than custom-tailored products.
But the June 30 numbers also suggest the company is following a less risky strategy, noted Ms. Berger of Salomon Brothers. "It is not a major business line like it is at Morgan or Bankers Trust. And I don't think they're taking on undue risk," she said.
Indeed, NationsBank's credit exposure from all derivatives contracts was limited to $5.4 billion, or 155% of the capital at its lead bank in Charlotte. By comparison, First National Bank of Chicago, the eighth- largest derivatives bank, had nearly $12.1 billion at risk, or 273.2% of its total capital.
In terms of credit exposure, Morgan Guaranty leads all banks. Its exposure of $55.4 billion amounted to 562.7% of June 30 capital, edging out Bankers Trust, which reported $29.5 billion in exposure, or 523.3% of capital.
Chemical had $32.3 billion in credit exposure from its derivatives positions, which amounted to 267.6% of capital. The ratio was fourth highest among all banks.