WASHINGTON — Trading revenue for banks and thrifts in the first quarter fell 5% from a year earlier, while institutions' credit exposure to the derivatives market also declined, the Office of the Comptroller of the Currency said Friday.

The OCC's quarterly report on trading and derivatives activities said revenue last quarter was down $400 million — compared to the first quarter of 2011 — to $7 billion. The first-quarter revenue was sharply higher than the fourth quarter, but the OCC attributed that in part to the normal seasonal upswing at the beginning of each year.

Meanwhile, the report found that net current credit exposure — a key indicator in measuring risk from derivatives — had shrunk 12% from the fourth quarter of 2011 to $377 billion. The agency cited numerous factors for smaller exposures, including better economic conditions helping to lower interest rates and spreads. The report also noted that institutions have been steadily lowering trading risk with concerns about Europe.

"Concerns about the quality of European sovereign debt have led market participants to increasingly focus on the health of the banking system in Europe," the report said. "Those European concerns, combined with uncertainty about the impact on derivatives markets from legislative changes and progress on reducing the U.S. budget deficit, led large dealers to actively reduce risk throughout 2011, and this broad trend has continued in 2012."

Yet the OCC also said some interest in exposure appears to be rebounding in the current quarter, which may also be due to the European turmoil. "The resulting decline in interest rates and increase in credit spreads" stemming from the sovereign debt concerns "is leading to higher credit exposures this quarter," Kurt Wilhelm, director of the OCC's financial markets group, said in a press release.

The report does not show how much exposure U.S. banks have to European banks or to sovereign debt of European countries. However, the report does say that 57% of U.S. banks' net current credit exposure is to other banks both in the United States and abroad, while just 5% is to sovereign governments.

The quarterly data also shed some new light on the massive trading losses suffered by a London office of JPMorgan Chase & Co (JPM). In the first quarter of 2012, JPMorgan's average value-at-risk, which is an estimate of trading risk exposure, swelled to $170 million, up from $88 million a year earlier. Since the trading losses were announced in May, JPMorgan has come under scrutiny for changes made to the value-at-risk model used by its Chief Investment Office, where the trades occurred.

The average value-at-risk at the five banks with the largest exposure to derivatives — JPMorgan, Citigroup (NYSE: C), Bank of America (BAC), Goldman Sachs (GS) and Morgan Stanley (MS) — fell by nearly 17% in the first quarter, compared with a year earlier.

The OCC said the total notional exposure of U.S. banks and thrifts to derivatives fell by 1.2% from the previous quarter to $228 trillion, the report said.

U.S. banks held enough collateral to cover 67% of their net current credit exposure — an increase of 1 percentage point from the fourth quarter of 2011 — and 81% of that collateral was cash, the report said.

Although the OCC report covers the entire U.S. banking system, just four institutions — JPMorgan, Goldman Sachs, Citigroup and Bank of America — together hold 93% of the industry's total notional amount of derivatives.

Nonetheless, the number of U.S. banks that reported derivatives activities rose considerably in the first quarter of 2012. A total of 1,291 institutions reported such activity, 213 more than in the previous quarter.

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