Why Did Citigroup Just Corner The “Precious Metals” Derivatives Market

One week ago, when we scoured through the latest OCC quarterly derivative report (in which we find that the top FDIC insured 4 US banks continue to account for over 90%, or $185.5 trillion of all outstanding derivatives which as of March 31 amounted to $203 trillion; nothing new here), we found something fascinating: based on the OCC’s derivative update, JPM had literally cornered the commodity derivative complex, when from “just” $226 billion in total Commodity exposure, JPM’s notional exposure soared by 1,690% in one quarter to $4 trillion, or about 96% of total.

Some, without even bothering to read the article, did what they always do when reacting to Zero Hedge articles: accused it of “writing a post first and asking questions later“, and coming up with some utterly incorrect response to show just how wrong Zero Hedge was because, guess what, the Office of the US Currency Comptroller had clearly “fat fingered” trillions in critical data.

As usually happens in these situations, Zero Hedge was right (there was some tongue in cheek apology but hey, at least someone got to boost their traffic briefly by namedropping this web site), which could have been checked simply just by looking at bank call reports, in this case the quarterly Regulatory Capital report, schedule RC-R, which made it very clear that indeed JPM’s OTC commodity derivatives had exploded to $4 trillion.

For those too lazy to check before tweeting, here is the number of OTC cleared “Other” commodity derivatives for JPM before, as of December 31:

And after, as of March 31:

Furthermore, while we await the OCC to respond to our inquiry (we aren’t holding our breath), nobody has disputed our claim (because it is purely factual) that as of Q1 the OCC decided to exclude Gold as a separate commodity category (see call reports above) and lump it in with Foreign Exchange for some still unexplained reason.

So to summarize: as we reported first (and we would be delighted if other so called financial experts dedicated as much effort to digging through the primary data as they have to desperately try to disprove our article), JPM has indeed cornered the OTC commodity market, with its $4 trillion in “Other” commodity derivatives which amount to 96% of total. We don’t expect anyone to ask Jamie Dimon about this on the quarterly earnings call because this is one of those things one doesn’t want an answer to if one wishes to be invited to the next conference call.

However, another big question remains: just what is Citigroup – not, not JPMorgan – with the Precious Metals category.

Here is the chart showing Citigroup’s Precious Metals (mostly silver now that gold is lumped in with FX), exposure over the past 4 years. Of note: the 1260% increase in Precious Metals derivative holdings in the past quarter, from just $3.9 billion to $53 billion!

For those of a skeptical bent the proof can be found in Citi’s own call report, which can be seen here as of March 31, 2015 vs December 31, 2014.

Another way of showing what Citi has just done with the “Precious Metals” derivative category, is the following chart which shows Citi’s total PM derivative exposure as a percentage of total.

Soaring from just 17.4% to over 70%, there is just one word for what Citigroup has done to what is almost exclusively the silver derivatives market.

Cornering.

So, the question then is: just what is Citigroup doing with its soaring Precious Metals (excluding gold) exposure, which implies mostly silver, and why is such a dramatic place taking place at precisely the time when not only JPM is cornering the Commodity derivatives market but in the quarter after none other than Citigroup itself was responsible for drafting the swaps push-out language in the Omnibus bill.

And also: how is it legal that JPM is solely accountable for 96% of all commodity derivatives and Citigroup is singlehandedly responsible for over 70% of all “precious metals” derivatives? And all of this taking place out of FDIC-insured entities?

The final question, which we are absolutely certain will remain unanswered, is whether any of these dramatic surges have anything to do with the recent move in precious metals prices, or rather the complete lack thereof, even as Europe is on the verge of its first member officially exiting the Eurozone, and China’s stock market is suffering its worst market crash since 2008.

We have inquired with the OCC about both the derivative moves of both JPM’s “commodity” and Citi “precious metals” surges, both rising by over 1000% in the past quarter. We will promptly inform readers if we hear back, which we won’t.