BofA Hires a Leading Derivatives Executive to Guide Its Operation : Investments: Joseph Bauman, who headed Citibank’s global group, will lead venture.

The derivatives market has gotten such fearsome publicity in the past few months that many institutions say they are shunning it like the plague.

But Bank of America is not one of them.

The nation’s second-largest bank announced Friday that it has hired one of the nation’s leading derivatives executives to run its own operation.

Joseph P. Bauman, 44, head of business development at Citibank’s global derivatives group, will become head of BofA’s U.S. Financial Engineering and Risk Management Group and director of its global counterpart.

In Bauman, BofA will be getting a strong defender of the embattled business. He is chairman of the International Swaps and Derivatives Assn., the industry’s lobbying arm. In an interview while still at Citibank, Bauman recently argued that derivatives are an indispensable part of a commercial bank’s business.

“Derivatives have brought back some of the traditional role banks have performed as a financial intermediary,” he said.

A derivative is a financial instrument whose value is based on the value of an underlying security, commodity or index, as stock options are based on the value of the underlying stock. In recent years, the derivatives market has spread from regulated commodities exchanges to a wide range of transactions fashioned by banks and investment companies to help corporate clients hedge risks. As hedging needs--and technology--have become more advanced, the nature of the instruments has become more complex.

Within the past few weeks, several derivatives users--including Procter & Gamble, Gibson Greeting Cards and Mead--have reported multimillion-dollar losses, the result of their hedging contracts failing to behave as expected and going spectacularly wrong.

That led to cries from Capitol Hill for better regulation of the market, if not an outright ban of the devices. Among the key issues raised by lawmakers and regulators is whether banks have overly exposed themselves to large losses if their customers default or the deals otherwise go sour.

BofA long has been an important player in derivatives, ranking among the top 15 U.S. commercial banks in the contractual value of its transactions.

By that measure, the value of derivatives contracts on the bank’s books was about $922 billion as of Dec. 31, up from $782 billion the previous year. The actual amount at risk from default of its partners in the transactions--a key measure of a bank’s exposure to reversals in the market--dropped to $13.71 billion from $18.1 billion.

For both years, about half the contractual figures was in foreign exchange contracts; BofA has traders stationed in dozens of countries around the world. The bank both executes transactions for clients and invests in derivatives to manage its own risks, executives say.

In his new domestic post, Bauman replaces George Handjinicolaou, who recently left BofA to join the International Finance Co. of the World Bank. The global post is a new one. The aim of Bauman’s appointment is “to further our global objectives in this key business area,” said Gerald Doherty, director of the bank’s Global Capital Markets Group.