Japan Bank’s Foray Into Risky U.S. Debt (CLOs) Leaves $3.7 Billion Loss (#GotBitcoin?)
Norinchukin, which serves Japanese farmers and fishermen, was the biggest buyer of debt used to fund private-equity buyouts. Japan Bank’s Foray Into Risky U.S. Debt (CLOs) Leaves $3.7 Billion Loss (#GotBitcoin?)
The Japanese bank that was the biggest buyer of debt used to fund private-equity buyouts suffered a ¥400 billion ($3.7 billion) hit and said it would stop investing in that market.
Norinchukin Bank owns about 10% of the $700 billion market for corporate debt that was packaged into securities called collateralized loan obligations. Other big buyers include Wells Fargo & Co. and JPMorgan Chase & Co., which each owned about $30 billion worth of CLOs at the end of the first quarter.
Losses on these investments could hamper the banks at a time when bad loans are rising. They could also sour investors on CLOs, which bought roughly 60% of the debt that private-equity companies used for deals in recent years, according to the International Monetary Fund.
“We will limit making new investments” in CLOs, Chief Executive Kazuto Oku said.
Norinchukin’s ¥7.7 trillion ($71 billion) portfolio of CLOs was invested in the triple-A slices of these securities, and the loss dates back to the end of its fiscal year on March 31. The bank, which serves Japan’s farmers and fishermen, said the unrealized losses were offset by gains elsewhere in its portfolio.
The market has rebounded since the end of March, so its losses on CLOs have likely shrunk since then. Prices for the type of securities the bank owns were trading at 95 cents on the dollar March 31 and were nearly 97.5 cents in mid-May, according to data from Barclays. Neither JPMorgan nor Wells Fargo announced losses on their CLO holdings.
Until last year, Wall Street veterans had marveled at the outsize role played by the large but little-known Japanese bank in the market for CLOs. It was a sign of how Japanese financial institutions, faced with negative interest rates on their own government’s bonds and limited opportunities to lend, were searching ever farther afield for high-yielding investments.
Like most investors in the safe parts of CLOs, the banks are seeking extra yield for the same level of risk. That strategy blew up in the financial crisis when supposedly safe securities backed by mortgages caused big losses for banks.
CLOs have performed better, but as the market boomed, lending standards loosened. When the coronavirus pandemic hit, U.S. companies were carrying significant amounts of debt. What followed were bankruptcies of companies like Hertz Global Holdings Inc. and J.C. Penney Co. Moody’s Investors Service in April placed ratings on 859 securities from 358 U.S. CLOs, worth some $22 billion, on review for downgrade.
An important risk right now is that the mathematical models that created the safe securities didn’t take into account a scenario like the coronavirus pandemic, according to Rod Dubitsky, who headed U.S. asset-backed securities research at Credit Suisse until 2009.
Mr. Dubitsky argued back then that subprime mortgage-backed securities were due for a wave of downgrades, and he recently issued the same warning for triple-A rated CLO bonds. He argued in a recent paper that the securities don’t deserve such high ratings because of the impact of the pandemic on the economy.
“The entire concept of triple-A CLOs goes out the window because there is not much diversification left when the entire portfolio is subject to a global economy that is in deep recession,” Mr. Dubitsky said in an interview.
In recent weeks, ratings firms Moody’s, S&P Global Inc. and Fitch Ratings have collectively placed more than 1,600 bonds from mostly lower rated CLOs on review for possible downgrades.
The rising risks in CLOs threaten to limit the biggest source of funding for private-equity buyouts and a source of funds for struggling companies that are owned by PE firms. If too many loans held by the funds are downgraded to the lowest levels, the funds may not be able to buy new loans, further tightening the lending markets.
Mr. Oku, the Norinchukin chief, sounded only slightly chastened by the losses, saying it was his job to extract return from the bank’s portfolio and pass it on to members.
“It is difficult to disagree with the opinion that we have to use member banks’ money more effectively instead of investing in overseas CLOs,” he said. “But we have to steadily try to make investments that are profitable.”
Mr. Oku didn’t say what specifically caused losses in his bank’s portfolio, but he held out hope that his holdings might keep their value even in a bad situation. The bank was stepping away from new investments in that market, he said.
“We will have to examine risks in two stages: how many U.S. companies will go bankrupt or file for chapter 11, and after that, in how many of these cases we will see AAA-rated CLOs being affected,” he said at a news conference.
For now, Norinchukin isn’t reflecting the CLO losses on its bottom line. Mr. Oku said the bank still had much larger unrealized gains in other parts of its portfolio and planned to hold the CLOs to maturity.
Norinchukin acts as a central pool for funds gathered by local farming and fishing cooperatives throughout Japan, and it holds about $600 billion in deposits from member cooperatives. It can use the money to make loans to companies in farming, forestry or fisheries, or it can simply invest it in global markets like any money manager, seeking returns to distribute to members.
Its problem for years has been a shortage of loan opportunities, leaving the money-management side of the business as the dominant one. The number of people working in agriculture as their main job has fallen 35% during the last decade, and those who remain are mostly over 65.
Japan Bank’s Foray Into,Japan Bank’s Foray Into,Japan Bank’s Foray Into,Japan Bank’s Foray Into,Japan Bank’s Foray Into,Japan Bank’s Foray Into,Japan Bank’s Foray Into,Japan Bank’s Foray Into,Japan Bank’s Foray Into,Japan Bank’s Foray Into,Japan Bank’s Foray Into,Japan Bank’s Foray Into,
Trump’s Wasted And Excruciatingly Boring Briefings
Twitter Adds Fact-Check Notices To Trump Tweets On Mail-In Ballots (#GotBitcoin?)
Millions of Americans Skip Credit-Card And Car Payments (#GotBitcoins?)
Fired State Department Watchdog Was Probing Pompeo’s Requirement Of Staffer To Walk Dog, Pick Up Laundry
Why Poor States Are Red And Rich States Are Blue (#GotBitcoin?)
Fed Chair: ‘We Have The Ability To Create Money Digitally’ (#GotBitcoin?)
Lessons Of The Great Depression: Preserving Wealth Amid The Covid-19 Crisis
California Sues Uber, Lyft Saying They Mis-classified Drivers As Independent Contractors
California Is First State To Borrow From Federal Government To Make Unemployment Payments
The National Debt Has Grown To $25 Trillion!! (#GotBitcoin?)
WeWork Troubles Take Deeper Bite Out of SoftBank (#GotBitcoin?)
Warren Buffett Lost $50 Billion In First Quarter And Dumps ALL Airline Stocks (#GotBitcoin?)
Is This A Liquidity Crisis Or A Solvency Crisis? It Matters To Fed (#GotBitcoin?)
The Cantillon Effect (#GotBitcoin?)
Petition: Ban Donald Trump From All Social Media Sites
10 Financial Moves To Make If You Have Lost Your Job—or Fear You Will (#GotBitcoin?)
Oil Price Memes And Jokes of 4-20-2020 Never Let A Good Oil Price Crash Go To Waste
Fannie, Freddie Regulator Moves To Ease Cash Crunch At Mortgage ServicersCoronavirus Is The Pin That Burst
Coronavirus Is The Pin That Burst Facebook And Google Online Ads Business Bubble
Deemed ‘Essential,’ U.S. Real Estate Agents Get Back to Business—With Several Caveats
Protests In U.S. To Coronavirus Restrictions Could Be Catalyst For Economic Change (#GotBitcoin?)
The Stock Market Is Ignoring The Economy (#GotBitcoin?)
Economic Effects Of The Black Death Pandemic And What US Citizens Could Learn About Wealth Redistribution
FDIC Urging Against Bank Runs (#GotBitcoin?)Real-Estate Firms Expect Coronavirus-Driven Shifts Will Spur Warehouse Demand
Facebook Ad Rates Fall As Coronavirus Undermines Ad Spending
30% Of All Mortgages Will Default In “Biggest Wave Of Delinquencies In History”
Postal Service Warns of $22 Billion Loss From Coronavirus After Receiving $10 billion From Stimulus
Companies View Pandemic As Reason To Fully Automate Wherever Possible (#GotBitcoin?)
Is The $349 Billion Small Business Relief Package Another Big Bank Bail-out Fund? (#GotBitcoin?)
Risk To Jobs Now ‘Unprecedented Since The Great Depression’
Here Is A List Of Companies That Have Suspended Dividends Or Stopped Stock Buybacks In April
How To Suspend Your Mortgage Payments During Coronavirus Turmoil
Record 6.6 Million Americans Sought Unemployment Benefits Last Week (#GotBitcoin?)
Treasury Department Selects Wall Street Banks To Advise On Airline Aid (#GotBitcoin?)
Economic Downturn Could Cost Five Million U.S. Jobs (#GotBitcoin?)
Federal Reserve Taps BlackRock To Purchase Bonds For The Government (#GotBitcoin?)
Canada’s Largest Bank Is Amongst First Victims Of Mortgage Debt Crisis (#GotBitcoin?)
Dramatic Stock Rise Over-shadows Record 3.28 Million Rise In Jobless Claims (#GotBitcoin?)
Stimulus Bill Allows Federal Reserve To Conduct Meetings In Secret (#GotBitcoin?)
If You Didn’t Get The Memo IMF Says Global Recession Is Underway, Worse Than 2009 (#GotBitcoin?)
Consumers Face A Massive Credit Crunch. Lenders Are Still Figuring Out What To Do (#GotBitcoin?)
Investors Create Cash Shortage As They Sell Everything From Treasurys To Gold (#GotBitcoin?)
JPMorgan Sees Negative GDP Growth In Addition To Negative Interest Rates (#GotBitcoin?)
All $11.5 Trillion Of Stock Market Gains Wiped Out Since Trump 2016 Election Victory (#GotBitcoin?)
QE4 Begins: Fed Cuts Rates, Buys $700B In Bonds; Bitcoin Rallies 7.7%
CEOs Quitting AND Selling Shares In Record Numbers Could Signal Total Stock Market Collapse
Companies Are Drawing Down Their Credit Lines And What You Need To Know (#GotBitcoin?)
Stock-Buyback Plans Shrink (Once A Pillar Of Support For Stocks) (#GotBitcoin?)
U.S. Workers Put In 53 Weeks In A Year Just To Maintain “Middle Class” Lifestyle (#GotBitcoin?)
The Week That Wiped $3.6 Trillion Off The Stock Market (#GotBitcoin?)
TD Ameritade, Schwab, Vanguard And Fidelity Suffer Brief Outages On Busy Trading Day (#GotBitcoin?)
Federal Deficit Attention Disorder Or #FDAD(#GotBitcoin?)
Daily Job Cuts – Layoffs, Job Layoffs List 2020 / 2019, Bankruptcies And Store Closings
Trump To Propose $4.8 Trillion Budget With Big Safety-Net Cuts (#GotBitcoin?)
Trump’s NASA Budget Will Earmark 12% Boost For Agency In 2021
Oops: Trump Congratulates ‘Great State Of Kansas’ After Chiefs’ Super Bowl Win
President Trump Slams CNN’s Don Lemon After Clip Mocking Trump’s Supporters
Trump Lies (Surprise!!!) About European Aid To Ukraine (#GotBitcoin?)
The Key Distinction Between U.S. Energy Independence And Energy Security
American Troops Were Injured In Jan. 8 Iran Missile Attack (Trump Lied Again, Surprise!!!)
U.S. To Change How It Releases Economic Data (#GotBitcoin?)
Former Senior Fincen Employee Pleads Guilty To Conspiring To Unlawfully Disclose Suspicious Activity Reports
Majority Of Americans Stressed Over Being In A Mass Shooting – Trump To Blame?
As Global Order Crumbles, Risks Of Recession Grows (#GotBitcoin?)
U.S. Mortgage Debt Hits Record, Eclipsing 2008 Peak
U.S. Stocks & Treasuries Flash Recession/Depression #GotBitcoin?
Investors Ponder Negative Bond Yields In The U.S. (#GotBitcoin?)
Lower Mortgage Rates Aren’t Likely To Reverse Sagging Home Sales (#GotBitcoin?)
Financial Crisis Yields A Generation Of Renters (#GotBitcoin?)
Global Manufacturing Recession Weighs On US Economy (#GotBitcoin?)
Falling Real Yields (0.241% ) Signal Worry Over U.S. Economy (#GotBitcoin?)
Donald Trump’s WH Projects $1 Trillion Deficit For 2019 (#GotBitcoin?)
U.S. Home Sales Stumble, As Pricey West Coast Markets Suffer Declines (#DumpTrump)
Lower Rates Have A Downside For Bank’s Mortgage-Servicing Rights (#GotBitcoin?)
Central Banks Are In Sync On Need For Fresh Stimulus (#GotBitcoin?)
Weak Corporate Earnings Signal A Weak Economy (#GotBitcoin?)
Price of Gold, Indicator Of Inflation And Recession Surges (#GotBitcoin?)
Recession Set To Materialize In Approximately In (9) Months (#GotBitcoin?)
A Whiff Of U.S. Recession Is In The Air Again. Credit Trumponomics
Trumponomics Fails To Deliver As Truckers Cut Payrolls, Job Openings Fall & Tech Hiring Cools (#GotBitcoin?)
Trump Calls On Fed To Cut Interest Rates, Resume Bond-Buying To Stimulate Growth (#GotBitcoin?)
Fake News: A Perfectly Good Retail Sales Report (#GotBitcoin?)
Anticipating A Recession, Trump Points Fingers At Fed Chairman Powell (#GotBitcoin?)
Affordable Housing Crisis Spreads Throughout World (#GotBitcoin?) (#GotBitcoin?)
Los Angeles And Other Cities Stash Money To Prepare For A Recession (#GotBitcoin?)
Recession Is Looming, or Not. Here’s How To Know (#GotBitcoin?)
How Will Bitcoin Behave During A Recession? (#GotBitcoin?)
Many U.S. Financial Officers Think a Recession Will Hit Next Year (#GotBitcoin?)
Definite Signs of An Imminent Recession (#GotBitcoin?)
What A Recession Could Mean for Women’s Unemployment (#GotBitcoin?)
Investors Run Out of Options As Bitcoin, Stocks, Bonds, Oil Cave To Recession Fears (#GotBitcoin?)
Goldman Is Looking To Reduce “Marcus” Lending Goal On Credit (Recession) Caution (#GotBitcoin?)
Our Facebook Page
Your Questions And Comments Are Greatly Appreciated.
Monty H. & Carolyn A.
Leave a Reply
You must be logged in to post a comment.