Facing Questions Over CLOs, Japan's Biggest Buyer Explains

(Bloomberg) -- Norinchukin Bank, the Japanese agricultural lender known for its aggressive purchases of collateralized loan obligations, has lifted the lid a little more on the bundled leveraged loans sitting on its books.

Following intensified public scrutiny of the investments in recent months, Norinchukin’s latest earnings presentation on Wednesday included two pages to explain how it’s been piling into CLOs. That contrasts with previous statements where it usually just provided figures under the broader category of collateralized debt obligations, without giving a breakdown or narrative.

“We would like to talk about CLOs since they have been discussed in many places,” Senior Managing Director Kazuhiko Otake told reporters. “We have been asked many questions.”

Norinchukin’s CLOs almost doubled last fiscal year to 7.4 trillion yen ($67 billion), making it the biggest holder among yield-starved Japanese banks. The practice has recently captured the attention of local politicians and financial regulators, while officials abroad including Federal Reserve Chairman Jerome Powell are looking closely at the leveraged loan market.

In the presentation, Norinchukin explained how stringently it selects CLOs and how closely it communicates with managers of the deals. It said triple-A and double-A rated CLOs didn’t suffer losses of principal during the global financial crisis.

“Our basic policy is to buy CLO products if they meet our risk-return” requirements, Chief Executive Officer Kazuto Oku said at Wednesday’s news briefing.

Still, there were limits to the bank’s greater openness about its finances. The additional CLO information was only immediately available in Japanese, and was missing from the English version of its results.

To contact the reporters on this story: Taiga Uranaka in Tokyo at turanaka@bloomberg.net;Yuki Hagiwara in Tokyo at yhagiwara1@bloomberg.net

To contact the editors responsible for this story: Marcus Wright at mwright115@bloomberg.net, Russell Ward

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