Japan’s Biggest Bank Pushes Deeper Into Europe’s CLO Market
Customers use automated teller machines (ATM) at a MUFG Bank Ltd. branch, a unit of Mitsubishi UFJ Financial Group Inc. (MUFG), in Tokyo, Japan. (Photographer: Kiyoshi Ota/Bloomberg)

Japan’s Biggest Bank Pushes Deeper Into Europe’s CLO Market

(Bloomberg) -- Japan’s largest bank will this month expand its presence in Europe’s CLO market by becoming an arranger for the first time.

Mitsubishi UFJ Financial Group Inc. is arranging its debut European CLO having already been an active buyer of CLO paper in the region. The move forms part of MUFG’s strategy to expand its securitized products business globally, a spokeswoman for the bank said.

The lender already arranges U.S. CLOs -- potentially giving it existing relationships to leverage off -- and can open up new pockets of investors in Asia to managers. But breaking into Europe may prove a challenge.

Since the financial crisis the number of banks arranging European deals has stayed fairly static at about 12, despite an increase in the issuer base and new supply topping 20 billion euros ($22 billion) in 2019, data compiled by Bloomberg show. There may also be barriers to entry from some established managers in the region, who say they don’t need any more arrangers.

Japan’s Biggest Bank Pushes Deeper Into Europe’s CLO Market

First Steps

MUFG’s mandate to arrange the third European CLO for NIBC Bank NV continues its push into securitized products, which is led by Tricia Hazelwood. The CLO business is headed by Asif Khan while in Europe the team is managed by Krishna Shah, who joined the bank in March 2016. This year the lender also hired Keith Allman from Loomis Sayles & Co. to help expand its ABS business.

The bank ranks 14th in the U.S. CLO arranger league tables to date this year, according to data compiled by Bloomberg.

Mizuho Financial Group Inc., meanwhile, has also aired plans to line up CLOs in the region. The lender brought in Stefan Stefanov as a director for CLOs earlier this year as part of its markets reorganization.

A spokeswoman for Mizuho declined to comment on the bank’s CLO plans.

The ambitions of these banks come at a time of increased scrutiny by Japanese regulators, who are surveying the nation’s financial firms to determine their exposure to foreign assets including risky credit products.

Bigger Pool

The rapid expansion of Europe’s issuer base in the past three years, to 51 managers from 33 at the end of 2015, might increase the need for a greater number of arrangers to accommodate the additional issuance.

Some of the U.S. managers expanding their CLO platforms into Europe could be open to working with a less established arranger in the region, based on a strong relationship in the U.S. market.

Insight’s CLO Stumble Won’t Block the Way for New Entrants

And being able to tap into an additional arranger may create an opportunity for those managers looking to price a deal quickly. The most active arrangers can build lengthy pipelines of warehouses that can reach back for months. Rather than wait and jostle for attention in a busy pipeline, some might opt for an arranging bank with a clearer pipeline and more time to devote to marketing the transaction.

Most managers however deny any scheduling issues when it comes to pricing a new issue through an active arranger. They may stay loyal to those arrangers they have proven relationships with, unless there is a compelling reason to cast their net wider.

(Sarah Husband is a leveraged finance strategist who writes for Bloomberg. The observations she makes are her own and not intended as investment advice.)

©2019 Bloomberg L.P.

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