Japanese banks are starting to follow European and U.S. counterparts down the synthetic collateralized loan obligations route. Last month, Mizuho Corporate Bank issued a JPY560 billion (USD4.76 billion) deal, the first of its kind from the country for several years.
Paul Cluley, partner at Allen & Overy in Hong Kong which advised Mizuho, said big banks shifting assets off balance sheet via CLOs is taking off in Japan and spreading across Asia. "I expect we will see similar balance sheet deals for Japanese and Asian banks in the next few months," he said. A&O is currently working on similar offerings, though Cluley declined to give details. Myrna Fajardo, v.p. and senior credit officer at Moody's Investors Service in Hong Kong, said Moody's has had inquiries from several banks in Asia over the last few months, though could not disclose names.
The move is being driven by capital management motives, rather than a desire to offload low quality loans. "The recent trend...is being driven by the impending arrival of Basel II rules, as loan assets which have no or a relatively low rating are going to become more expensive," Cluley said. The Japanese banks have identified the same benefits of the CLO move as U.S. and European houses, he added. Mizuho officials could not be reached for comment.
The Mizuho synthetic CLO relates to a portfolio of loans advanced to non-Japanese corporate borrowers. Approximately 50% are based in the U.S., with the remainder based in Europe and Asia. Over the last two to three months several banks outside Asia have issued similar deals. They also include HSBC's Metrix Securities CLO (DW, 10/20) and Lloyds TSB's first ever CLO (DW, 10/27).
