Mitsubishi Trust and Banking Corp., with JPY20 trillion (USD161 billion) in assets, plans to start selling credit protection for the first time to generate investment returns. It is talking to a number of banks, including Merrill Lynch, Deutsche Bank and JPMorgan, and plans to pull the trigger on its first swap in the next six months, according to an official. The operation will start in London, and New York and Tokyo will follow if it is a success.
The firm will start with a portfolio of less than 50 European corporates and create a team of three or four traders from other areas of the firm. It plans to build up the number of names it sells protection on as it gains more experience. It is interested in selling protection because it can gain exposure to a corporate without funding costs, said the official, adding that it is looking at default swaps now because of the increasing liquidity.
Mitsubishi has a lower credit rating than most credit derivatives houses. Moody's Investors Service rates it A3 and Standard & Poor's has it at BBB plus. However, the official said with credit support annexes the rating should not prove a problem. Rival traders said they would buy protection from the firm as long as it had a low correlation to Japan, with some adding they would want cash on deposit as security.
Officials at Merrill, JPMorgan and Deutsche Bank declined comment.