Tokyo-Mitsubishi International is considering structuring a synthetic collateralized loan obligation to free up capital that would otherwise be committed to its parent's USD500 billion loan portfolio. Naoto Hirota, managing director and head of financial derivatives and securitization in London, said it depends on the financial health of its parent Bank of Tokyo-Mitsubishi after Japanese year-end, which occurs at the end of the month. But he predicts the bank will want to improve its capital position in light of recent downgrades and the potential of more to come.
The CLO would probably be referenced to a USD1 billion portfolio of Bank of Tokyo-Mitsubishi's loans. Hirota said this would be the first balance sheet CLO it has issued for two years and the first synthetic collateralized debt obligation it has issued out of London. The alternative is too sell off part of Tokyo-Mitsubishi's loan portfolio, but the CLO route is quicker and easier, according to Hirota.
Synthetic CLO structurers in London and Tokyo said this could represent the tip of the iceberg, as most Japanese firms will be in the same position. However, one structurer said Japanese banks are over-capitalized relative to the Bank for International Settlement's guidelines so it would be matter of choice rather than a compulsion. A structurer at Nomura International in London said it does not plan to follow Tokyo-Mitsubishi's lead.