Economy
Related: About this forumWho Will Get Hit When Collateralized Loan Obligations (CLOs) Blow Up?
Who Will Get Hit When Collateralized Loan Obligations (CLOs) Blow Up? Banks or Unsuspecting Market Participants?
by Wolf Richter Jun 29, 2020
Answers emerge from the murky business of CLOs.
By Wolf Richter for WOLF STREET.
There has been quite some hoopla surrounding Collateralized Loan obligations (CLOs) because the underlying leveraged loans junk-rated loans often used by private equity firms to fund leveraged buyouts (LBO) and other high-risk endeavors such as special dividends are now starting to come apart. There are approximately $700 billion in US-issued CLOs outstanding.
US banks hold $99 billion of these CLOs, according to S&P Global Market Intelligence. The rest are held by various institutional investors, such as insurance companies, pension funds, mutual funds, hedge funds, private equity firms, and the like. Theyre also held by entities overseas, including certain banks in Japan that have gorged on these US CLOs. But thats their problem.
One third of the CLOs in the US banking system are held by just one bank: JPMorgan Chase; and 80% of the CLOs in the US banking system are held by just three banks. But at each of these three gigantic banks, CLOs account for only 1.2% to 1.3% of total assets (total asset amounts per Federal Reserve Q1 2020):
JPMorgan Chase: $34.0 billion in CLOs = 1.3% of its $2.69 trillion in assets.
Wells Fargo: $24.6 billion in CLOs = 1.2% of its $1.76 trillion in assets.
Citigroup: $21.4 billion in CLOs = 1.3% of its $1.63 trillion in assets.
In 11th position down the list is the second largest bank in the US, Bank of America, with just $807 million in CLOs, accounting for barely over 0% of its $2.03 trillion in assets. .......(more)
https://wolfstreet.com/2020/06/29/who-will-get-hit-when-collateralized-loan-obligations-clos-blow-up-banks-or-unsuspecting-market-participants/
PoliticAverse
(26,366 posts)Squinch
(50,774 posts)to ease their pain.
Hestia
(3,818 posts)empedocles
(15,751 posts)Baked Potato
(7,733 posts)Oh, and student debt reform, bankruptcy reform, and maybe some blanket debt forgiveness. Perhaps some great medical coverage, and maybe direct stimulus payments to the people.
Warpy
(110,910 posts)by "instruments" based on bad, uncollectable debt, funny how that all works the same damned way every single time.
Corporations are also drowning in debt, having issued a boatload of bonds during the lockdown. They have no way of paying those things off unless they can sweet talk investors into accepting the stock they bought back in a frenzy after Dumdum's lavish tax curs.
I just hope idiotic investment strategy isn't bailed out again this time.
I'm afraid we're all in for some very interesting times again.
sandensea
(21,529 posts)Isn't Britney Spears attempting a comeback?