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marmar

(76,984 posts)
Tue Jun 30, 2020, 08:39 AM Jun 2020

Who 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. They’re also held by entities overseas, including certain banks in Japan that have gorged on these US CLOs. But that’s 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/




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Who Will Get Hit When Collateralized Loan Obligations (CLOs) Blow Up? (Original Post) marmar Jun 2020 OP
Taxpayers after the ensuing bailout. n/t PoliticAverse Jun 2020 #1
Yeah. It's a small part of their balance sheets. But somehow, I know I'll end up giving them money Squinch Jun 2020 #2
Can't wait to see what Elizabeth & Katie Porter have to say Hestia Jun 2020 #3
Private equity funds will be leaving shortly empedocles Jun 2020 #4
One trillion $$ for infrastructure and we will talk bailouts later maybe. Baked Potato Jun 2020 #5
Same people who got bailed out the last time they all got suckered Warpy Jun 2020 #6
Shades of 2008. sandensea Jun 2020 #7

Squinch

(50,774 posts)
2. Yeah. It's a small part of their balance sheets. But somehow, I know I'll end up giving them money
Tue Jun 30, 2020, 08:51 AM
Jun 2020

to ease their pain.

Baked Potato

(7,733 posts)
5. One trillion $$ for infrastructure and we will talk bailouts later maybe.
Tue Jun 30, 2020, 11:56 AM
Jun 2020

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)
6. Same people who got bailed out the last time they all got suckered
Tue Jun 30, 2020, 04:45 PM
Jun 2020

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.

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