
Japan’s SMBC expects to issue synthetic CLO in early December
He added that SMBC will "pass on the default risk [on the loan portfolio] to investors using derivatives". In other words, SMBC will enter into one or several credit default swaps to transfer the risk of its loans to investors. The bank declined to comment on the size of the super-senior swap. The spokesman also declined to give details of the equity tranche.
Goldman Sachs, which is co-underwriter, is the credit swap counterparty. Daiwa Securities SMBC Europe is the other co-underwriter for the transaction, which will be privately placed.
The SMBC spokesman said he did not know how much capital SMBC will be able to release as a result of the synthetic CLO. Japan’s regulator, the Financial Services Agency, has yet to formulate any official regulatory capital treatment of synthetic balance-sheet CLOs, currently preferring to rule on a case-by-case basis.
SMBC’s proposed transaction is the second synthetic balance-sheet CLO in Japan following Mizuho’s ¥1.265 trillion deal sold in September. SMBC's deal comes amid growing concern about the future of the country’s banking sector as the government tries to push for restructuring, urging the banks to clean up their balance sheets.
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