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Tue Jun 30, 2020, 08:39 AM

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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Reply Who Will Get Hit When Collateralized Loan Obligations (CLOs) Blow Up? (Original post)
marmar Jun 30 OP
PoliticAverse Jun 30 #1
Squinch Jun 30 #2
Hestia Jun 30 #3
empedocles Jun 30 #4
Baked Potato Jun 30 #5
Warpy Jun 30 #6
sandensea Jun 30 #7

Response to marmar (Original post)

Tue Jun 30, 2020, 08:49 AM

1. Taxpayers after the ensuing bailout. n/t

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Response to marmar (Original post)

Tue Jun 30, 2020, 08:51 AM

2. Yeah. It's a small part of their balance sheets. But somehow, I know I'll end up giving them money

to ease their pain.

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Response to marmar (Original post)

Tue Jun 30, 2020, 09:27 AM

3. Can't wait to see what Elizabeth & Katie Porter have to say

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Response to marmar (Original post)

Tue Jun 30, 2020, 09:52 AM

4. Private equity funds will be leaving shortly

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Response to marmar (Original post)

Tue Jun 30, 2020, 11:56 AM

5. One trillion $$ for infrastructure and we will talk bailouts later maybe.

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.

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Response to marmar (Original post)

Tue Jun 30, 2020, 04:45 PM

6. Same people who got bailed out the last time they all got suckered

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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Response to marmar (Original post)

Tue Jun 30, 2020, 07:18 PM

7. Shades of 2008.

Isn't Britney Spears attempting a comeback?

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