{"id":53952,"date":"2020-06-30T09:07:35","date_gmt":"2020-06-30T14:07:35","guid":{"rendered":"https:\/\/olduvai.ca\/?p=53952"},"modified":"2020-06-30T09:07:38","modified_gmt":"2020-06-30T14:07:38","slug":"who-will-get-hit-when-collateralized-loan-obligations-clos-blow-up-banks-or-unsuspecting-market-participants","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=53952","title":{"rendered":"Who Will Get Hit When Collateralized Loan Obligations (CLOs) Blow Up? Banks or Unsuspecting \u201cMarket Participants\u201d?"},"content":{"rendered":"\n

Who Will Get Hit When Collateralized Loan Obligations (CLOs) Blow Up? Banks or Unsuspecting \u201cMarket Participants\u201d?<\/a><\/h3>\n\n\n\n

Answers emerge from the murky business of CLOs.<\/strong><\/p>\n\n\n\n

There has been quite some hoopla surrounding Collateralized Loan obligations (CLOs) because the underlying leveraged loans \u2013 junk-rated loans often used by private equity firms to fund leveraged buyouts (LBO) and other high-risk endeavors such as special dividends \u2013 are now starting to come apart. There are approximately $700 billion in US-issued CLOs outstanding.<\/p>\n\n\n\n

US banks hold $99 billion of these CLOs, according to S&P Global Market Intelligence<\/a>. 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\u2019re also held by entities overseas, including certain banks in Japan that have gorged on these US CLOs. But that\u2019s their problem.<\/p>\n\n\n\n

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<\/a>):<\/p>\n\n\n\n