Norinchukin may buy US$26 billion in bonds


By Takahiko Hyuga and Ichiro Suzuki, Bloomberg

TOKYO — Norinchukin Bank Ltd., the biggest holder of asset-backed bonds among Japanese banks, plans to invest about 3 trillion yen (US$26 billion) in such securities overseas, saying prices are attractive after turmoil in credit markets eroded demand.

The bank, with 41.2 trillion yen of deposits, will increase investments in debt backed by payments from credit card and auto loans in Europe and the U.S. to about 7.5 trillion yen by March 31, said Toshiyuki Futaoka, global head of strategic asset allocation.

“The market has finally become attractive after recent price falls,” Futaoka, 49, said in an interview in Tokyo Tuesday. “The level to which we can build up credit assets is key to our second-half strategy.”

Norinchukin, a central bank for Japan’s farm and fishery cooperatives, is betting price declines triggered by defaults on U.S. subprime mortgages are overdone. Overdue payments on home loans in the U.S. to people with poor credit histories rose to the highest level in five years in the second quarter, according to the Mortgage Bankers Association.

The average spread against comparable Libor swaps for AAA rated, eight-year to 15-year securities backed by credit card loans widened to 58.62 basis points as of Sept. 30 from 5.27 basis points on June 30, according to data compiled by Bloomberg. The spread for AA-rated 2 1/2-3 1/2-year auto loan securities rose to 87.76 basis points from 13.47 points in June. One basis point is 0.01 percentage point.

Norinchukin had 51 trillion yen under management as of March 31, according to a July report. Bonds accounted for 60 percent of the total, with stock and credit investments making up the rest.

“It’s a good time to invest as the spread on asset-backed securities has clearly widened,” said Mana Nakazora, the head of credit research at JPMorgan Chase & Co. in Tokyo. “The question is whether spreads will widen further as subprime turmoil may impact the U.S. economy, preventing customers from repaying their card and auto credits.”

Norinchuckin had 50 billion yen of unrealized losses on its 500 billion yen of subprime loan-related investments as of Sept. 30. Those losses will be offset by gains elsewhere, Futaoka said.

“We can offset the loss on subprime-related securities by unrealized gains on other investments of about 2 trillion yen,” he said.

The credit crisis that started with U.S. subprime mortgage defaults sent equity and bond prices worldwide tumbling in August. The market for mortgage-backed securities shrank, hurting those who trade the bonds or sell them to investors.

The world’s largest banks and securities firms have reported credit and market losses of at least US$21 billion after defaults on subprime mortgages contaminated securities backed by home loans and other types of debt. Nomura Holdings Inc., Japan’s largest brokerage, said Oct. 15 it would post a quarterly pretax loss after losing US$620 million on U.S. home loans.

As of Aug. 28, Mitsubishi UFJ Financial Group Inc and six other Japanese banks had reported combined losses of 18.7 billion yen linked to investments backed by subprime loans. The disclosures represent less than 0.2 percent of their combined holdings of asset-backed bonds as of March 31, according to documents on their Web sites.