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FINANCIALS: Norinchukin Losses Could Grow Beyond Prior Guidance

FINANCIALS

Norinchukin Bank (NORBK: A1/A) CEO spoke overnight at the bank’s AGM, indicating losses from its bond portfolio remain market dependent. We read this as meaning the ceiling indicated at the recent release (JPY1.5trn) could be surpassed, this then questioning the proposed JPY1.2trn capital raise the bank is conducting. 

  • As we wrote about on 19-Jun, Norinchukin made a failed rate bet within its giant (USD350bn) bond portfolios and is now unwinding positions (of around USD63bn) with expected losses seen at JPY0.5-1.5trn (USD3.2-9.5bn). The agricultural co-operatives which own the bank are injecting capital.
  • We did also note that the unrealised losses were already being captured by the reported CET1 ratio so this is an accounting, rather than capital, event.
  • More importantly, management indicated it is looking to now redeploy its investment portfolio into credit assets. We can argue about the logic of doing this with EUR spreads near multi-month tights but, either way, this could be a technical tailwind to the broad credit market.
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