Norinchukin: Taking The Rate Hits, Moving To Credit

Norinchukin Bank (NORBK: A1/A) story overnight about rate-related losses coming in much larger than expected. Not in €IG index but reportedly selling as much as USD63bn in US and EUR sovereign bonds and shifting much of this into credit assets, alongside equity and project finance assets.

• Norinchukin, Japan’s largest agricultural bank, guided overnight that losses from its rate books will be JPY1.5trn, triple the previous estimate. Losses have been driven by positioning for rates falling more rapidly than eventually transpired.
• The bank is raising capital from the cooperatives that own it and the losses were already reflected in CET1 ratio before this, so this is not a capital event, more a loss crystallisation.
• The wider issue is that mgmt were clear that it is looking to redeploy its investment portfolio (reportedly over USD350bn) into credit assets could be an interesting tailwind. The bank is already a major buyer of CLOs so it may look more widely… just at the point that credit spreads are close to multi-month tights.