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January 10, 2014

Banks Sell More Slices of Collateralized Loan Obligations

“U.S. bank sales of certain loan-backed securities picked up last month, highlighting companies’ efforts to shed the investments before a ban imposed by the Volcker rule takes effect next year.

“Banks’ sales of securities from so-called collateralized loan obligations reached $1 billion in the week ended Dec. 20, said Wells Fargo & Co. and Royal Bank of Scotland Group PLC. That is double the typical weekly volume, said Elliot Ganz, general counsel for the Loan Syndications and Trading Association, a financial trade group. CLOs are funds that package low-rated corporate loans, sort them into different risks and then sell them to investors as securities.

“Investors said prices didn’t move substantially, quelling fears that new rules limiting bank investments in the securities would upend the $300 billion U.S. market.

“The Volcker rule, completed Dec. 10 as part of the Dodd-Frank financial overhaul, may oblige banks to divest themselves of CLO notes because they convey certain rights to replace managers of the deals, part of the rule’s ban on banks’ trading with their own capital.”

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Read full Wall Street Journal article here

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