Strategic Shift by Norinchukin Bank: Diversification of Portfolio
Norinchukin Bank, a Japanese agricultural bank, is embarking on a strategic shift to mitigate losses from interest rate bets. The bank plans to sell U.S. and European sovereign bonds worth approximately ¥10 trillion to address its challenges.
- Chief Executive Officer Kazuto Oku announced the decision to reduce sovereign interest rate risk and diversify into assets involving corporate and individual credit risk.
- Unlike other major Japanese banks, Norinchukin heavily relies on its securities portfolio valued at almost ¥60 trillion for generating profits.
Addressing Unrealized Losses: Capital Raising Strategy
The bank reported unrealized losses of ¥2.19 trillion on its bond portfolio, with bond holdings accounting for about 56% of its overall portfolio. In response to these losses, Norinchukin plans to raise ¥1.2 trillion in capital from its members.
- This strategy aligns with the bank’s past approach during the 2009 crisis when it raised Â¥1.9 trillion after incurring losses on asset-backed securities.
- Norinchukin’s focus on AAA-rated portions of collateralized loan obligations (CLOs) demonstrates its significant role in the $1.3 trillion CLO market.
Adapting to Market Challenges: Investment Approach Criticisms
Amid the current scenario, some bank members are questioning Norinchukin’s investment approach due to the substantial paper losses on bond holdings. This situation reflects the broader challenges faced by financial institutions dealing with such losses.
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