MUFG joint venture stops selling structured loans after scrutiny
The firm discontinued sales this month of the products, including Japanese government bonds repackaged into loans, a representative for the joint venture between Mitsubishi UFJ Financial Group and Morgan Stanley said. It's the first known instance of a major brokerage ending this business in what was a booming market.
MUMSS, as the firm is known, said buyers of structured loans do not have to disclose their mark-to-market valuation, which is required for effective bond investments. If regional financial institutions are actively engaging in this area, this could give the impression that their lending is growing, hence the decision by the firm to stop handling these products, MUMSS said.
Japan's financial regulator said earlier in the year that it is planning a sweeping crackdown on $67 billion of high-yield loans backed by government bonds and other assets. Officials have been concerned that some lenders lack proper risk management for the opaque products and could suffer mounting losses if market rates move against them. Several Japanese brokerages had second thoughts about selling these products after the regulator's criticism and scrutiny.
MUMSS said it has sold the structured loans under established internal systems and procedures, in accordance with the laws.
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