JPMorgan, GE Sell Least Samurai as Tight Spreads Deter Investors

JPMorgan Chase & Co. and General Electric Co.’s finance arm had their smallest Samurai-bond sales in more than nine years as a global stock rout damped investor demand for debt that offered investors record-low yields.

General Electric Capital Corp. sold 55 billion yen ($536 million) in three-year fixed-rate, yen-denominated notes that pay 0.313 percent on Feb. 6, while JPMorgan offered 48.5 billion yen in a two-tranche deal, including three-year fixed-rate notes offering 0.373 percent. Those rates are the lowest ever paid by the companies on the yen-denominated debt, according to data compiled by Bloomberg.

Japanese investors are wary of buying overseas debt offering such low yields after concerns that the Chinese economy is slowing and the impact from U.S. Federal Reserve stimulus cuts triggered a selloff in emerging-market currencies and global stocks. JPMorgan joined Morgan Stanley last week in agreeing to pay $1.86 billion to settle U.S. accusations of misconduct in their handling of home loans and related securities that left taxpayers shouldering losses after the global financial crisis.

“Compared with notes from local issuers, Samurai bonds are more exposed to overseas risk,” said Yoshihiro Nakatani, a Tokyo-based senior fund manager who oversees about 100 billion yen of bonds at Asahi Life Asset Management Co. “Spreads on Samurai have fallen to unattractive levels, and it will be difficult for Japanese investors to buy at the kind of rates offered by JPMorgan and GE in future.”

Spread ‘Unattractive’

Nakatani, who has invested in GE Capital’s debt in the past, said he didn’t buy the Norwalk, Connecticut-based company’s notes this time because the spread was “unattractive.” He doesn’t invest in U.S. banks like JPMorgan as they can be affected more by financial regulation, he said.

Tom Steiner, a London-based spokesman for GE Capital, declined to comment on the company’s sale. Yukako Yoshino, a spokeswoman for JPMorgan in Tokyo, also declined to comment.

JPMorgan last had a Samurai sale smaller than last week’s in September 2004, when it issued 25 billion yen in notes, following two bigger sales the same year, according to Bloomberg-compiled data. General Electric hasn’t had a smaller sale, according to the data going back to 1999.

GE Capital sold 95 billion yen of Samurai notes in September, including 72.1 billion yen in debt also 10 basis points over yen swaps. The spread on securities of the same length offered last week declined to 4 basis points. A basis point is 0.01 percentage point.

JPMorgan issued 105.6 billion yen of Samurai bonds in June, including 51.5 billion yen in three-year notes at 10 basis points over swaps, the same level as last week.

Falling Spread

The average spread on Samurais was at 41 basis points on Feb. 6, the least since November 2007, according to Bank of America Merrill Lynch index data.

GE is rated AA+ by Standard & Poor’s, its second-highest ranking, and four levels above the A grade it gives JPMorgan. S&P lowered its outlook on JPMorgan to negative from stable in June, saying that the likelihood of “extraordinary” government support for the U.S. bank is waning.

The Topix index of Japanese shares has fallen 8.7 percent this year after a 52 percent gain in 2013. The gauge rose on Feb. 7 to pare a fifth straight week of losses.

“Stock prices are falling and investors are worried, so they aren’t going after credit investments,” said Mana Nakazora, the chief credit analyst at BNP Paribas in Tokyo, in a telephone interview. “There’s very little incentive to make investments at such low levels at a difficult time to assess risk.”

Biggest Seller

JPMorgan is the biggest U.S. seller of Samurai bonds since the global financial crisis, issuing 426.7 billion yen of the notes from 2008, according to data compiled by Bloomberg. General Electric is the second largest, at 370.7 billion yen.

Issuers from Australia to Norway have raised about 370 billion yen via Samurai sales this year, up from 60 billion for the entire first quarter of last year. National Australia Bank Ltd. is the biggest issuer of the securities this year, having sold 123.8 billion yen last month. Norway’s DNB Bank ASA sold 81.6 billion yen also in January.

“Following the emerging-market shock, and possibility of spreads widening for overseas names, there appears to have been a feeling that there wasn’t a need to rush to buy GE Capital’s Samurai this time,” said Yusuke Ueda, a Tokyo-based credit analyst at Bank of America Merrill Lynch. For JPMorgan, “the tone seems to have been a little different” and the bank had less of a need to sell Samurai debt, he said.

Mortgage Settlement

JPMorgan will pay $614 million after admitting it submitted ineligible loans for Federal Housing Administration and Veterans Affairs insurance, according to a statement on Feb. 4 by the U.S. Justice Department.

The company said in a statement the same day that the “settlement represents another significant step in the firm’s efforts to put historical mortgage-related issues behind it.” The bank separately agreed last year to pay $4 billion to settle Federal Housing Finance Agency claims related to about $33 billion in mortgage bonds.

“Under normal circumstances, JPMorgan probably would have liked to sell a lot, lot more bonds” at a premium of as little as 10 basis points, said BNP’s Nakazora said. “It’s litigation risk has been very big.”

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