Basic Knowledge of TLAC Bonds [Bond Basics Series 8]
Hello, I am Taisei Fujimura (
https://wealth-partner-re.com/), an IFA for high-net-worth individuals at Wealth Partner (https://twitter.com/wp_fujimura). Many people may think that bond types are limited to government bonds, ordinary corporate bonds, subordinated bonds, perpetual subordinated bonds, and CoCo bonds. Actually, there are also bonds called TLAC bonds, so I will explain them.
(1) What is TLAC?
TLAC is a regulation requiring large financial institutions that would have a significant impact on the financial market if they were to fail to increase their capital and corporate bonds so that they do not need to be bailed out with tax money in the event of financial distress.
(2) What are TLAC bonds?
TLAC bonds are "holding company" issued ordinary corporate bonds to comply with the aforementioned TLAC, and they are sometimes labeled as ordinary corporate bonds (with a clause for exemption in the event of actual bankruptcy).
The point is that they are not intended to prevent a bank's failure, but are issued to avoid a bailout using public funds in the event of a failure. I will explain this in detail in (3).
Only the 30 G-SIBs and equivalent financial institutions issue them. In Japan, they are issued by the holding companies of megabanks, such as Mitsubishi UFJ Financial Group, Mizuho Financial Group, and Sumitomo Mitsui Financial Group
, as well as Nomura Holdings, the holding company of Nomura Securities. Therefore, bonds issued by MUFG Bank are ordinary corporate bonds, but ordinary corporate bonds issued by Mitsubishi UFJ Financial Group are TLAC bonds.
(3) Risks of TLAC bonds
TLAC bonds have the role of protecting depositors and holders of ordinary corporate bonds by reducing the principal and absorbing losses if a financial institution fails. Roughly speaking, they are
bonds that fall between ordinary corporate bonds and subordinated bonds. Their repayment priority in the event of bankruptcy is lower than that of ordinary corporate bonds, but higher than that of subordinated bonds.
Regarding bond ratings, TLAC bonds issued by holding companies naturally have lower ratings than ordinary corporate bonds issued by banks. Since only the 30 G-SIBs and equivalent financial institutions can issue TLAC bonds, there is a sense of security, but since events like Credit Suisse can happen, please invest only after fully understanding the risks.
(4) Benefits of TLAC bonds
・Higher yields than ordinary corporate bonds that are not TLAC bonds
Although TLAC bonds are issued as ordinary corporate bonds, because the risk that TLAC bond holders will bear losses—such as the requirement for principal reduction or exemption in the event of bankruptcy—is added, they tend to have higher yields than ordinary corporate bonds that are not TLAC bonds.
(5) Summary
This time, we covered TLAC bonds. I think they are not very familiar bonds, but since ordinary corporate bonds issued by financial holding companies are TLAC bonds, please check them.
We offer free individual consultations.
In free individual consultations, we provide advice and proposals while listening to your asset situation, concerns, and thoughts on investment.
We would appreciate it if you could apply for an individual consultation using the form below or via DM on X.
Thank you for your continued support.
<Notes>
・Our affiliated financial instruments business operators are SBI Securities Co., Ltd., Tokai Tokyo Securities Co., Ltd., and Airs-C Securities Co., Ltd.
・We do not have the authority to act as an agent for our affiliated financial instruments business operators.
・We do not accept money or securities from customers in relation to our financial instruments intermediary business under any name.
・For investments in each product, you may be required to bear prescribed fees and necessary expenses for each product. In addition, each product may incur losses due to price fluctuations, etc. Since the fees and risks to be borne when investing in each product differ depending on the product, please check the relevant product page on our website, the disclosures related to the Financial Instruments and Exchange Act, or the documents delivered before concluding a contract for details.
[Financial Instruments Intermediary]
Trade Name, etc.: Wealth Partner Co., Ltd. Registration Number: Director of Kanto Local Finance Bureau (Kin-Naka) No. 810
[Affiliated Financial Instruments Business Operator]
Trade Name, etc.: SBI Securities Co., Ltd. Financial Instruments Business Operator Registration Number: Director of Kanto Local Finance Bureau (Kin-Sho) No. 44, Commodity Futures Trader
Member Associations: Japan Securities Dealers Association, The Financial Futures Association of Japan, Type II Financial Instruments Firms Association, Japan STO Association, Japan Commodity Futures Association
Trade Name, etc.: Tokai Tokyo Securities Co., Ltd.
Financial Instruments Business Operator Director of Kanto Local Finance Bureau (Kin-Sho) No. 140
Member Associations: Japan Securities Dealers Association, The Financial Futures Association of Japan, Type II Financial Instruments Firms Association, Japan Investment Advisers Association, Japan STO Association
Trade Name, etc.: Airs-C Securities Co., Ltd. Financial Instruments Business Operator Registration Number: Director of Kanto Local Finance Bureau (Kin-Sho) No. 33
Member Associations: Japan Securities Dealers Association