Barclays: CLOs? Being used to raise capital? ... geez.

http://www.thestreet.com/story/10487846/1/barclays-massive-loan-pool-eludes-notice.html
(apologies to thestreet.com... forgot to quote them in my unedited post. Sigh. unintentional plagiarism...)

A more than $30 billion pool of corporate loans managed by Barclays (BCS Quote) has slipped by virtually unnoticed, but merits close scrutiny as it sheds light on central bank lending standards loosened by regulators' fight against the global economic downturn.
The transaction, dubbed Newfoundland and rated triple-A by Moody's Investors Service looks to be the largest collateralized loan obligation ever issued, by a large margin. Most CLOs are in the $300 million range and anything over $1 billion is considered large, according to Bill May, an analyst at Moody's.
"It's certainly the biggest CLO I've ever heard of," May says.
Its purpose is almost certainly to allow Barclays to use its corporate loan portfolio as collateral to obtain short-term funding from a central bank, according to May and other analysts and economists. They are divided, however, on whether the European Central Bank or the Bank of England is the more likely lender. Neither central bank responded to requests for comment.
Barclays declined to discuss the transaction, which it does not appear to mention in its public regulatory filings and the existence of which was unknown even to close followers of the company like Sandy Chen, analyst at Panmure Gordon.
"The more light that can be shed on this, the better," Chen says.
Further, Tavakoli worries the central banks could be stuck with assets worth far less than they think. "It's kind of disturbing that the Fed and the ECB have decided to take on this kind of collateral, and they're really not equipped to scrub it," she said in a follow-up phone interview.
Collateralized debt obligations -- a broader category that includes CLOs and collateralized bond obligations -- are probably the best example of the so-called "toxic" securities at the heart of the current crisis. They have led to hundreds of billions in writedowns over the past year, wreaking havoc at once-proud institutions like Merrill Lynch, UBS (UBS Quote) and Citigroup(C Quote).
Since the crisis began, buyers for these instruments are scarce to non-existent. However, some banks have created so-called balance-sheet CLOs like Newfoundland in order to use their troubled loans as collateral to obtain short-term financing from central banks. The best-known example of such a transaction is a $2.8 billion CLO, known as Freedom, issued last year by Lehman Brothers.
How many other banks are creating balance-sheet CLOs to borrow from central banks is difficult to know. Morgan Stanley analyst Vishwanath Tirupattur says there are others, though he is not aware of any that rival even Freedom in size, much less a $30 billion giant like Newfoundland. Such information is hard to come by, however. Even though he specializes in CLOs, Tirupattur was unaware of the second $16 billion issue from Newfoundland last month.
"Some of these balance-sheet deals are not broadly distributed. I mean they're not distributed at all," Tirupattur says.
That's because investors are too spooked to buy them, for now. Whether they will ever return to the market for such highly complex products remains to be seen. It is ironic, however, that banks are now creating new structured securities like Newfoundland to extract themselves from the very mess such securities created in the first place.
The Moody's report explaining the triple-A rating given to Newfoundland last month is highly technical, referring to a "Correlated Binomial Expansion Technique," and a "weighted-average rating factor of 1040."
While there may not yet be a market for these securities, the fact that banks are still producing them is an ominous sign to people like John Kanas, a consultant to private equity investors and the former CEO of North Fork bank, bought by Capital One Financial Corp. (COF Quote) in 2006.
"There should be a loud and clear voice demanding us to go back to simplicity and away from these esoteric products, but frankly I may be a lone voice in the wind because the creation and sale of these products is a very profitable business," Kanas says.


-----


What do I have to add here? ... all that needs to be said has been said.

Basically, we not only have Barclays creating a HUGE *potentially* toxic asset... it's a NINJA asset! Hidden and kept as secretive as possible.

And no one is worried about this? ... oh really?

...

Now the hope is that these ninja assets do not really act like ninjas. You know... remain hidden, and then kill the target at the most opportune/inopportune moment!

...

Still, one lesson that has been drummed in lately. Capitalism might have many flaws, but one principal seems to be very very important: Lack of transparency is a cause for alarm. Corporate dishonesty is a sign to run and not get involved.