U.S. bank holding companies continued to grow their collateralized loan obligations during the first quarter of 2022 as the Federal Reserve raised federal fund rates to manage record-hitting inflation.

CLO exposure rises

In the first quarter, banks had $155.63 billion in CLOs, up from $150.55 billion in the fourth quarter of 2021 and $111.66 billion in the first quarter of 2021, according to S&P Global Market Intelligence data. Balances have been increasing since the fourth quarter of 2020, with the majority being held to maturity.

The amount of CLOs reported on bank balance sheets climbed in 2021 after staying relatively flat over the three previous years. The surge came after an easing of "Volcker rule" restrictions in October 2020, which enabled banks to expand the types of securities they can invest in.

Banks with the largest CLO balances

JPMorgan Chase & Co. was the bank holding company with the most CLO exposure with $54.21 billion in balances as of March 31.

When asked during a first-quarter earnings call if there are any stresses in the levered parts of the debt markets, Chairman & CEO Jamie Dimon said "[j]ust spread widening, a little bit less liquidity."

"[I]n this environment, everyone's looking very closely everywhere for any risks and trying to see around the corner," CFO Jeremy Barnum said. "But as of right now, we're really not seeing anything of concern in the kind of spot metrics, so to speak."

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Besides JPMorgan, the bank holding companies with CLO balances of over $5 billion were Wells Fargo & Co., Citigroup Inc., TD Group US Holdings LLC, Bank of New York Mellon Corp. and Stifel Financial Corp.

On the company's first-quarter earnings call, Stifel CFO James Marischen said management is starting to see more opportunities in CLOs considering the increased rate environment and current yields. The company had $5.25 billion in CLO balances as of March 31, down quarter over quarter but up year over year.