Barclays launches reverse convertibles linked to exchange-traded funds; UBS plans stock-linked warrants

By Kenneth Lim

Boston, March 11 - Barclays Bank plc on Tuesday announced a number of reverse convertibles linked to exchange-traded funds, following recent launches that focused on the financial sector.

Barclays revealed the reverse convertibles due Sept. 30, 2008 in an FWP filing with the Securities and Exchange Commission.

The reverse convertibles will pay interest monthly. If the shares of the underlying fund fall below the protection level during the life of the notes and end below the initial price, the payout at maturity will be the number of underlying shares equal to par divided by the initial underlying share price.

Otherwise the payout at maturity will be par.

The Barclays reverse convertibles linked to the SPDR Trust, Series 1 fund carry a coupon of 8.5% and have a protection level at 85% of the initial price.

The notes linked to the Diamonds Trust, Series 1 fund have a coupon of 8% and a protection level at 85% of the initial price.

The series tied to the iShares Russell 2000 Index fund pays 10% per year with a protection level at 80% of the initial price.

The convertibles liked to the PowerShares QQQ Trust, Series 1 fund yield 8.5% and have a protection level at 80% of the initial price.

The notes linked to the Energy Select Sector SPDR fund have a 10% coupon and an 80% protection level.

One series tied to the iShares MSCI Emerging Markets Index fund has a coupon of 8% and a protection level at 85% of the initial price.

Another series linked to the iShares MSCI Emerging Markets Index fund has a 12% coupon and a protection level at 70% of the initial price.

Barclays gave its notes linked to the iShares S&P Latin America 40 Index fund a coupon of 10.25% and a protection level at 70% of the initial price.

A structurer said structured products linked to exchange-traded funds are not new.

"I don't think there's anything out of the ordinary here," the structurer said. "Products linked to ETFs have been around for some time, and I think they've become more popular, as have the rest of the structured products market, because they offer an alternative to more traditional offerings such as mutual funds."

Notes linked to exchange-traded funds allow investors who seek quicker returns to potentially get more than just investing in the funds directly, the structurer said.

"In general they offer you potentially higher returns than investing directly in the ETFs depending on the interest on the notes," a structurer said. "Most reverse convertibles are also shorter-term investments, so you don't have to wait as long to see your returns, and there isn't the usual transaction costs and fees related with investing in ETFs.

"The risk for the investor is that you could lose your principal investment, although if you were invested directly in the underlying you'd be exposed to those losses too," the structurer added. "The difference is that if you were invested in the ETF your losses would essentially be only on paper until they're realized, but with structured products your losses are realized at maturity."

UBS plans call warrants

UBS AG launched two-year call warrants linked to a diversified basket of 18 stocks, according to a 424B2 filing with the Securities and Exchange Commission.

The basket includes the common stocks or American Depositary Shares of Diageo plc, Qualcomm Inc., Colgate-Palmolive Co., Kimberly-Clark Corp., Procter & Gamble Co., McDonald's Corp., Coca-Cola Co., Telefonica SA, Vodafone Group plc, United Technologies Corp., Expeditors International of Washington Inc., Cisco Systems Inc., ABB Ltd., 3M Co., Air Products and Chemicals Inc., Praxair Inc., Schlumberger Ltd. and Weatherford International Ltd.

Expeditors, Cisco, ABB, 3M, Air Products, Praxair, Schlumberger and Weatherford have a 5.55% weight each. The other 10 have a 5.56% weight each.

Investors will lose part of their investments in the warrants if the basket return is positive but less than the warrant premium, which will be set between 14.5% and 16%.

If the final basket level is greater than the initial level, investors will receive the notional amount - equal to the issue price of $10 per warrant divided by the warrant premium - per warrant multiplied by the return on the basket.

If the final basket level is less than or equal to the initial basket level, the warrants will expire worthless.

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