Capital protection solid option in volatile market; Eksportfinans brings more commodity-linked notes

By Sheri Kasprzak

New York, March 20 - In a shaky stock market that's up one day and down the next - and up and down over the course of a day - capital protection might be a good idea for structure products investors looking to invest in a stock index, said one market source reached Friday afternoon.

Several offerings linked to the Standard & Poor's 500 index have been announced recently, including capital-protected notes from Morgan Stanley & Co.

"Principal protection is good for investors who want to get a decent return on their investment without losing their shirts," said the market insider, who was not associated with the Morgan Stanley sale.

"Riskier investments, obviously, will give you bigger returns. That's the nature of the game. But in a market environment like this, some investors do feel more comfortable with principal protection, even just partial protection."

Morgan Stanley's planned S&P-linked notes are fully protected and pay par plus a supplemental redemption amount, subject to a maximum payment of between $1,300 to $1,420 per note, or 130% to 142% of the principal amount, to be determined at pricing.

The three-year notes feature a 200% participation rate, subject to the maximum amount.

As of March 18, the index hit a 52-week high of 1,426.63 on May 19, 2008 and a 52-week low of 676.53 on March 9, 2009.

Deutsche Bank brings S&P notes

In other S&P-related news, Deutsche Bank AG, London Branch priced $6.248 million in buffered absolute return barrier rebate securities linked to the index.

Those 13-month notes pay par plus the principal amount times the absolute index return at maturity, assuming a barrier event does not occur. A barrier event occurs if, on any day during the observation period, the closing level of the index exceeds the upper index barrier - 140% of the initial index level - or declines below the lower index barrier - 80% of the initial index level.

If a barrier event occurs and the final index level is greater than the initial level or if the final index level declines from the initial level, but the decline is less than or equal to the buffer level, investors receive par plus the principal amount times a 2% rebate. If a barrier event occurs and the final index level declines from the initial level and the decline is greater than the buffer level, investors receive par plus the principal amount times the index return plus the buffer level plus the 2% rebate.

Assuming the final index level declines from the initial level by more than the buffer level, investors could lose up to 78% of their investment.

The initial level is 794.35.

Eksportfinans brings commodity notes

In other news, Eksportfinans ASA priced $12.8 million in commodity-linked notes linked to the Merrill Lynch Commodity index eXtra B04 Total Return.

The 13-month notes priced at 25 basis points under Libor. The zero-coupon notes are redeemable at maturity at an amount equal to the greater of the principal times 1 plus 3 times the index result - the final index level divided by the initial level minus 1 - or zero

The index tracks 24 physical commodities, including aluminum, cocoa, coffee, copper, corn, cotton, Brent crude oil, West Texas Intermediate crude oil, feeder cattle, gasoil, gold, heating oil, lead, lean hogs, live cattle, natural gas, nickel, silver, soybeans, sugar, unleaded gasoline, Chicago wheat, Kansas City wheat and zinc.

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