JPMorgan Chase prices two Euro Stoxx Banks deals with slightly different risk-adjusted returns

By Emma Trincal

New York, Sept. 27 – JPMorgan Chase Financial Co. LLC priced on Friday two deals providing a similar term, structure and exposure to the Euro Stoxx Banks index but with slight differences in the risk-adjusted return.

One note has more upside and less protection, and the other note, just the opposite. The differences in the cap and barrier levels are small, sources noted.

Both issues of 0% trigger Performance Leveraged Upside Securities mature on Jan. 2, 2019. The upside participation rate is 200%. Both offerings are guaranteed by JPMorgan Chase & Co.

The first deal priced for $39.11 million, according to a 424B2 filing with the Securities and Exchange Commission. The cap is 19.4%. The trigger level, or barrier measured on a point-to-point basis, is 75% of the initial index level.

The second offering sold for $15.77 million. It has a higher cap of 23.7% but also a higher barrier at 80% of the initial level.

One-off is likely

“Both are different brokerage products,” a market participant said.

“They set different levels of barrier, and you get compensated for the 80% level versus 75% with a higher cap.

“What I find really interesting is that the differences in barrier levels aren’t much. They priced the same day. It’s hard to say why they’re slightly different.”

However, this market participant said he has “an idea.”

“The only thing – and that’s my experience – is that they had a big offering first and then must have had one or a couple of clients who wanted to do something similar.

“It’s an attractive deal. Someone just wanted to modify it.

“I doubt they did market both at the beginning of the month. One would cannibalize the other.

“They just had a monthly offering out there, and it did very well. It caught the attention of someone interested in taking on a little bit more risk for more return and asking for a one-off.”

Choice is hard to sell

An industry source said he did not know how the notes had been marketed. However, he agreed that issuers do not typically offer two similar versions of the same calendar deal. As a result, the pair of deals was noteworthy, although “not unheard of,” and may have not been targeting the same audience, he said.

“It’s just done to accommodate slightly different risk-return profiles. One is less risk, less profit, and the other is the opposite. It’s the same old trade-off.” he said.

“You don’t see that often, although you’d think it makes sense to break the deal in two and sell them at the same time to your clients.”

But issuers usually don’t do that, he said, partly because of the cost of issuing two different products is greater.

“It’s probably something simple that stops sellsiders from offering different flavors of the same product. My take is that sometimes you give people too much choice and they don’t do anything with it.

“When people see more, they get confused, they hesitate and they end up buying nothing.

“More often issuers are going to show you one thing so you can focus on one thing.

“More is not always the best, at least when it comes to marketing.”

The Cusip number is 48129J525 for the larger offering and 48129J517 for the other.

Both deals carried a 2.25% fee.

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