Wells Fargo's leveraged growth securities linked to S&P 500 index score high, analyst says

By Sheri Kasprzak

New York, Sept. 28 - Wells Fargo & Co.'s 0% leveraged upside participation growth securities linked to the S&P 500 index scored high with Future Value Consultants in part due to the longer term of the notes, said FVC analyst Suzi Hampson.

The notes have a 2.5-year term and offer potential accelerated returns of 1.25 times the growth in the index, subject to a maximum return of 31% to 35%. Principal is at risk and some will be lost if the final level of the index is lower than 85% of the initial index level.

Price score is 8.93

Future Value Consultants gave the product an 8.93 price score, Hampson said in an interview Friday.

"It's calculated by estimating the price of the assets and how much it costs to buy the component parts," Hampson said.

"We estimate the amount of fees taken from the product by the issuer, and we look at it on an annualized basis. The high price score suggests that on a pro annum basis, fees are low. One thing is that this product is slightly longer than others in its category. Most leveraged return products are 12 to 18 months."

In general, Hampson said, longer products of this kind score better.

Terms are good, too

The offering has good terms as well, Hampson said.

"You see the cap is a range, so it's somewhere between 131% to 135% [of par]," she said.

"When the product is priced, we rescore it. Depending on where they settle, that may go up or down. If they use the lower boundary, the value score goes down. It's always a bit indicative sort of scoring at this point. It's very difficult to say what the value to the investor is."

The return score for the notes is calculated from the estimated returns of five assumptions: high growth, low growth, neutral, high volatility and low volatility, said Hampson.

"The returns are quite decent, probably of 10% to 15% annually," she said.

"If you change it to the high-growth [scenario], those percentages jump right up to 10% to 15%. You have a high probability of getting higher returns."

Risk map is lower

Additionally, the risk map is lower for the Wells Fargo notes than the average product of this type, Hampson said.

"There is a 15% buffer, and some of the products in this category don't have any protection. Some have 10%," she said.

"It's also linked to the S&P 500, which is a well-known and low-volatility underlying. A slightly longer maturity is less common. Otherwise, I would think that the pricing would be quite competitive. There are lots of different issuers that would be issuing similar products. They want to give the best return as possible, as opposed to more complex products."

The notes will price Oct. 15 and settle Oct. 18.

Wells Fargo Securities LLC is the agent.

The Cusip number is 94986RLT6.

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