Volatility draws investors to financial-sector reverse convertibles; more gold-linked deals announced

By LLuvia Mares

New York, Sept. 27 - You may want to get your umbrella out, market sources said - it will continue to rain financial sector-linked reverse convertibles through the end of the year. HSBC USA Inc. made structured products news Thursday after pricing several reverse convertibles linked to the financial sector, a trend that's become quite popular since the credit crunch hit the financial markets.

"The volatilities were attractive and clearly there was some spike involved that had occurred over the last few months, where vols in those names have gone up dramatically and a lot of investors were looking in the reverse convertible market," said Eric Miller, structured products marketing and managing director at HSBC USA Inc.

"They [investors] look for opportunity where you can get good yields with reasonable risk return profiles. And the product that has been providing that over the last few months has been the financial sector."

Miller said depending on how the volatility is doing in each sector, some might be more favorable to investors than other.

"So what was hot and interesting a few months ago doesn't necessarily stay the same now," he said. "What is hot one quarter is going to be different every quarter, it's a volatility oriented market."

Indymac, Goldman-linked deals

One of HSBC's bigger deals Thursday was its pricing $6.95 million of 32.2% reverse convertible notes due Dec. 31, 2007 linked to the common stock of Indymac Bancorp, Inc., according to a 424B2 filing with the Securities and Exchange Commission.

At maturity, investors will receive par unless Indymac stock falls below the protection price - 60% of the initial share price - during the life of the notes and finishes below the initial share price, in which case the payout will be a number of Indymac shares equal to $1,000 divided by the initial share price.

HSBC Securities (USA) Inc. is the agent.

The bank also priced a $6.58 million of 16% reverse convertible notes due Dec. 31, 2007 linked to the common stock of Goldman Sachs Group, Inc., according to a 424B2 filing with the Securities and Exchange Commission.

At maturity, investors will receive par unless Goldman Sachs stock falls below the protection price - 80% of the initial share price - during the life of the notes and finishes below the initial share price, in which case the payout will be a number of Goldman Sachs shares equal to $1,000 divided by the initial share price.

HSBC Securities (USA) Inc. is the agent.

Barclays sells WaMu notes

However, HSBC wasn't the only one cashing in on the volatility among financial stocks. Barclays Bank plc priced $5 million of 16% reverse convertible notes due March 28, 2008 linked to Washington Mutual, Inc. stock, according to a 424B2 filing with the Securities and Exchange Commission.

Payout at maturity will be par in cash unless Washington Mutual stock falls below the protection price of $24.78, 70% of the initial price of $35.40, during the life of the notes and finishes below the initial price in which case the payout will be 28.248588 shares of Washington Mutual stock.

Barclays Capital is the agent.

Also among the bigger deals announced Thursday by Barclays, the bank priced $4 million of 9.5% reverse convertible notes due March 28, 2008 linked to Comcast Corp. stock, according to a 424B2 filing with the Securities and Exchange Commission.

Payout at maturity will be par in cash unless Comcast stock falls below the protection price of $19.27, 80% of the initial price of $24.09, during the life of the notes and finishes below the initial price in which case the payout will be 41.511 shares of Comcast stock.

Barclays Capital is the agent.

UBS brings $53.81 million S&P notes

In other news, UBS AG priced a large $53.81 million issue of 0% return optimization securities due March 31, 2009 linked to the S&P 500 index, according to a 424B2 filing with the Securities and Exchange Commission.

The payout at maturity will be par plus triple any index gain, subject to a maximum return of 22.5%. Investors will be fully exposed to any index decline.

UBS Investment Bank and UBS Financial Services, Inc. are the underwriters.

More gold deals

Once again, market turmoil is making gold sparkle in the structure products sector. Lehman Brothers Holdings Inc. plans to price two-year capped participation notes linked to gold, according to an FWP filing with the Securities and Exchange Commission.

At maturity the notes will pay par of $10,000 plus double any positive return on gold, capped at a maximum payout of par plus 18%. The payout will be par if gold loses up to 10%. Investors will lose 1% for each 1% that gold declines beyond 10%.

Lehman Brothers Inc. will be the underwriter.

The bank also plans to price one-year capped participation notes linked to gold, according to an FWP filing with the Securities and Exchange Commission.

At maturity the notes will pay par of $10,000 plus 1.5 times any positive return on gold, capped at a maximum payout of par plus 9%. The payout will be par if gold loses up to 10%. Investors will lose 1% for each 1% that gold declines beyond 10%.

Lehman Brothers Inc. will be the underwriter.

RBC prices $8 million agriculture-linked notes

Royal Bank of Canada also brought a substantial $8 million offering of zero-coupon principal-protected notes due March 29, 2010 linked to the S&P GSCI Agriculture Excess Return index, according to a 424B5 filing with the Securities and Exchange Commission.

The payout at maturity will be par plus any index gain, subject to a maximum return of 30%. Investors will receive at least par.

Citigroup Global Markets Inc. is the underwriter.

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