Merrill sells notes linked to Russell 2000; Citigroup, JPMorgan plan principal-protected notes

By Sheri Kasprzak

New York, March 5 - Merrill Lynch & Co., Inc. kicked off the week in structured products with a $155 million offering of 0% Accelerated Return Notes linked to the Russell 2000 index.

The index has been relatively popular, according to one market source.

"I wouldn't say it's on par with, say, the S&P 500 or the Nikkei [225], but it's a reasonably prominent structure," he said.

Under the terms of the 13-month notes, payout will be par of $10.00 plus triple the percentage increase in the index with an 18.6% maximum total return. Investors will be exposed to any declines in the index.

Other Russell 2000-linked notes

Recently, Barclays Bank plc announced plans to price 0% return enhanced notes linked to the index. Those one-year notes pay par plus triple any positive return on the index, up to 19.26%. Investors will also share in any losses.

The notes are set to price March 9.

JPMorgan Chase & Co. also intends to price 0% return enhanced notes linked to the index.

Citigroup, JPMorgan's principal-protected notes

Elsewhere in structured products news, Citigroup Funding Inc. and JPMorgan announced plans to priced principal-protected offerings.

A market source at Citigroup said the investment bank's strategy has been to focus on principal-protected offerings but would not comment further on the notes.

Another market source said he feels the onslaught of principal-protected deals can be traced to the dive in the stock market last week.

"Investors really want principal protection now," he said. "A lot of people lost their investments after last Wednesday so it's a feature that investors are really looking for now. I think it will make up a greater portion of the [structured products] market this year just because of this."

Deal terms

The two-year Citigroup notes are linked to a basket of currencies with equal weights of the dollar/Australian dollar, dollar/British pound, dollar/Indonesian rupiah, dollar/Mexican peso and dollar/Turkish lira rates.

The notes pay a one-time coupon in March 2008, expected to be 5.5% to 6.5%, which will be determined at pricing.

The payout at maturity will be par plus any percentage increase in the basket level. Investors will receive at least par.

JPMorgan's notes

JPMorgan Chase announced plans to move ahead with several principal-protected offerings.

Among the deals are 0% in notes linked to the S&P 500 index, 0% notes linked to equal weights of the Nikkei 225 and the Dow Jones Euro Stoxx 50 indexes, an offering linked to the U.S. Dollar index and an offering linked to a basket of currencies.

The seven-year S&P-linked notes are set to price March 27 and pay par plus any gain on the index times a participation rate to be set at pricing. Investors will receive at least par.

The notes linked to the Nikkei and Euro Stoxx are also expected to price March 27 and pay par plus any gain on the index times a participation rate that will be at least 115%. Investors will receive at least par.

In the notes linked the U.S. Dollar index, payout will be par plus any gain on the index times a participation rate of at least 135%. The index tracks the performance of the U.S. dollar against the euro, the Japanese yen, the British pound, the Canadian dollar, the Swedish krona and the Swiss franc.

In the notes linked the currencies, the basket contains equal weights of the performances against the U.S. dollar of the Indian rupee, the New Turkish lira, the Brazilian real and the Mexican peso.

Payout will be par plus any gain on the index times a participation rate expected to be at least 525%.

Lehman plans notes

In other structured products news, Lehman Brothers Holdings Inc. is negotiating the terms of zero-coupon principal-protected notes linked to equal weights of the Nikkei 225 index and the dollar/yen exchange rate.

The payout at maturity will be par plus any percentage increase in the basket level with investors receiving at least par.

Barclay's reverse convertibles

Finally, Barclays said it intends to price 8.75% reverse convertible notes linked to The Goldman Sachs Group Inc. and 9% reverse convertibles linked to Lehman Brothers Holdings Inc.

News of the offering comes as worries about the impact of a loathsome housing market on investment banks' exposure to sub-prime loans has plunged credit default swaps on Goldman's debt to almost-junk levels and after Lehman was downgraded by Standard & Poor's.

The Goldman notes pay par unless the investment bank's stock falls below the 85% knock-in price. At that point, the investors will receive a number of shares equal to $1,000 divided by the initial share price. The notes are set to price March 23.

The Lehman notes pay par unless the stock falls below the 80% knock-in level and after that point will pay a number of shares equal to $1,000 divided by the initial share price. The notes are also slated to price March 23.

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