Structured products volume picks up on month-end trades; no single structure seen prevalent

By Emma Trincal

New York, Oct. 29 - Issuance of structured products strengthened in the past week, helped by a boost in dollar volume, a normal part of the month-end cycle, sellsiders said, but also by unusually large-sized deals.

During the week ended Friday, banks priced $628 million of structured products, more than twice the $289 million volume of the week before, according to data compiled by Prospect News.

"The high volume in dollars is definitely linked to the end of the month," said a New York-based sellsider at a foreign bank.

Super deals

But the week also saw the pricing of unusually large deals, as indicated by a smaller number of deals - 63 in the week ended Friday versus 71 the week before - for a volume more than twice as big as that of the prior week.

"We had a bunch of deals on a monthly basis. With our retail distribution, we market all those deals one month at a time," said a sellsider at a U.S. bank.

About 20% of the week's total issuance came from one issuer. On Oct. 22, JPMorgan priced $123.96 million on the behalf of Barclays Bank plc of 0% autocallable index knock-out buffer notes due July 29, 2010 linked to the Russell 2000 index. Citigroup also priced another significantly large transaction with $44.36 million of 9% Equity LinKed Securities due Nov. 24, 2010 tied to Wells Fargo & Co.

Several other banks issued deals in excess of $20 million, including Morgan Stanley, Deutsche Bank AG and Bank of America Corp.

JPMorgan tops

JPMorgan remained the top bookrunner with $192 million in 12 deals, scoring 30% of the week's issuance. Part of this result came from the bank's mandate to price the $124 million Barclays blockbuster.

Morgan Stanley reached the second slot with $157 million in 12 deals, winning over UBS, which held that position the week before.

Wide range of underlying

There were no particular patterns when it comes to the choice of an underlying as issuers used a wide range of asset classes, indexes and securities for the structuring of their notes. Not surprisingly, the use of the Russell 2000 index as underlying was the top category, making for 20% of the market in just one structure, which was the $124 million Barclays deal.

In terms of structures, disparity ruled as well with no particular pattern emerging.

"It's been a trend in the last four months. We're seeing a variety of deals. Now people have appetite for all the structures, not just principal-protected notes. It was certainly not the case before with the crisis," said a third sellsider.

Leverage is back

If anything, issuance revealed a renewed interest for leveraged return notes with only partial downside protection or none, as this category represented 21% of the total. By comparison, products incorporating downside protection accounted for just about 5% of the total issuance

"Leverage reflects investors' renewed confidence," said the foreign bank's sellsider. "As confidence grows, people value principal-protected notes less and less and are willing to go further out the risk spectrum.

"Leveraged return has always been pretty popular. Principal-protected notes don't work that well in a low interest rate environment," said the sellsider with the U.S. bank.

Another possible trend was the slight decrease in reverse convertibles compared to the week before with this structure representing 21% of the total versus 33% in the prior week.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.