Sales of Callable Stock-Tied Notes Rise as UBS Pitches 23% Yield

U.S. sales of callable notes tied to stocks rose 7 percent last month, while issuance of similar products that can’t be redeemed early declined.

Banks sold $419.9 million of callable equity-linked notes in October, up from $391.8 million the previous month, according to data compiled by Bloomberg. Sales of securities tied to stock performance that aren’t callable fell 5 percent to $1.56 billion, down from $1.64 billion in September.

Callable equity-linked notes, a type of structured product, generally offer a fixed payment if a stock rises or stays flat and are redeemed either automatically under certain conditions or at the choice of the issuer. Potential returns often exceed 20 percent a year, while investment-grade corporate bonds yield 3.8 percent on average, according to Bank of America Merrill Lynch index data.

UBS AG underwrote $228.6 million of callable equity-linked notes in October, the most of any bank, Bloomberg data show. On Nov. 12, the Zurich-based bank brought to market a $6.9 million offering issued by JPMorgan Chase & Co., according to a regulatory filing. The one-year Autocallable Optimization Securities with Contingent Protection, linked to Electronic Arts Inc., have a potential 23 percent yield.

At the end of each month-long period, if shares of the video-game publisher are at or above a starting level of $15.83, the securities are redeemed. If the notes aren’t called, principal is returned at maturity unless Electronic Arts has declined by more than 25 percent. Investors lose money if the shares are below that level.

Investors have bought $3.7 billion of callable equity- linked notes in the U.S. this year, the data show. The products account for about 9 percent of U.S. structured-note sales.

Structured products are securities created by banks, which package debt with derivatives to offer customized bets to investors while earning fees and raising money. Derivatives are contracts whose value is derived from stocks, bonds, currencies and commodities.

To contact the reporter on this story: Zeke Faux in New York at zfaux@bloomberg.net.

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net.

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