U.S. Structured Note Sales Near Record Lows After Downgrades
Banks sold the second-fewest U.S. structured notes last month after the largest issuers had their credit ratings cut in June.
Banks issued $2.28 billion of the securities in July, compared with $2.16 billion in December, which was the lowest month since at least the beginning of January 2010, according to data compiled by Bloomberg. Sales last month fell 37 percent from a year ago.
Moody’s cut the ratings on the 11 largest issuers of U.S. structured notes on June 21, with Credit Suisse Group AG dropping the most at three levels to A2, or the sixth-highest investment grade. Bank of America Corp. (BAC), the largest issuer of the U.S. securities, fell one level to the second-lowest investment rank.
“Since the heavy downgrades on the U.S. banks, sales have slowed down,” Alexandre Ecot, a New York-based director at Societe Generale SA’s derivatives and structured notes group, said in a telephone interview.
Moody’s downgraded 15 of the world’s biggest banks and securities firms on June 21, citing their “significant exposure to the volatility and risk of outsized losses inherent to capital markets activities.”
Goldman Sachs Group Inc. (GS), which had its rating cut two levels to A3, issued $101.6 million in five-year notes, the biggest overall sale in July, Bloomberg data show. Bank of America, the largest issuer of U.S. structured notes this year, sold $368 million of the securities last month, its lowest level since December.
Banks issued $834.1 million of notes tied to the Standard & Poor’s 500 index, or 36 percent of all sales, the highest level since at least the beginning of 2010, Bloomberg data show. The index climbed 1.3 percent for the month, following a 4 percent rise in June.
Structured notes 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.
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