The bank, the sixth-largest issuer last year of the securities denominated in currencies other than the yen and sold to Japanese individual investors, issued $12.2 million of reverse-convertible notes tied to shares of the U.S. chipmaker on Jan. 21, according to Bloomberg data going back to 1997.
Barclays joins Deutsche Bank AG (DBK) in selling uridashi notes tracking single U.S. stocks after $75 million of such securities were issued last year. The Standard & Poor’s 500 Index advanced 58 percent in four years since the end of 2008, the year when the collapse of Lehman Brothers Holdings Inc. roiled financial markets.
“Naturally, they’re bullish products,” Naohide Une, head of equity-derivatives trading at Goldman Sachs Japan Co., said by phone. “If the market doesn’t go down and gradually goes higher, then they are good yield-enhancement products for retail investors. The U.S. situation fits into the theme well.”
In return for paying high coupons, reverse convertibles convert into their underlying stocks at maturity if the shares plummet, potentially eroding the buyers’ principal.
Barclays’s five-month notes yield 9.02 percent monthly as long as Nvidia shares are at or above 90 percent of the stock’s Jan. 31 closing, while the coupon drops to 0.5 percent if the price falls by more than the 10 percent buffer, according to the prospectus for the product. If the shares gain more than 10 percent, the notes are redeemed at their full value.
Should the stock close below 90 percent of its initial value on any day between Feb. 1 and 10 trading days before expiration on June 21, the notes convert into the Nvidia stock at maturity, according to the marketing materials.
Nvidia shares closed at $12.26 on Jan. 31, after losing 34 percent of their value through last year since the end of 2009. In the latest earnings release in November, the company reported quarterly profit surpassing analysts’ estimates, helped by sales of chips used in tablet devices.
Marina Totsuka, a Tokyo-based spokeswoman for Barclays, declined to comment on the reasons it picked the stock for the notes.
Deutsche Bank was the sole issuer of reverse convertibles tied to individual U.S. stocks in the uridashi market last year, selling a total of $75.47 million of securities linked to Morgan Stanley (MS), Hewlett-Packard Co. (HPQ), and VMware Inc. (VMW), according to Bloomberg data. The rest of the $2 billion of single-stock reverse convertibles issued last year were tied to Japanese companies, the data show.