Morgan Stanley Joins Kommunalbanken in Digital Coupon Notes Rise

Norway’s Kommunalbanken AS, Morgan Stanley (MS) and Credit Agricole SA (ACA) are helping fuel a surge in sales of so-called digital coupon structured notes linked to currencies, stocks or interest rates.

Banks sold $1 billion of the notes this year, up from $209.2 million in the same period of 2012, according to data compiled by Bloomberg. Kommunalbanken, a state-owned Norwegian municipal lender, was the biggest issuer of the securities, raising $184.5 million.

Digital coupons, also known as all-or-nothing interest payments because they’re payable only if certain conditions are met, are popular with investors because they can boost returns. That’s because when market volatility is low, options embedded in certain structured notes are cheaper. The Chicago Board Options Exchange Volatility Index, or VIX (VIX), fell to its lowest intra-day level since April 2007 last month at 12.08.

Digital coupons offer “a simple way to enhance yield,” said Kevin Woodruff, global product head of structured notes at Morgan Stanley in London. The sixth-largest U.S. bank by assets is the second-biggest issuer of the securities this year with sales of $71.7 million, Bloomberg data show.

Credit Agricole comes third with $43.8 million of sales, according to data compiled by Bloomberg. The Paris-based bank raised $18.5 million from selling 10-year securities on Feb. 15 that pay 6 percent so long as one dollar costs 6.45 Chinese yuan or less and 79 Japanese yen or more, Bloomberg data show. If either criterion isn’t met, no coupon will be paid.

Charline Coue, a Paris-based spokeswoman at Credit Agricole, declined to comment on the notes.

Structured notes package debt with derivatives to offer customized bets to investors while earning fees and raising money.

To contact the reporter on this story: Alastair Marsh in London at amarsh25@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at parmstrong10@bloomberg.net

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