Societe Generale SA (GLE) is starting an electronic platform to sell structured notes, joining Credit Suisse Group AG (CSGN) and at least five other banks in providing technology they say will cut costs by as much as 95 percent.
France’s second-biggest lender will offer its Alpha platform to more structured note clients from next month, allowing wealth managers such as private banks to customize securities they’re buying on behalf of clients. Credit Suisse introduced a similar service last month, which allows users to choose everything from the size of the note to the currency it’s issued in.
“Banks are focusing on being the most efficient provider of the highest-quality products at the lowest cost,” said Johan Groothaert, the global head of investment products and platforms at UBS AG (UBSN) in London. Fully automated platforms, which reduce the number of staff needed for structuring and issuing notes, can save banks as much as 95 percent in structuring deals, he said.
Structured notes are bonds packaged with derivatives, such as options, that are customized for individual investors. Banks are trying to make it faster and cheaper to issue the debt, while allowing buyers in the $1.4 trillion market to tailor the securities according to their needs.
The cost of issuing a structured note through Zurich-based UBS’s Equity Investor platform, which has more than 8,000 customers, is as low as $175 per offering, said Groothaert. That compares with the $3,000 to $20,000 cost of issuing structured notes through a traditional medium-term note program, he said.
A typical MTN transaction involves a salesman coordinating with his bank’s MTN desk and derivatives team to get quotations on how much to charge a client for the various components of a note. Lawyers also have to create a term sheet for the note.
On an automated platform, the salesmen and lawyers typically aren’t needed, said Groothaert. The user specifies the features of the note using a software program and the final term sheet is drawn up from a template, he said.
Lower costs make it easier to issue smaller notes, said Daniel Sandmeier, the head of structured products marketing and distribution at Credit Suisse in Zurich.
“Fully automated platforms today allow issuers to offer structured notes starting from investment amounts as low as $20,000,” Sandmeier said. Previously, banks would require a minimum issuance size of more than $1 million, he said.
New York-based Morgan Stanley (MS) and BNP Paribas SA (BNP) said they introduced similar technology in the last 10 months. Royal Bank of Scotland Group Plc (RBS) and Barclays Plc (BARC) also have electronic platforms for creating structured notes.
The banks’ software should work well with established structures such as reverse convertibles that have a size of $50,000 to $15 million, said Christian Kronseder, the senior director of sales and public distribution for Switzerland at RBS in Zurich. More complex securities may require more interaction with an issuer’s sales staff and traders, he said.
Such electronic platforms make sense considering the maturity of the market, where many structures are standardized said Cyrille Peponnet, the head of e-business structured products at Paris-based BNP Paribas.
“Many products are commoditized and well understood by advisers and investors,” he said.
The platforms help private banks, asset managers and retail banks sell the products they create to wealthy individuals. Most of the banks don’t charge, though platform users may add fees to the bills they present to clients, said Groothaert.
To contact the reporter on this story: Alastair Marsh in London at email@example.com