SocGen Leads Banks Doubling Structured Note Sales as UBS Slumps
Stock Chart for UBS AG (UBSN)
Societe Generale SA (GLE), HSBC Holdings Plc (HSBA) and JPMorgan Chase & Co. (JPM) have more than doubled their sales of structured notes this year, bucking a decline among some of last year’s biggest issuers.
The three banks raised a total of $3.4 billion from the securities that package debt with derivatives, up from $1.6 billion in the same period last year, according to data compiled by Bloomberg. The data exclude securities sold in the U.S. and notes where the principal returned can vary. The lenders are now among the top six issuers of structured notes outside the U.S., replacing UBS AG (UBSN), Barclays Plc and Intesa Sanpaolo SpA (ISP), the data show.
The shift comes as banks respond to new capital rules and increased scrutiny of structured notes. Some lenders are shrinking or scaling back their derivatives businesses, both to bolster capital and avoid stricter requirements governing sales of the securities.
“Banks have varying appetite for exotic derivatives-based business given regulatory constraints and caution regarding investor suitability,” said Annemarie Ganatra, the global head of medium-term and structured notes at HSBC in London. Also, “a number of dealers are going through, or have been through, big restructurings, which means that structured notes may have become less of a focus or a less centralized business.”
SocGen, France’s second-biggest lender, raised $1.7 billion from sales of the securities this year compared with $870.9 million in the same period of 2012, according to data compiled by Bloomberg. HSBC boosted sales to $805.1 million from $370.2 million while JPMorgan sold $868 million compared with $344.3 million.
Zurich-based UBS, which is eliminating 10,000 jobs and most of its debt-trading businesses, issued $36.5 million of structured notes this year, a 98 percent drop from the same period last year, according to Bloomberg data. Hana Dunn, a spokeswoman for UBS in London, declined to comment on the issuance.
Switzerland’s biggest bank is among lenders shifting sales of structured notes to off-balance-sheet issuing vehicles. Sales by UBS’s special-purpose vehicles are also down, falling to $316 million from $1 billion in 2012, Bloomberg data show.
Deutsche Bank’s sales of the notes in its own name slumped 72 percent to $421.5 million this year, while the Frankfurt- based lender’s SPVs issued $1.2 billion, up from $1.1 billion in the same period of 2012, Bloomberg data show.
European and U.S. regulators are scrutinizing the securities amid criticism they are opaque and overly complex. Rabobank Groep is shutting its structured notes business and cutting jobs on concern new disclosure rules will hurt demand and increase costs.
Germany’s DZ Bank AG remains the biggest issuer outside the U.S. this year. The Frankfurt-based lender sold $8 billion of structured notes, up from $6.2 billion in the same period in 2012, Bloomberg data show.
Bank of America Corp. is the leading seller in the U.S., though issuance fell 25 percent this year to $1.58 billion. New York-based Morgan Stanley (MS) sold $1.56 billion of structured notes through April, 25 percent more than the first four months of last year, according to Bloomberg data.
Matt Card, a spokesman for Bank of America, did not return phone calls and e-mails seeking comment. Lauren Onis, a spokeswoman for Morgan Stanley, Sebastian Howell, a spokesman for Deutsche Bank in London, Patrick Burton, a spokesman for JPMorgan, and Jodie Gray, a spokeswoman for Barclays, declined to comment on the sales figures.
Structured notes 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: Alastair Marsh in London at email@example.com