BNP Paribas SA (BNP) sold the first structured notes tied to Standard Chartered Plc (STAN)’s debt in more than a year after short-seller Carson Block triggered a surge in the cost of insuring the debt of the U.K. bank by saying he had bet against it.
The 16 million euros ($21.1 million) of four-year credit-linked notes were the first to reference Standard Chartered since Citigroup Inc. sold $10 million of similar securities in June 2012, according to data compiled by Bloomberg. Credit-default swaps on the London-based lender’s debt surged to an 18-month high of 196 basis points on June 24 before easing to 144.7 basis points today.
Block, the founder of Muddy Waters LLC, said May 10 he had bought default swaps on Standard Chartered at 85 basis points because of the “deteriorating” quality of its loan book. It includes a $1 billion loan to the chairman of Bumi Plc (BUMI), the coal producer at the center of an ownership dispute, which Block described as a “red flag.”
Default swaps are a key pricing component for credit-linked notes, which offer higher yields and tailored maturities that may not be available in the bond market. Investors in the notes sold by BNP Paribas also receive coupons tied to European inflation, where interest payments are calculated at 1.2 times changes in consumer prices, according to Bloomberg data.
Ashling Cashmore, a spokeswoman for BNP Paribas in London, declined to comment on the notes, as did Valerie Tay, a Singapore-based spokeswoman for Standard Chartered.
Banks led by Germany’s DZ Bank AG and Landesbank Baden-Wuerttemberg sold $26.2 billion of credit-linked notes this year, up two percent from the same period in 2012, according to data compiled by Bloomberg.
Buyers of the securities, which include private banks and wealthy individuals who may not be able to buy derivatives, suffer losses if there’s a default either by the bank issuing the note or the linked entity.
To contact the reporter on this story: Alastair Marsh in London at firstname.lastname@example.org