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BofA Leads Structured Note Sales in What May Be Record Year

Bank of America Corp. raised $4.7 billion selling structured notes to U.S. investors through June, the most of any issuer and more than its 2009 total, as sales of the securities rose to a record pace.

Banks have sold $22 billion of structured notes to individual investors in the U.S. this year, according to data from regulatory filings compiled by Bloomberg. Sales are on pace to exceed what was a record $38 billion in 2008, according to, a database used by the industry.

The securities are created by banks, which package their own debt with derivatives to offer customized bets to investors while also raising money. Last year, Bank of America sold $4.1 billion of the products, second to Barclays’ $4.5 billion in sales, according to

“Selling structured notes through brokers helps banks reach an investor base they normally don’t touch,” said Kevin Kelly, a trader at Phoenix-based hedge fund Tontine Capital, which buys and sells the securities. “They like the business because it’s a way to ramp up their volatility trading volume,” he said, referring to derivatives whose value depends on movements in stock prices.

Statistics on the industry are incomplete, because many of the notes are sold in private placements that aren’t reported to regulators. Definitions of the term “structured note” vary as well, making comparisons imprecise.

Barclays Plc has sold $3.8 billion of notes this year, the second-biggest total, and Morgan Stanley was third at $3.2 billion, the Bloomberg data show. Morgan Stanley has surpassed its 2009 sales of $2.4 billion, and Barclays is on pace to nearly double last year’s issuance of $4.5 billion, according to Mark Lake, a spokesman for Morgan Stanley, declined to comment.

Army of Brokers

Bank of America acquired Merrill Lynch and its army of about 15,000 brokers in 2009. Before the merger, Merrill Lynch was the top issuer of structured notes, with $6.3 billion in U.S. sales in 2008 according to Selena Morris, a spokeswoman for the Charlotte, North Carolina- based lender, declined to comment.

Firms market new products, such as structured notes, to their own brokers as they would to outside firms, according to Charlie O’Flaherty, a former head of U.S. structured products at Dutch bank ABN Amro Holding NV.

“If you’re going to be successful at inside sales in a shop like Merrill, you have to be on the road educating brokers and holding hands,” said O’Flaherty, who is now principal at Third Reef Holdings, in a telephone interview on July 15. “Brokers are hesitant to sell something they don’t understand.”

Built-in Profits

Bank of America’s brokerage unit earned $89 million in commissions selling the securities this year, with an average 2 percent fee, the Bloomberg data show. Banks also build a profit for themselves into the price of structured notes, which is generally not disclosed.

Sales fell 11 percent to $33.9 billion last year, according to That’s half the drop of U.S. stock mutual funds, whose sales fell 22 percent according to data compiled by the Investment Company Institute, a trade group in Washington.

Derivatives are contracts whose value is derived from stocks, bonds, currencies and commodities.

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