DZ Bank Scores Record Sales as Structured Note Market ShrinksAlastair Marsh
DZ Bank AG, the largest issuer of structured notes in 2012, is enjoying the best start to a year for sales of the securities, even as the market slumps to a nine-year low.
The Frankfurt-based lender sold $5.2 billion of structured notes so far this year, up from $3.9 billion over the same period last year and the most on record according to data compiled by Bloomberg dating back to 1999.
DZ Bank is one of two clearing organizations for Germany’s cooperative lenders, allowing it to sell structured notes directly to more than 900 institutions. That’s helping it maintain sales as the market shrinks. Demand for the securities, which package debt with derivatives, is waning as regulators in the U.S. and Europe warn about their complexity and lack of transparency, and as record-low interest rates limit returns.
Still, the risks associated with structured notes promise higher yields than basic bonds, and that’s driving strong demand for the securities, said Rainer Overbeck, head of structured credit trading at DZ Bank in Frankfurt.
The lender’s 50 million euros ($64 million) of structured notes tied to UniCredit SpA’s debt sold on March 7 yield 4.44 percent, data compiled by Bloomberg show. The same amount of fixed-rate, three-year bonds it sold the same day pay 0.67 percent.
Three quarters of DZ Bank’s issuance this year, or $3.9 billion, was made up of notes tied to the debt of companies, such as French insurer Axa SA and German utility RWE AG.
Banks sold $19 billion of structured notes this year, 13 percent less than the $21.8 billion issued in 2012 and the least since 2004, data compiled by Bloomberg show.
Structured notes offer bigger payouts than senior bank bonds because buyers bear the risk of the bank selling the securities and the underlying assets.