Flemish savings bank offers auto-switch on Natixis BeNe index

VDK Spaarbank (VDK), the Flemish savings bank, has collaborated with Natixis for the launch of the BeNe 40 Autoswitch 2027. The 10-year medium-term note participates 100% in the positive performance of the Euronext BeNe 40 Equal Weight Excess Return (BeNe 40 Ewer) Index, subject to 36 months backend averaging.

The underlying BeNe 40 Ewer, which was first launched on September 21, 2015 and was licensed to Natixis, comprises the most liquid companies on the Belgian and Dutch market. The 40 stocks in the index are selected from the 20 companies in the Belgian Bel20 and the 25 companies in the Dutch AEX.

The note is aimed at the local market, according to Thomas De Nil, coordinator investments at VDK. "Many Belgian companies are active in the Netherlands and vice-versa. Ahold Delhaize, for example, is listed in the Netherlands but is actually a half Belgian owned company," said De Nil. "VDK values local companies and local themes. This doesn't necessarily has to be a pure Belgian company, but of course, the local companies are better known to our customers. Reading about those companies in the newspaper strengths their confidence."

The Ghent based bank once again uses a switch payoff structure - its sixth such product since December 2014 - although this time around the switch is not made at the discretion of the issuer but depending on the performance of the index instead (autoswitch). As soon as the BeNe 40 Ewer is at or above 130% of its initial level on any of the nine observation dates, the product automatically switches to a fixed interest bond paying 3% per annum throughout the investment term.

"With a switch structure, the issuer of the note, in this case Natixis, and SocGen or BNP Paribas for previous products, has the right to convert the product into a fixed-rate bond," said De Nil. "However, for an autoswitch the criteria are fixed. If on the annual observation date the index has reached a certain level the product will automatically switch [into a fixed-rate bond]. The issuing party cannot intervene. It is straight through. What you see is what you get."

VDK has launched 14 structured notes in Belgium, all of which provide full capital protection, with the exception of the 95% protected Codeis Securities 95 Atlantic Quality 2021, according to SRP data.

"Our clients are cautious or even defensive when it comes to investing," said De Nil noting that most banks in Belgium would probably say that about their clients. "Is capital protection a must? No, but it does complement our product portfolio."

The bank's product range, from extremely defensive to dynamic, starts with a savings account, according to De Nil. "Next there are the savings certificates, subsequently VDK also offers products with capital protection with a return linked to the performance of an index or a fund, such as the structured notes, and finally there are the products, mutual funds for example, without capital protection," he explained.

"This range evolves from short-term and very safe products to long-term products with or without guaranteed returns. So we can offer financial solutions satisfying the need of our clients."

Seventy structured products, with combined sales of €825m, use the switch payoff structure on the SRP Belgium database. Of these, the best-selling product to date is BNP Paribas Fortis' Switch to Bond Note 2019 which collected €49m in January 2013.

So far this year, eight switch products, with estimated sales of €80m - including offerings from Axa Belgium, BNP Paribas Fortis, Crelan, Nagelmackers and VDK - have been distributed to the Belgium retail investor.

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