Credite Agricole corporate & investment bank (CIB) has launched the Inflation Linked Certificates - 26/04/2024, the first ever US dollar-denominated inflation product in Italy linked to the US CPI Urban Consumers NSA first ever. The capital protected structure offers a fixed annual coupon of 3.35% and a participation of 100% in the rise of the underlying at maturity. The bank has been focusing in offering dollar denominated solutions since 2014 to respond to demand from clients, according to Gian Luigi Pedemonte, head of private & retail bank distribution for the structuring team in Italy, Credit Agricole IB.
"Embedding this new dual-currency feature in the product was a smart solution for our clients. With this solution, the client doesn't have the cost of a EUR/USD transaction," said Pedemonte adding that it remains to be seen whether the product offers the potential of a better exchange rate at maturity than a standard exchange rate. "It may happen of course but this is not guaranteed. If you are a private bank investor and you would like to change currency, you may experience an exchange rate which has some commission and fees. With this product the clients gets ECB fixing or a mid-rate. As an end-investor you are not always able to get this kind of rate for this conversion."
Due to the difficulties Italian investors face in having USD-denominated cash accounts or securities accounts, Credit Agricole has come up with a product that settles in euros at the ECB fixing exchange rate for the Italian private banking market.
The choice of the underlying, the US inflation, is explained by Credit Agricole expectations, according to Pedemonte. "The perception is that inflation has not taken off yet." With the term structure of inflation having a small upward curve, the client at maturity can get, not only a fixed annual coupon, but also more than the 2% estimated inflation for the seven-years," said Pedemonte. "The idea is that US inflation may see a steeper upward trend, even earlier than other economic areas due to the difference in economic cycle."
Credit Agricole CIB (CACIB) has a long standing relationship with Private Banks and the history of the Credit Agricole Group is also intimately linked to this business, according to Pedemonte. "In Italy the group has two Private Banks, Cariparma and Indosuez Wealth Management, but also has presences in many other countries and operates through different networks such as LCL, Crédit Foncier Monaco. It is quite natural then that CACIB is attentive to trends that affect this industry."
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