Nagelmackers has teamed up with Goldman Sachs to launch its first steepener structure, the Fixed to CMS Spread Coupon Note, in Belgium. "It is a classic payoff," said Gianni Pauwels (pictured), product manager off balance at Nagelmackers. "Steepener products have always been used a lot in some of the other networks, but for us it is the first time."
The 10-year medium-term note is fully capital protected and offers fixed income of 1.5% per annum for the first five years of investment term. The following years the note pays an annual coupon equal to 1.5 times the difference between the EUR 30-year CMS and the EUR 5-year CMS, subject to a maximum coupon of 4% pa.
"There was a lot of demand from our branch network for this payoff and we have seen that this product really appeals to our clients," said Pauwels. "The summer months are usually calmer, but in this case, the product has already sold more than previous emissions even though the subscription period is still running until the end of August."
Nagelmackers launched an open architecture set up at the beginning of 2018, which led to partnerships with Natixis, Credit Suisse and now Goldman Sachs. Previously, the bank had exclusively worked with Societe Generale and its special purpose vehicle Codeis Securities for its structured products offering.
"Goldman offer very good conditions on this type of structure, among the best in the market. They also benefit from higher funding compared to European banks," said Pauwels.
Since Nagelmackers reverted back to its old name from Delta Lloyd Bank in 2015, the bank has distributed 16 structured products to retail investors in Belgium, 15 of which were linked to a single index and one to a fund.
"Customers who are a little bit more conservative tend to have a lot of money parked on their savings account, which delivers very little return at the moment," said Pauwels. "We think that due to the current market volatility, customers - instead of going for equity linked structures - may want to choose a safer solution such as this [CMS linked] product."
There are 246 live steepener products, from 10 different distributors and dating back to November 2004, listed on the SRP Belgium database. Belfius, with 67 products, is the main provider followed by Deutsche Bank (52), BNP Paribas Fortis (49), KBC (45), ING (14), BPost Bank (11) and Kobelco (five).
Year-to-date, 26 products worth €286m carried the steepener payoff compared to 30 products with combined sales of €531m that were issued during the whole of last year. Five years ago, in 2014, sales of steepeners peaked with €1.2bn collected from 45 products, including Belfius Funding (NL) Active Interest Notes 2, which, with sales of €198.2m, was the best selling product of the year.
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