Van Lanschot Kempen is the market leader when it comes to structured products in the Netherlands, a position it has held since 2013, the same year Rabobank - which last topped the table in 2011 -announced the closure of its equity derivatives book. SRP reviews the half-year 2018 results for both banks.
Van Lanschot Kempen posted a net result of €39.3m in the first half of 2018, down from €62.3m in the same period of 2017. Commission income, at €30.9m, increased by 13%, reflecting the growth in assets under management (AUM) and a strong performance at merchant banking, which includes the groups structured investment activities.
Thanks to merchant banking's expertise and niche focus, the impact of markets in financial instruments directive (Mifid 2) has been relatively limited, according to the bank, whose funding ratio had increased by 3.1 percentage points to 103.6% at the end of June 2018 (year-end 2017: 100.5%). Issued debt securities, which included, among other, bond loans, notes and floating rate notes, fell by €446m relative to 2017 following the redemption of a €500m senior unsecured bond in the first half of 2018.
As of June 30, 2018, financial liabilities designed at fair value through profit or loss included €802m worth of structured debt instruments, up from €713m end-December 2017.
Van Lanschot Kempen had 48% market share of the Dutch market in the first half of 2018, according to SRP data. The bank, which has dominated the Dutch structured products market since 2013, launched four autocallable 'trigger' notes - each linked to the Eurostoxx 50 - including an offering issued on the paper of BNP Paribas. Fifty-seven live products worth an estimated €640m, which were issued by the bank between April 2011 and July 2018, are registered on the SRP Netherlands database. Van Lanschot Kempen also has structured products outstanding in Belgium (two), while in Ireland the bank was the issuing company behind 32 products distributed via Wealth Options.
The €0.3m negative recorded on securities trading reflects the negative result on positions in Van Lanschot Kempen's own issued debt securities, partly compensated by positive results on the trading book. The result on currency trading declined 7% compared with the first half of 2017, but rose 23% compared with the second half of last year, according to the bank.
'Over the past six months, we have continued to work on strengthening our position as a specialist wealth manager,' said Karl Guha (pictured), chairman. 'Our results - a sharp increase in commission income, net inflows at private banking and a robust capital position - made for a solid start to the year.'
Rabobank reported a net profit of €1.7bn in the first half of 2018, 12% more than in the first half of 2017. Net interest income, at €4.3bn, was down 4%, while net fee and commission income, at €981m, decreased by 1% compared to the same period last year. However, 'Other' results, at €774m, increased by 56%, which, according to the bank, can be partly attributed to the negative result on hedge accounting, which was smaller than the loss on hedge accounting and structured notes in the first half of 2017.
As of January 2018, fair value items only consist of hedge accounting, including the results from non-qualifying hedges, and non-derivative asymmetry, according to the bank. With the introduction of the international financing reporting standard (IFRS 9), Rabobank applies bifurcation to the embedded derivatives in callable structured notes to eliminate the volatility due to own credit spread in the total comprehensive income with all results on fair value items adjusted in 'Other' results. Up until 2017, fair value items consisted of results on hedge accounting and structured notes, according to the bank.
On the liabilities side, Rabobank's position in debt securities in issue increased by €6.4bn. Combined with the growth in deposits from customers (an increase of €5.9bn) partly resulting from seasonal fluctuations, total liabilities increased by €3.9bn to €567.3bn.
To make the bank less sensitive to potential future financial market instability, Rabobank is actively reducing its use of wholesale funding, of which short- and long-term issued debt securities are the main source. In the first half of 2018, however, the amount of wholesale funding increased by €3.4bn to €163.8bn, partly as a result of FX rate developments and pre-funding efforts already covering a large part the bank's 2018 funding needs.
Rabobank is no longer actively issuing structured products since it closed its equity derivatives desk in 2013 following a review of the business. However, prior to that the bank was among the main providers of structured products in the Netherlands, leading the Dutch market in 2011 with a 37% share (€644m from 13 products).
The SRP database lists 1,015 structured products issued by Rabobank, across 12 different jurisdictions. Of these, 23 products are still live, the majority of which were distributed in the Netherlands.
Click the link to read the full interim report 2018 for Van Lanschot Kempen and Rabobank.
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