Singapore's United Overseas Bank (UOB) is not planning on issuing another tranche of its structured deposit after its current offer, which extends to the end of December, until further notice, SRP has learned. Capital-guaranteed deposits were the last remaining wrapper for structured products sold to retail investors in the country, which has clamped down on notes and life-wrapped issues following the collapse of Lehman Brothers in 2008.
DBS and OCBC are understood to have effectively withdrawn structured deposits from the market, thanks in part to the cost of capital protection.
"One of the main factors has to be the low interest rate environment, largely brought about by the US Fed maintaining low interest rates untill 2013," said a UOB source contacted by SRP. "As such, it has affected quite a few rates in Singapore, especially the SOR and the Sibor. Structured deposits tend to use those rates as a benchmark for the interest payouts, hence interest payouts have been diminishing over recent months."
UOB's current offer is Structured Deposit 2011 - Series (10), a 5.8-year growth and income product linked to a share basket of five local shares (DBS Group Holdings, Oversea-Chinese Banking Corporation, Keppel Corporation, Singapore Telecommunications, Singapore Airlines). The product will offer a fixed coupon of 1% pa at the end of year one regardless of the underlying performance.
In subsequent years a bonus coupon will be paid if the prices of all shares are at or above 99% of their respective initial prices on the annual observation dates, while no coupon will be provided otherwise. The bonus coupon rates are 1.5% pa, 2% pa, 2.5% pa, 3.5% pa and 4.5% pa for years two, three, four, five and maturity, respectively. At maturity 100% of capital is returned.
The regulator still considers structured deposits to be lower risk products in the wealth planning process and insiders are therefore predicting such products will return to the market in due course.