Twenty-eight structured products were added to the SRP Belgium database in April; 23 were public offers with the remaining five products targeted at private investors. Ninety percent-protected products continued to be in vogue while a number of distributors and issuers of structured products published their annual results during April.
Societe Generale (SG) Private Banking launched the SG Issuer (LU) 5Y USD Floating Rate Note 05/2021, a five-year capital protected note which offers a quarterly coupon equal to three-month US dollar Libor, subject to a minimum and maximum coupon of 1.85% and 5% per annum, respectively. "The product is an alternative to traditional bonds," said Stefaan Verstraete, head of advisory Belgium at SG Private Banking. "It is clearly a product that focuses on the defensive investor who anticipates and wants to benefit from the expected rise in rates resulting from further US Fed rate hikes."
Structured products linked to three-month US dollar Libor are much less common in Belgium than, for example, products linked to the two or 10-year swap rate, although this month Libor was also used as the underlying for Deutsche Bank AG (DE) Anticipation Bond USD 2022. Libor was chosen for two reasons, said Verstraete: "Firstly, we noted that our clients are a little bit more familiar with the three-month Libor rate rather than with the swap rate," said Verstraete. "Secondly, and more importantly, our strategy estimates that there are two more interest rate increases to come this year in the United States. Looking at the Fed funds futures, the market currently implies that the probability of even a single rate hike in 2016 is below 50%. We clearly disagree with this."
BPost Bank, Belfius and ING Belgium also launched products linked to the interest rate. ING Belgium's 6Y USD Switch Rate Notes 05/22 which is linked to the constant maturity swap rate (CMS) was issued via the ING Bank NV vehicle which has replaced ING Belgium International Finance SA for the issuance of both structured products and warrants. ING Belgium International Finance SA, which, until early 2015, used to finance itself solely through the issuance of structured notes distributed by the retail and private banking networks of ING Belgium, reported balance sheet amounts of €2.3bn as of December 31, 2015 against €2.9bn for the corresponding period in 2014. The profit for the financial year was €1.4m, according to the company, which is now in run-off.
The low interest rate environment means providers continue to find it difficult to structure attractive capital protected products. April was no exception with more than half of the products added during the course of the month protecting 90% of capital or less while the products that did protect full capital had an average tenure of eight years.
Forty-six structured products, including offerings from Alternea, Argenta, ING Investment Management, Fortuneo Bank (formerly Cortal Consors Belgium) Nateus and KBC, matured during April. KBC MaxiSafe Interest 3, a 13-year capital protected fund linked to the 10-year German government rate provided a return of 157.2% (3.5% pa). At maturity, the fund still held assets of €11.1m of the €69.95m originally invested in the initial subscription period. Other products providing positive returns were CBC Fonds Durable 1 (initial sales €5m/€4.7m at maturity) which returned 152.6% after five-years (8.7% pa), and Fortis B Fix Bond Plus 22 (initial sales €48.8m/€16.5m at maturity), a 12-year fund linked to the TEC 10 index (151.8%/3.5% pa).
VDK Spaarbank (VDK) reported an increase in subscriptions of structured products of €27m (51.3%) in 2015. In terms of off-balance sheet products the total (market) value of the managed savings deposits increased with €47.3m, or 10.3% to €507.7m, according to the Belgian savings bank annual report which was published in April. The expected decline in deposits on savings insurance products (-€29.7m or -10.6%) was more than offset by an increase in funds of €27.3m (89.9%) and the new subscriptions in structured notes. In addition, saving for tax purposes, another key product in VDK's range of off-balance sheet products, showed a strong growth (€10.7m or 13.1%) to €92.2m, the bank said. "The increase in the past year in structured products is due to our commercial activities, in which we try - at regular moments - to launch a diversified offer," said Thomas De Nil, coordinator investments at VDK Spaarbank. "Depending on market conditions we will try to continue this commercial activity this year," said De Nil.
Argenta reported the overall portfolio of its structured notes stood at €739.4m at December 31, 2015. Four new products with a combined sales volume of €41.6 - including initial charges - were issued via SecurAsset in 2015, according to the Belgian savings bank. Crelan announced that sales of funds and notes increased by more than 20% globally in 2015. The diversified funds especially enjoyed considerable interest, the bank said.
SecurAsset, the Luxembourg domiciled special purpose vehicle (SPV) from BNP Paribas, reported the outstanding aggregate amount of structured notes issued in different currencies amounted to a euro equivalent of €891m at the end of 2015. There were 72 compartments created in the course of the financial year ending December 31, 2015, of which 23 in Belgium (from BPost Bank, Argenta and VDK), and the fair value of the outstanding notes, recorded under the non-convertible loans caption, stood at €3.2bn, the company said.
BinckBank blamed its slow start of the year to a poor beginning of the financial markets in 2016 with investors' wariness resulting in lower transaction volumes (2.1 million, 23% lower compared to 2.7 million transactions in 15Q1) and lower average revenues per transaction. The Belgian branch was particularly hit hard as a result of the introduction of the speculation tax on January 1, 2016. Transaction volume in Belgium was down 36% in Q1 2016 to 185,103 (Q1 2015: 288,880), according to the bank's Q1 2016 results.
Horus Wealth Management Partners Group (Horus) acquired Finvex Group (Finvex), the independent Belgian consultancy which specialises in the design of advanced investment strategies. Horus' primary objective is to foster Finvex's capabilities and business such that the seamless continuity is guaranteed, according to Gilles Farrugia, CEO and co-founding partner of Horus Partners Wealth Management Group (Horus). "Each of the existing Finvex indices will continue to exist under their exact same names, and they will be supported on a sustainable basis with a view to ensuring their continued long-term existence and success," said Farrugia.
In Belgium alone there are thirty structured products, with strike dates between February 2014 and April 2016, linked to Finvex indices of which the Finvex Sustainable & Efficient Europe 30 (21 products/€200m) was the most popular.
Assets under management (AUM) for capital-protected structured funds in Belgium decreased by €0.16bn, or 1.5% during the fourth quarter of 2015, according to the Belgian Asset Managers Association (Beama). The decrease can be fully contributed to net repayments, according to the association. Capital protected funds represented a capital of €10.36bn on December 31, 2015, with €8.66bn of outstanding assets linked to equities and €1.70bn linked to interest rates, loans and currencies, Beama said.
"Without going into details about the individual market players, it can be said that the offer of new capital protected funds has been small in recent years," said Hugo Lasat, chairman of Beama. The assets released by maturing capital protected funds are not compensated by new subscriptions in these type of funds, according to Lasat. "The market conditions, with the very low interest rates, are such that it has become much harder nowadays to offer attractive capital protected funds."
The full Belgian market review for April will appear shortly.
SG Private Banking turns to Libor ahead of expected double Fed rate hike
SecurAsset vehicle reports €891m outstanding in structured products in 2015
Beama: asset managers use unique existing building blocks
Belgian savings bank reports 50% increase in structured products volumes
Finvex acquired by Swiss wealth manager
ING winds down Belgium-based issuance vehicle