2019 was a year of stagnation in terms of growth for the Mexican economy with about 0.1% contraction in the first three quarters. Despite minimal signs of a recovery the structured products market retains its good health with product issuance and sales growing two-fold.
Mexican financial group Monex has reported its 2019 net income to be MXN1.38 billion (US$69.5m), a 24% increase from the previous year, while its 4Q19 net income figure stands at MXN354m, a 1.4% drop from the same quarter in 2018.
Monex’s issuance of derivative products also met with a decline totalling revenues of MXN111m in Q4 2019 from MXN168m in Q4 2018, while its 2019 issuance stands at MXN490m from its 2018 amount, MXN584m, a 16.1% decrease.
According to SRP data, Monex was the top provider in Mexico of structured products in both 2018 and 2019 issuing a total of 3,132 structured products at MXN95.76 billion in the former and 5,942 structured products with a sales volume of MXN201 billion in the latter.
SRP data also shows that Monex had 70 live products as of 27 February with a sales volume of US$170m. They are linked to the USD/MXN TIIE 28 underlyings, and are wrapped as bank certificate of deposits as well as structured bonds. The products are all tranche-based investments with a tenor of less than a year, belonging to both FX and interest rate asset classes.
In Q4 2019, Monex issued 1,403 structured products at MXN62 billion compared to its figure of 1,011 at approximately MXN32 billion in 4Q18, taking the lead as top issuer in Mexico within both periods.
“Last year in general was a low volatility year in Mexico, with the MXN depreciating to the lowest level in the last couple of years and interest rate falling making it more difficult to find clients wanting to hedge their risks,” Louis Alexander de Winter Castillo, director of derivatives told SRP.
According to Castillo, the company had a record year in structured notes, as the rates were being cut by most central banks. As a consequence, more investors looked for alternatives and found an appropriate substitute in short-term FX capital protected notes.
“It’s going to be a very challenging year coming from a record previous year,” said Castillo in response to the company’s outlook for 2020. “Additionally, we are facing lower funding, authorities are making our issuing process more bureaucratic and the higher volatility in the MXN.”
BBVA Bancomer in Mexico raked in a 2019 net income of MXN49.25 billion, approximately 7% higher than its 2018 value of MXN46.06 billion.
The bank also reported a net interest income of MXN129.5 billion in 2019, an increase of 5.4% from its 2018 figure of MXN122.9 billionn.
Risk-weighted assets (RWAs) increased to €59 billion (US$66 billion) in 2019, up from €53bn the previous year.
According to the head of global structured solutions, Pablo Parra (pictured), BBVA ranked second place in 2019 having issued 1,661 products with a total sales volume of MXN121 billion compared to previous year with 562 products with a total sales volume of MXN33 billion. The bank’s market share also increased from 19.3% in 2018 to 32.7% in 2019.
“BBVA is the absolute leader when considering issuance of notes longer than one month with a 62% market share vs 17% of the second ranked competitor,” said Parra.
Upon review of 2019, the bank noted several takeaways such as a concentrated focus on digital sale that allowed for an increase in the number of notes issuance, the shortening of the tenor of the investment products sold, a higher preference for FX as an underlying instead of rates and the launch of new investment formats.
“We see these trends highlighted for 2019 continuing through 2020 with a precautionary note that equity markets touched new peaks in early 2020 which could lead to some corrections like the one we are seeing now due to the Coronavirus,” said Parra. “The resulting increase in market volatility caused by these corrections is in principle positive for the outlook of structured products since they can be shaped to perform well also in lateral or decreasing markets.”
According to SRP, the bank has 468 live products listed in Mexico that are wrapped as warrants, bank certificate of deposits and structured bonds. Underlyings include TIIE 28, TIIE IRS, SPDR S&P500 ETF Trust and USD/MXN.
The products are classified as hybrid, fund, FX and interest rates as well as equities within single indices, index baskets, single shares and share baskets. They also range in tenor from short-term investments ranging one to three years, to long-term periods above six years.
The top three issuer ranking in Mexico is completed with Banorte which reported a 2019 net income of MXN36.53 billion, a 14% rise from the year before with a Q4 2019 net income of MXN9.01 billion.
Net interest income (NII) excluding insurance and annuities saw a four percent increase during the fourth quarter with an overall annual jump of eight percent.
NII including insurance and annuities met with a sharp decline of 28% during the final quarter which the firm attributes to higher technical reserves from insurance totaling MXN1.56 billion related to new retained premiums underwritten in the quarter. However, overall NII increased by five percent.
Operations with derivatives and securities also decreased to MXN25.5 billion in Q4 2019 from MXN29.3 billion in Q4 2018.
Out of the top five providers, Banorte issued the lowest number of structured products with a figure of 29, totalling a sales volume of MXN1.3 billion while in 2018, the bank issued 25 products at MXN946m.
According to SRP, that the bank has three live products that are all linked to the TIIE 28 index with tenors of under a year. The products are wrapped as bank certificate of deposits and belong to the interest rate asset class.
Click the link to view the fourth quarter and full year 2019 results for Monex, BBVA, and Banorte.