SRP in brief: plus ça change

One of our most-read articles last week covered the relationship between credit-linked notes (CLNs) and force majeure clauses. Over the past few weeks, investors in structured products have seen how some strategies and products can be rapidly be unwound - CLNs are poised to deliver losses as some companies underlying these products will face credit events and sometimes the risk of default.

According to Linklaters counsel Leanne Banfield, there will naturally be concerns around whether the pandemic might indirectly trigger credit events under CLNs but there are equally worries more generally around whether a force majeure termination event might be triggered under the related or hedging swap, and if so, whether this would trigger an early redemption of the notes.

For reference, SRP data shows that the top three markets for CLNs combined have 380 structures with a credit default payoff set to mature in 2020. These include Germany, Sweden and Switzerland.

Staying in the coronavirus sphere of ongoing concerning news, the South Korean regulator has warned consumers about leveraged WTI crude oil futures exchange-traded notes (ETNs), specifically about potential losses arising from the increasing gap between the index value of leveraged ETNs linked to WTI crude oil futures and the market price.

SRP data on the oil-linked structured products shows that over 1,150 live products (excluding flow and leverage) worth an estimated US$1.8 billion that are linked to Brent and/or WTI crude oil. The products are available in 19 different jurisdictions, South Korea having the majority of oil-linked structures on offer.

ESG is an investment theme that is continuously gaining more traction and attention among investors and investment banks alike. But according to Isabelle Millat, head of sustainable investment solutions at Société Générale, one of the most active banks in this space, structured products are positioning themselves in the ESG market as a way to access custom solutions that provide ESG exposure with specific financial features, such as capital protection at maturity, or competitive coupon levels. Structured products can be a very efficient way to deliver ESG-themed investments because they have a unique selling point.

In people-related news, Marc Van de Walle, senior managing director and global head of products at Bank of Singapore, has resigned after more than 11 years of service. The bank is now looking for a successor, and will begin evaluating internal candidates first.

Turning our attention to specific market activity in recent months, SRP data shows that UK sales and issuance levels were flat in March. Forty-two products with estimated sales of £116.3m were added to the UK database last month, the same number as in the prior year month. Some 40 products struck during the month – all but one linked to the FTSE 100 – down four from March last year while 18 plans matured or autocalled - the lowest number since the beginning of the year.

In Spain, data for February, just before the Covid-19 outbreak spread globally, 34 structured products worth an estimated €225m had strike dates that month, a 39% increase compared to the volume sold in January. Banking entities, in coordination with the Bank of Spain, have announced they will guarantee access to banking services throughout the country in response to the escalating coronavirus crisis. Banco Santander president Ana Botín announced she foresees that the entity’s profit by the end of the year will drop at least five percent due to Covid-19.

In South Korea, February sales volumes of KRW7.6 trillion (US$6 billion) were down by 21% compared to January, an indirect result of the growing cases of coronavirus in the country. Seventy-one products were withdrawn early, as they did not manage to attract enough sales – a nine percent rise from January. Twenty-one of these were linked to index baskets which included Eurostoxx 50 and Nikkei 225, along with S&P 500 and Hang Seng China Enterprises Index.