The Dutch bank blamed losses on its structured products activities in the first half of 2020 on high volatility and illiquidity of the markets.
Van Lanschot Kempen has reported losses of €27.3m in its structured product portfolio – €21.9m was recorded in the first quarter with an additional loss of €5.5m in the second quarter.
Losses were mainly due to the further decline in dividend expectations in the market at the beginning of the second quarter and the hedging of the existing portfolio.
In normal market conditions, this portfolio does not typically show any major swings
Result on hedges fell in comparison with H1 2019, by €18.6m. The extreme volatility and illiquidity of the markets as a response to the Covid-19 crisis in March 2020, made it impossible to make timely adjustments to these hedges, causing losses to mount, according to the bank. ‘In normal market conditions, this portfolio does not typically show any major swings’, it stated in its results for the first half of the year.
Despite the poor performance, Van Lanschot Kempen will continue to offer structured products to its private banking clients as an alternative investment product to help ‘diversify their investment portfolios’.
The bank led by chairman Karl Guha (pictured) has decided to hedge risks to a significant extent for both the existing portfolio and for new issues. Existing positions will be gradually reduced and in the second half of 2020, it will make a decision on the future model of its structured products offering.
Around 90% of the structured products issued by Van Lanschot Kempen are private placements, though the bank did launch three public offers linked to the Eurostoxx Select Dividend 30 in the Netherlands during the first semester of 2020.
The Trigger Note and Trigger Plus Note Eurozone Dividend 20-25 – two autocallables with a memory coupon and a maximum tenor of five years – are both issued on the paper of BNP Paribas. The seven-year, 95% capital-protected Capped Index Guarantee Note (IGN) Eurozone Dividend 20-27 is issued via Société Générale.
On 1 January 2020, a merger took place between Kempen & Co and its parent company Van Lanschot NV which resulted in the creation of a new legal entity: Van Lanschot Kempen Wealth Management NV (VLKWM). Via this legal merger Van Lanschot NV acquired all of Kempen & Co NV’s contracts, rights and obligations, and VLKWM is now the issuing company for all products that have been issued via Van Lanschot NV, even those that were issued prior to 1 January 2020.
As of 30 June 2020, financial liabilities at fair value through profit or loss included structured debt instruments worth €730.8m (end-December: €859.7m). Structured debt instruments decreased due to redemption for an amount €128.9 million.
Issued debt securities totalled €1.53 billion at the end of June (31 December: €1.54 billion). Of these, €1.46 billion was invested in covered bonds while €16.7m was linked to floating rate notes while €46.8m was linked to value adjustments at fair value and hedge accounting.
Van Lanschot Kempen posted a net profit of €9.5m in H1 2020, boosted by a strong second quarter performance with a net profit of nearly €20m. The bank reported net inflows of €4.7 billion, of which €4.4 billion in assets under management (AuM). Client assets increased to €103.4 billion (2019: €102.0 billion).
Click the link to read the full 1H2020 results, presentation and performance report.