In spite of a few exceptions, the stream of lacklustre results from some of the largest banks in the structured product space is not showing any signs of stopping, as some of the most recent figures published illustrate.
Monex and BBVA Bancomer, dominant players in the Mexican structured products market, have suffered landslide sequential plummets in both their issuances and sales during the second quarter of 2020, according to SRP data.
Mexican financial group Monex retains its position as the most prolific issuer in Mexico with an issuance of 803 products valued at US$1.46 billion, compared to 988 products worth an estimated US$6.1 billion in Q1 20 and 1,523 (US$2.48 billion) in Q2 19. BBVA Bancomer, a subsidiary of the Spanish banking group, trails behind with 423 products for US$718m issued, a decrease from its Q2 19 figure of 386 products valued at US$2.23 billion.
HSBC reported that its first half of 2020 profit after tax down was down over two-thirds (69%) on the first half of 2019, to US$3.1 billion because of higher expected credit losses and other credit impairment charges (‘ECL’) and lower revenue, primarily outside of its Asia business – similar to what other banks have reported in recent weeks. It expects total provisions against loan losses between US$8 billion and $13 billion in 2020, a wider range that expected in previously announced quarterly earnings. Revenues were down nine percent to US$26.7 billion.
Natixis reported net revenues of €1.5 billion in the second quarter of 2020, down 25% year-on-year. In corporate & investment banking (CIB), underlying net revenues were down 39% YoY in the second quarter and down 27% in half-year 2020, ‘significantly’ impacted by the crisis. The equity desk registered revenues of -€174m in 2Q 2020 due to -€143m of dividend markdowns, together with low client activity during lockdown and higher hedging costs.
Swiss bank Vontobel reported the volume for outstanding structured products and debt instruments stood at CHF9.8 billion as of 30 June 2020, an eight percent decrease compared to 31 December 2019, and also down from CHF10.3 billion at end-June 2019.
Over on the regulatory side, the performance of structured deposits in China has continued to go down after the products’ balance broke a CNY12 trillion (US$1.73 trillion) record in April, which prompted concerns from regulators over arbitrage, bad debt and 'fake structures'. The data originates from a report from Rong360 published on Monday 10 August.
There were 563 structured deposits issued in July, of which 521 are denominated in Chinese yuan and 42 are in US dollars, the report reads. The CNY products posted an average expected highest return of 3.75% in July, the lowest this year and down 18bps from June. The figure was 1.36% less than the 5.11% in March.
In South Korea, Kiwoom Securities is distributing New Global 100tr Club ELS 63, a one-year structure that can be redeemed early – quarterly – if the shares of Netflix and Nvidia close at or above 90%, 90% and 85%, of their respective initial levels, on any observation date. In that case, the product offers 100% capital return plus 5.15% for each quarter elapsed. Goldman Sachs International is the derivatives manufacturer.
In the UK, Investec Structured Products has launched the market’s first retail ESG-linked deposit plan. The FTSE4Good 6 Year Deposit Plan 1 is a six-year fixed term deposit plan tied to the FTSE4Good UK 50, an index made up of the largest 50 companies in the FTSE which meet defined ESG criteria. At maturity, the product returns 18% (equivalent to three percent per annum) if the FTSE4Good UK 50 is higher at maturity than at its starting level. If the index is lower than or equal to the starting value, the investor only gets back his or her initial deposit.
Over in Germany, Boerse Stuttgart generated turnover of around €8.6 billion (US$10.1 billion) in July 2020 – an increase of around 39% compared to the same month of the previous year. Securitised derivatives made up the largest share of the turnover. The trading volume in this asset class was over €3.7 billion – nearly 38% more than in July 2019. In contrast, July 2020 trading turnover on the neighbouring Swiss Stock Exchange was down 22.1% compared to the previous month and reached CHF119.3 billion (US$130.7 billion), while the number of transactions decreased by 14.5% to a total of 7,364,635.