ABN Amro to take advantage of lower stock prices, high volatility with Financial SPDR deal

By LLuvia Mares

New York, Jan. 15 - ABN Amro Bank NV announced it plans to price 14% annualized Knock-in Reverse Exchangeable Securities due April 23, 2008 linked to the Financial Select Sector SPDR fund.

"We are seeing quite a few products linked to the financial sector. Many investors find that the price levels of top US financial companies, such as Citigroup, Merrill Lynch, JPMorgan, Bank of America, Goldman Sachs (to name a few) have been beaten down quite substantially, and therefore are interested in getting exposure to those names," said Serge Troyanovsky, BNP Paribas director of equities and derivatives.

"In addition, high implied volatilities allow issuers to offer higher coupons. Reverse convertibles are one of the more familiar ways to take advantage of both the lower stock prices and higher implied volatilities."

If the fund shares fall below the knock-in level - 80% of the initial share price - during the life of the securities and finish below the initial price, the payout at maturity will be a number of shares equal to par divided by the initial price. Otherwise, the payout will be par.

"Many investors like to invest in single stock names to play the companies that they know best," said Troyanovsky.

"However, for those that want an exposure to the whole financial sector, Financial Select Sector SPDR Fund continues to be one of the top choices.

"Investors of course have to keep in mind that higher volatility levels also mean that the probability of breaching a downside barrier has also increased. For example, in the last 3 months the price of Financial Select Sector SPDR Fund has declined by 22.7% (from 34.82 on Oct. 15, 2007 to 26.89 on Jan. 15 - intra-day price)."

Troyanovsky also said it is interesting to note that although reverse convertibles linked to single stocks continue to be the product of choice among U.S. investors, there is an increased interest in products linked to baskets of stocks - such as financial names - with added features, such as periodic auto-calls, participation in the upside, higher coupon due potential redemption in the worst-of shares, and safer variations of the daily knock-ins, which currently dominate the reverse convertibles market.

"We expect the interest in financial stocks to persist as they continue to get sizable coverage in the press and for many investors present an opportunistic play," he said. "However, the products of choice will vary depending on investors' views, tolerance for risk and target returns."

The securities will price on Jan. 17 and settle on Jan. 23.

ABN Amro Inc. is the lead agent.

Lehman plans notes linked to gold

Elsewhere in the market, Lehman Brothers Holdings Inc. plans to price one-year 0% buffered return enhanced notes without principal protection linked to the price of gold.

According to market specialist, notes linked to the mining sector will continue to increase in popularity this year.

If gold gains by up to 10%, the payout at maturity will be par.

If gold gains by more than 10%, the payout will be par minus 110% of the amount by which the gold return exceeds 10%. The payout will not go below zero.

If the final price of gold is less than the initial price, the payout at maturity will be par plus 120% of the absolute value of the amount by which the price declines.

The pricing and settlement dates were not disclosed.

Lehman Brothers Inc. is the underwriter.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.