JPMorgan plans reverse exchangeables linked to least-performing auto stocks

By Sheri Kasprzak

New York, Feb. 9 - JPMorgan Chase & Co. announced its plans to price reverse exchangeable notes linked to the least-performing stock of Ford Motor Co. and General Motors Corp.

"It seems like there's a bad joke in there somewhere," one market source laughed when asked about the notes.

"Seriously, both stocks have been doing pretty well. It is an interesting structure but it's not that uncommon. I'd say I find the two stocks they chose interesting more than the structure itself."

In fact, on Friday, both auto makers saw their stock rise after Deutsche Bank raised its rating of the two in response to agreements reached with the United Auto Workers union.

Ford's stock gained 18 cents to settle at $8.73 (NYSE: F) and GM's stock put on $2.21 to end at $36.01 (NYSE: GM). In after-hours activity, GM's stock gave up 7 cents.

Terms of the deal

Under the offering terms, investors will receive par in cash unless the final price of either stock is less than its initial level and closes below the 70% knock-in level any time during the life of the notes. If the trigger is hit and either stock closes below the initial level, investors will receive a number of shares of the worst-performing stock equal to par divided by the initial price.

The coupon will be determined at pricing on Feb. 23, but is not expect to be less than 18.25%.

JPMorgan's lesser-index notes

Elsewhere at JPMorgan, the investment bank plans to price lesser-index principal-protected notes linked to the Nikkei 225 and the S&P 500 indexes.

"This should be a good one," said one market source. "Both the Nikkei and the S&P have performed well and show signs of continuing that performance."

The one-year notes pay par at maturity plus $1,000 multiplied by the lesser index return multiplied by the participation rate - 300%.

The return will be capped at a maximum of not less than 11.4%, with the exact figure to be set at pricing.

The notes are set to price on Feb. 13.

Lehman plans Nikkei-linked notes

In another offering related to the Nikkei 225 index, Lehman Brothers Holdings Inc. intends to price 0% buffered annual review notes linked to the index later this month.

The four-year notes are set to price Feb. 23 and pay par plus a call premium. If the notes are called before the first review date, the investors receive par plus 10.3 to 10.8%. If called before the second review date, investors will receive par plus 20.6% to 21.6% and if called before the final review date, the investors will receive par plus 30.9%.

Also connected to the same index, JPMorgan said it will price 95% principal-protected notes linked to the Nikkei 225.

Those notes pay par minus 5% or $950, plus any gain on the index times a participation rate expected to be more than 300%. Payout is capped. The final index level will be based on the average of the closing level of Dec. 26, Dec. 27 and Dec. 28 of 2006 and of Jan. 4 and Jan. 7 in 2008.

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