JPMorgan, Harris launch more CDs; smaller banks entering structured market through CDs, advisor says

By Kenneth Lim

Boston, Aug. 12 - JPMorgan Bank, NA and Harris NA continued to launch certificates of deposit this week, with products linked to interest rates as well as equity indexes.

Harris plans to price callable leveraged curve steepener certificates of deposit due Aug. 25, 2023.

Interest will be payable quarterly. Interest will accrue at 8% annually for the first two years.

After that, interest will be seven times the spread between the 30-year Constant Maturity Swap rate and the two-year CMS rate, capped at 12% per year. Beginning Aug. 25, 2009, the CDs will be callable at par on any interest payment date.

If the CDs are not called, the payout at maturity will be par.

JPMorgan launches CDs

JPMorgan plans to offer callable range CDs due Aug. 27, 2028 linked to the six-month Libor rate.

Interest will be payable quarterly and will accrue at 8% per year until Aug. 27, 2009. After that, interest will accrue at 8% per year on the days that six-month Libor is less than or equal to 6.5%.

The CDs are callable at par plus accrued interest on each quarterly redemption date beginning Aug. 27, 2009. Payout at maturity will be par plus accrued interest.

JPMorgan also launched CDs linked to the S&P 500 index.

The bank is selling zero-coupon contingent payment dual-directional knock-out CDs due Feb. 26, 2010 linked to the S&P 500.

If the index remains within the knockout levels throughout the life of the CDs, the payout at maturity will be par plus the absolute value of the index return times a participation rate of at least 100%, up to a cap of 21%. The exact participation rate and cap will be set at pricing.

If the index closes outside the knockout levels, the payout will be par. The upper knock-out level will be 121% to 123% of the initial index level, and the lower knock-out level will be 77% to 79% of the initial level.

JPMorgan is also planning a similar series of zero-coupon contingent payment payment dual-directional knock-out CDs due Aug. 28, 2009 linked to the S&P 500.

The earlier-dated CDs will have a return cap of 13%, with an upper knock-out level of 113% to 115% of the initial index level, and a lower knock-out level of 85% to 87% of the initial level.

CDs gaining ground

An investment advisor said issuers appear to be offering more CDs recently.

"I think there have been more CDs this year," the advisor said. "I know initially it was mostly just reverse convertibles, but now we're seeing more CDs and they have more interesting structures and underlying assets."

The advisor said the CDs generally give investors more flexibility.

"I like seeing more CDs...It gives us more choices in terms of how to allocate our money and manage our risks," the advisor said. "Because these are CDs I don't have to worry as much about whether I already have 10% of assets with JPMorgan. A lot of the CDs are also coming from the smaller banks, the smaller players, they don't normally offer structured notes. So that allows us to diversify our exposure as well."

The advisor said the increase in CD issuance is likely a reflection of market demand.

"I don't think the manufacturers, the issuers will be making so many CDs if there wasn't enough interest in them," the advisor said. "I'm certainly interested. But I don't know if the increase we're seeing is because structured products as a whole is growing of if it's there's a bit of shift away from notes. It could be a bit of both."

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