Lehman plans notes linked to basket of currencies; JPMorgan negotiates notes linked to AMR

By Sheri Kasprzak

New York, Oct. 25 - Lehman Brothers Holdings Inc. led structured products activity with news that it intends to price zero-coupon principal-protected notes linked to a basket of currencies.

The 100% principal-protected notes are linked to the Canadian dollar, the Chinese renminbi, the euro, the Japanese yen, the Mexican peso and the Singapore dollar. The notes are due in 18 months.

"This note allows an investor to hold a long position in the Canadian dollar, Chinese renminbi, euro, Japanese yen, Mexican peso and Singapore dollar and a short position in the U.S. dollar via a single basket consisting of these long and short currencies," said a prospectus released Wednesday by Lehman.

Global baskets growing popular

One market source said notes linked to non-U.S. assets are becoming more popular in the structured products market.

"There is more linkage to non-U.S. assets," he said, "but mostly they're part of some global basket."

Another market source said he agreed - but added that it tends to go that way because it is safe to spread the risk out over several currencies rather than place the entire bet on a single one.

"With currencies, you don't want to put all of your risk on one of them," he said. "If one heads south, you've got some cushion there."

JPMorgan's AMR-linked notes

In other news, JPMorgan Cash & Co. said it plans to price 20% reverse exchangeable notes linked to the stock of AMR Corp.

The news comes on the heels of AMR's third-quarter earnings report. Just last week, the company posted a third-quarter profit of $15 million, compared to a net loss of $153 million for the corresponding quarter of 2005.

Notes are due 2007

The JPMorgan notes are due April 30, 2007 and carry a 70% knock-in price.

The 70% knock-in price has been standard with other notes linked to AMR recently.

AMR was recently linked to $496,000 in notes priced by HSBC USA Inc. Those notes, due Jan. 26, 2007, also carried a 70% knock-in level.

Earlier this month, ABN Amro Bank NV announced its plans to price 17% reverse exchangeable notes linked to AMR's stock. Those notes will carry a 70% knock-in level as well.

One market source recently noted that the standard knock-in level for reverse convertibles is between 75% and 80%.

Morgan Stanley's PHLX notes

Morgan Stanley & Co. Inc. priced $20.5 million in performance leveraged upside securities linked to the PHLX Oil Service Sector index.

The 0% notes are due Nov. 20, 2007.

Morgan Stanley managed to price a greater amount of their notes linked to the PHLX than a Merrill Lynch & Co., Inc. offering of notes linked to Oil Service HOLDRs.

Last week, Merrill priced $710,000 in 10% knock-in notes linked to Oil Service HOLDRs.

The notes, due Oct. 23, 2007 carry an 80% knock-in price.

In August, Merrill priced another offering linked to Oil Service HOLDRs for $2,115,000. Those one-year notes carried a coupon of 11%.

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