Unusually large deals prominent in last week's new structured products issuance

By Emma Trincal

New York, Sept. 28 - Large size deals were the dominant theme of last week's new issuance in the structured products market, market sources said, with Bank of America topping the lot by pricing $318 million of zero-coupon notes linked to the S&P 500 index on Friday.

"This is pretty big," said a syndicate source at a rival firm. "I've never seen that before or at least in a long time. It's one of the biggest deals I can think of."

Not surprisingly, Bank of America was the top issuer by volume last week with $448 million issued in five deals making for a 40% market share. The figures are compiled by Prospect News and are subject to revision as issuers report more deals.

Bank of America was followed by Barclays Bank plc, which completed $256 million in new issues through eight deals representing about 23% of the issuance. Two of those deals were particularly large in size with the sale on Wednesday of $100 million worth of 17% Yeelds linked to Citigroup stock and followed the next day by the sale of $131.89 million of autocallable knock-out buffer notes due July 1, 2010 linked to the Russell 2000 index.

Citigroup Inc. came third with $113 million priced in six deals, giving this underwriter 10% of last week's market shares.

Morgan Stanley and Royal Bank of Canada also came to market with large issues in excess of $20 million in size.

Talking about Bank of America's $318 million structured notes deal, Matthew Bradbard, president of MB Wealth, a Fort Lauderdale, Fla.-based full-service commodity brokerage firm, said: "Yes it's big. I kind of wonder why a bank would come up with a deal of that size right now."

One-year anniversary

In total, structured products originators priced $1.132 billion new issues in 44 deals during the week just completed, which some see as the sign that the market is picking up in momentum or at least has partly recovered from its low a year ago after the collapse of Lehman Brothers Holdings Inc.

However, a sellsider heading a global structured finance origination group said: "I don't think this is that high. Maybe higher than what we had last autumn.

"But across the business, we're pretty close to the pre-Lehman levels. This is consistent with what have seen over the past month or two," he added.

Another sellsider agreed that since August the market has been improving, with August this year not as slow as one would have expected.

S&P 500 still tops

Structures continue to show simplicity.

"What sells well is a simple product," said a syndicate source. "Things are more theme-based. The most successful transactions are plain vanilla right now."

Almost half of the issuance last week - or 47.5% - was linked to the S&P 500 index, an underlying that remains by far the most popular. Coming next were structures linked to the Russell 2000 (13.65% of the total).

Another index that scored highly thanks to an add-on issuance of exchange-traded notes by just one issuer - JP Morgan Chase & Co. - was the Alerian MLP index, a composite of the 50 most prominent energy master limited partnerships calculated by Standard & Poor's. This index accounted for 8.67% of the week's issuance.

Financial stocks lead

Looking at the most popular stocks used last week as underlying asssets, financial stocks led the pack, with Citigroup the most popular name representing 8.84% of the total market shares of newly issued structured products or $100 million. It was offered in the Barclays' sale of 17% Yeelds structured notes.

Other popular deals linking notes to a financial stock included Eksportfinans ASA's $47 million issuance of 19% reverse convertible notes linked to Bank of America due March 30, 2010; Citigroup's 12% equity-linked securities linked to American Express due Oct. 20, 2010. The two other most popular among the non-financial stocks were Yahoo! Inc. and Weatherford International Ltd., an oil drilling equipment manufacturer whose stock has almost doubled since the beginning of the year.

Last week did not see a lot of commodity or currency-linked deals.

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