Agents sold over half a billion dollars, but year-end is near except for BofA, sources say

By Emma Trincal

New York, Dec. 17 – Agents priced $576 million of structured products in the week ended Friday, more than average early on in the month, but December is different as deals get priced early ahead of the holidays, sources said.

However Bank of America was nearly absent last week with less than 9% of the total, suggesting that there is probably a lot more to come although sources said that December is unlikely to see some big action.

In the last week of December last year, Bank of America alone brought to market $492 million, or 55% of the total, according to data compiled by Prospect News.

For the year, volume is up 11.5% to $40.42 billion from $36.25 billion last year, according to the data, which do not include exchange-traded notes; certificates of deposits and lightly structured plain-vanilla fixed-income deals, such as step-income notes or fixed-to-floating notes tied to Libor.

Rush before Christmas

“Lots of folks were pricing things early. We’ve seen a lot of paper that’s going to price on the 19th...so I’m kind of surprised to see so much volume last week. As wholesalers, we’ve only seen very few deals, mostly plain-vanilla fixed-income types of deals,” a wholesaler said.

“When you hold the paper, you watch for a tail position. You don’t want to have to mark them at the end of the year.”

So far, December has seen the pricing of $941 million in 236 deals, a 125% increase in volume, the data showed. Bank of America has not come into the market yet, he noted.

“I assume they’ll close this week. Nobody wants to price on the week of Christmas.”

Raymond James adds heft

Still, volume was not as impressive as it appears at first glance if one considers that 30% of it originated from a single deal – Bank of Montreal’s $170 million of 0% notes due Dec. 18, 2015 linked to a basket of stocks that make up the Raymond James Analysts’ Best Picks for 2015.

“Wow! I’m surprised it was so big,” the wholesaler said.

The notes priced at $1,027.50 per $1,000 of principal. Raymond James distributed the notes exclusively to its own clients. Brokers get paid from the premium, according to the prospectus.

“There’s not so much inventory in the market and you have Raymond James financial advisers pushing the paper at the end of the year. The timing of the deal is probably helpful,” the wholesaler said.

“Raymond James clients like the idea of research paper, especially their own research.

“Raymond James has done a pretty good job at doing research-driven paper. Bank of America and to some extent Morgan Stanley, too. I mean in terms of picking stocks...but Raymond James is one of the best.”

Notes tied to Raymond James’ best picks for the year are brought to market twice by Bank of Montreal on a regular basis – the first one in December followed by January as the picks are published by the equity research group in December.

The last deal in December of last year totaled $185 million, and the size in January was $169 million.

“This Raymond James deal is always the same blockbuster, year after year. It’s expensive but people love the research. I suppose Raymond James brokers are happy too,” a sellsider said.

Stocks are hot

Another big deal shaped the week as well, the second in size.

Goldman Sachs Group, Inc. priced $100 million of 8% equity-linked notes due Dec. 17, 2015 linked to the common stock of General Motors Co.

The following four offerings were also linked to an individual stock.

Single-stock issuance made for an unusually high volume at 42.5% of the total, way above the 27% average for the year to date, the data showed.

Barclays Bank plc priced two Step Income Securities both distributed by Bank of America, one tied to Intel Corp., the other to Tenet Healthcare Corp. for $26.67 million and $24.77 million, respectively. Those two deals were the third and fourth in size, a sign that the top two deals eclipsed the rest of the market in volume.

Meanwhile, the U.S. markets showed one of their worst weekly performances last week with oil prices hitting record lows and fear growing amid concerns about the global economy, especially in China, Japan and the euro zone.

The CBOE Volatility index, or VIX, rose by more than 31% to 21.

In this context, some showed surprise with the abundance of stock deals, which are often used as a way to offset the weak volatility seen in the benchmarks.

Catching the vol.

“Issuers don’t always adjust to volatility spikes right away,” the wholesaler said.

“It’s slow for the hedging desk to adjust when there is a big and sudden move. Their models don’t price the big jumps.

“Besides traders don’t want to be reactive and jump with both feet when there is a significant move.

“I wouldn’t be surprised though to see some good deals being priced this week. But I’m not expecting a whole lot of volume at this time of year.”

Timing was another factor behind the lack of buffers or barriers one can get when volatility surges.

Only 12 deals offering either a barrier or buffer were priced last week totaling $37 million only, according to the data.

“Volume right now is not market-driven. It’s calendar-driven. You’re not going to see a whole lot,” the wholesaler said.

Oil in focus

The sellsider agreed.

“Not much is coming up. They’ve already locked in the performance bonuses since September. Nobody is going to take much risk at this time of the year. The brokers don’t have to and the clients are more cautious than usual... looking at their portfolios.

“I think we may see some oil deals though, especially if the bear trend has legs.”

For now, last week did not show much in oil despite the free fall in crude prices.

The exception was Morgan Stanley, which priced $13.86 million of 18-month leveraged notes tied to the S&P GSCI Brent Crude Index – Excess Return. The structure offered a 1.5 times leverage factor on the upside, a 31.5% cap and no downside protection.

“I think oil deals will pick up next month. A lot of firms are pricing up and showing those deals right now,” said the wholesaler.

Again volatility did not dictate the action.

“It’s pretty much over for December,” said the wholesaler.

“No one is paid for what they do this month. They’re holding off deals for January.

“The game is over for the year. December is the lost month as we say.”

The top agent last week was BMO Capital markets with $175 million in one deal, or 30.31% of the market.

“This Raymond James deal is always the same blockbuster year after year. It’s expensive but people love the research. I suppose Raymond James brokers are happy too.” – A sellsider, commenting on Bank of Montreal’s $170 million 0% notes linked to a basket of stocks that make up the Raymond James Analysts’ Best Picks for 2015

“I think oil deals will pick up next month. A lot of firms are pricing up and showing those deals right now.” – A wholesaler

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