Coupons continue to grow for some sectors, stocks; ABN Amro plans 29.85% notes linked to Wells Fargo

By Sheri Kasprzak

New York, Feb. 5 - Even more big coupons are attached to reverse exchangeables with particularly volatile stocks, leading some market sources to speculate that there must be at least some investors who are seeking out more volatile stocks even in this troubled economy.

"If there weren't investors looking for these types of notes, there wouldn't be any," said one market source reached Thursday afternoon.

"Clearly, there are some investors out there who want a 20%, 25% coupon. There are certainly enough volatile stocks out there to provide those coupons."

ABN Amro Bank NV seems to be bringing the majority of those volatile offerings, announcing Thursday plans to price another high-coupon reverse exchangeable note linked to Wells Fargo & Co. This note has a 29.85% coupon. The bank priced $100,000 in 25% Knock-in Reverse Exchangeable Securities linked to Wells Fargo recently.

ABN Amro also has plans to price 21.5% notes linked to U.S. Bancorp.

A market source noted recently that banking stocks offer up plenty of volatility and provide a bigger coupon. ABN Amro said earlier this week it will offer a 20% note linked to JPMorgan Chase & Co.

Shares of Wells Fargo were off by $1.18 Thursday to close at $16.27 (NYSE: WFC), but they gained 18 cents in after-hours action. On Wednesday, the stock was down 74 cents to end at $17.45.

U.S. Bancorp's stock was up 82 cents at $14.99 (NYSE: USB) Thursday but lost 9 cents after hours.

50% barrier for Wells Fargo notes

Looking at the specifics of the 29.85% Wells Fargo-linked reverse exchangeables, the investors can expect to receive par at maturity unless the reference stock falls below the 50% knock-in level during the life of the six-month notes and ends below the initial share price.

If both of those things happen, the investors receive a number of Wells Fargo shares equal to $1,000 divided by the initial share price for each $1,000 in principal invested.

The notes are set to price on Feb. 12.

Banking stocks not the only ones

Even though banking stocks may offer up quite the volatility to bring bigger coupons, it's not the only sector out there providing large coupons. One market source suggested recently that coupons may be dependent upon individual reference stocks - not just the sector.

"You can't even really point to a sector and say, 'every stock from this sector is going to pull a 20% coupon.' It's gotten more complex than that. Now you're basically looking at each stock," the market source said recently.

ABN Amro said Thursday it will price 24.25% notes linked to General Electric Co. The investment bank also has a high-coupon offering linked to Netflix, Inc. Those notes carry a 22% coupon.

GE's stock was down 41 cents to close at $10.85 (NYSE: GE), and shares of Netflix were up 62 cents at $37.47 Thursday (Nasdaq: NFLX).

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