Volume for last full week of June strong at $1.3 billion; BofA captures two-thirds of volume

By Emma Trincal

New York, July 1 – It was a strong week for structured products as the end of the month and quarter drew near. Agents priced $1.3 billion in 160 deals during the week ended Friday, and two-thirds of it was the work of BofA Merrill Lynch, according to data compiled by Prospect News.

Out of the top 25 offerings that priced last week, 17 were sold by BofA Merrill Lynch.

BofA Merrill Lynch sold $861 million through only 19 offerings.

Huge player

“Two-thirds of the business is concentrated on one agent. That’s almost spooky,” a market participant said.

“Goldman Sachs, Morgan Stanley, they’re all lagging behind.

“When you have 14,000 guys pitching the product, obviously it helps. Look at the size. Deals are huge. It’s literally almost a monopoly.”

As of Friday, BofA Merrill Lynch so far this year sold $7.18 billion in 207 deals, giving it a 30% market share by volume and a 5% market share by number of offerings.

“They do all their distribution internally, and they reach out to a lot of different issuers, a good recipe for expansion,” the market participant said.

Short-term, bullish

BofA Merrill Lynch last week priced the top 11 deals, totaling $732 million. Those notes fit into two types of structures: either short-term, three-times leveraged capped notes or market-linked step-ups, according to the data. None of those top 11 deals offered any downside protection.

“They’re just doing better than the rest of the market. They’re just eating the lunch of everybody else. All it means is that their brokers are more efficient when selling structured notes than everybody else. Either they sell better or they have better offerings. That’s very simple,” said a sellsider who is not affiliated with Bank of America.

The No. 1 offering was Barclays Bank plc’s $156.13 million of 0% Accelerated Return Notes due Aug. 26, 2016 linked to the S&P 500 index. The upside offered a multiple of three and was capped at 10.53%. As with all the top products, investors were fully exposed to the downside.

3x up, 1x down

“Their clients are bullish on equity. It doesn’t make much sense to me to do anything without protection right now,” the market participant said.

“Markets are at near record highs, you have the Fed rate hike pending, the Greek crisis in the headlines. Why do those notes now? You do those deals in two months or in three months from now. Not now.

“I can’t understand the complacency of some investors at this point.”

BofA Merrill Lynch priced the second-largest deal on the behalf of AB Svensk Exportkredit. It was $123.89 million of 0% Accelerated Return Notes due Aug. 26, 2016 linked to the Euro Stoxx 50 index. The leverage was also three times, and the cap was 15%. There was no downside protection.

Another big BofA Merrill Lynch deal was HSBC USA Inc.’s $108.94 million of 0% Accelerated Return Notes due Aug. 26, 2016 linked to the S&P Regional Banks Select Industry index, the third one in size. It featured the same leverage structure and a 15.75% cap.

“They’re simple structures. When you show simple products, you can obviously sell more. People are used to those structures. They’re used to buying them on a regular basis,” the market participant said.

Euro bid

Last week was dominated by negotiations between Greece and its European creditors, which caused a big sell-off on Friday. It did not, however, discourage investors from seeking exposure to euro zone stocks.

About $340 million of paper tied to the Euro Stoxx 50 hit the market. It represented more than a quarter of the total volume, and this was just for notes tied to the European benchmark only, according to the data. Another $80 million employed the Euro Stoxx 50 in combination with other equity indexes or CMS spreads.

“There is more volatility in the Euro Stoxx. Also options are cheaper there. Pricing is advantageous,” the market participant said.

“Who knows what will happen with the euro zone? Unless people have completely given up on the market, the more uncertainty there is, the more attractive structured products are. If everybody is so sure that everything is going to be OK, you just buy the ETF,” the sellsider said.

The overall market’s volume has grown 14.67% to $23.89 billion this year from $20.84 billion last year, according to the data as of June 26.

“It’s great. It’s only the first half. If we continue like that, we’re on track for $48 billion this year. We’re talking about [13%] higher than last year,” the sellsider said.

Last year’s volume was $42.57 billion.

UBS was the second agent after BofA Merrill Lynch. It priced $112 million in 42 deals. It was followed by JPMorgan with $91 million in 33 deals.

“I can’t understand the complacency of some investors at this point.” – A market participant

“The more uncertainty there is, the more attractive structured products are.” – A sellsider

© 2015 Prospect News.
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