Structured products issuance gets lift from BofA, CIBC; week’s supply tops $1.44 billion

By Emma Trincal

New York, Nov. 2 – October ended on a solid note for structured products issuance with the market pricing $1.44 billion in 315 deals for last week alone, according to preliminary data compiled by Prospect News.

Since it was the closing of the month for Bank of America, the bulk of the action, or $620 million in 23 deals, came with no surprise from this lead agent alone. The firm, even by the standard of a closing month, had an unusually high market share with 43% of the total volume, according to the data.

CIBC shines

The massive presence of Canadian Imperial Bank of Commerce was noteworthy. It was the top issuer with $326 million in just nine offerings, or 22.65% of the volume.

CIBC and Merrill Lynch worked as a team: 99% of CIBC’s issuance was distributed by BofA Merrill Lynch, including the top $131.39 million deal and two other large ones, each in excess of $40 million.

For the year to date, CIBC has issued 60 deals totaling $1.16 billion. Nearly 80% of it, or $925 million, was distributed by Merrill Lynch. Wells Fargo was another dealer.

Last week was the best ever for CIBC as an issuer; its notional accounted for no less than 28% of everything it has issued year to date, according to the data.

Canadian diversifiers

“They did more in October than they did over the past two years. CIBC’s got a really good relationship with Merrill Lynch. It helps,” said a market participant.

The data confirms it. In 2014, CIBC issued $7 million in three deals. It did $216 million in 23 deals the following year. In the first 10 months of this year, the Canadian issuer’s volume is already up 51% from the full year of 2015.

“October was their best month ever,” the market participant said.

A source said that many European banks and U.S. banks were in a blackout last month as they reported their third-quarter earnings. Canadian banks had an advantage having reported two months earlier.

“They ended up with a pretty good month in October,” he said.

Royal Bank of Canada, Bank of Montreal and CIBC reported their third-quarter earnings in late August.

“Canadian banks in general are also a good diversifier,” the market participant noted. “Having a good credit helps. Some people want to diversify their credit exposure.

“But the pricing must be competitive too; otherwise they wouldn’t have all those deals.

“They have definitely made headway in the business.”

Two market participants pointed to the key role played by Gage Olcott, who has been running the U.S. structured products platform at CIBC since February 2014 after holding a similar role at Citigroup.

“He’s very well-known in the industry. He’s a good guy,” one of them said.

“He’s been working with Merrill his entire career not just in structured products but in derivatives,” said another.

Year still down

October so far looks much better than September, but a full month comparison is not yet available.

Through Oct. 28, volume has increased to $3.04 billion from $2.38 billion during the same time in September, a 27.5% jump, according to the data.

Volume however continues to be down year to date, with sales at $31.19 billion from $36.76 billion last year. That represents more than a 15% decline from last year.

“There is the uncertainty around the elections with the FBI announcement last week. Plus we’re in the middle of earnings seasons. And of course you have this constant speculation about the Fed. Investors are pretty confused right now, and it affects not just structured products but investment in general,” said a structurer.

But this structurer pointed to another explanation for the depressed numbers this year: the fiduciary rule released earlier this year by the Department of Labor.

DOL wildcard

“A lot of firms are confused and they don’t know whether to keep commissions in their retirement accounts or not. Merrill decided not to and others decided to go along with DOL’s procedure. Since nobody really knows how it’s going to play out, this whole thing has created a mess and I’m sure it had an impact on volume this year,” this structurer said.

Big deals

The top deal last week was the sixth largest for the year: CIBC priced $131.14 million of 0% 14-month leveraged notes linked to the S&P 500 index. The upside leverage was tree times up to a cap of 11.85%. There was no downside protection.

Second and third were rather similar deals issued by GS Finance Corp. and Morgan Stanley Finance LLC, each one for $62.5 million. Both notes, which priced Thursday, mature on Oct. 29, 2018. The two deals were digital payouts that kicked in above an 85% threshold. Both featured a 15% geared buffer.

The underliers differed but referenced a similar type of exposure, some market observers noticed.

The GS Finance deal was based on the MSCI EAFE index. The Morgan Stanley notes were linked to a popular basket of unequally weighted international equity benchmarks, which comprised the Euro Stoxx 50 index, the FTSE 100 index, the Topix index, the Swiss Market index and the S&P/ASX 200 index.

The digital returns for the GS Finance and Morgan Stanley deals were 13.10% and 11.20%, respectively.

Their agents were Goldman Sachs & Co and Morgan Stanley & Co. LLC, respectively.

Royal Bank of Canada priced the No. 4 deal, which was tied to the S&P 500 index and distributed by BofA Merrill Lynch. It was $56.24 million of two-year leveraged notes with double any index gain, up to a maximum return of 14.06%.

The downside offered a 10% buffer.

Two more CIBC

Bank of America priced the next two deals on the behalf of CIBC, both leveraged products, short in duration and linked to the S&P 500 index.

The first one, a $49.33 million offering of 14-month notes, featured double the gains up to an 8.46% cap with a 5% buffer.

The other one priced at $42.17 million paid three times the index gain subject to an 18.25% cap. Investors were fully exposed to the downside risk.

Finally Bank of America issued $42.13 million of two-year autocallable market-linked step-up notes linked to the Energy Select Sector index. The step-up value was 130% of the initial level. The notes were autocallable once after one year above the initial price. Investors were fully exposed to the index decline.

Absolute step up

Citigroup Global Markets Holdings Inc. was the last on the list of deals over the $40 million mark. It priced another step-up product for $40.35 million on the S&P 500 index. The unusual feature was the use of an absolute return on a step-up. The absolute payout was offered on the downside up to a 70% barrier. On the upside, the step return was 25.75%. The term was five years.

UBS Financial Services Inc. and Citigroup Global Markets Inc. were the agents.

The top agent last week after Bank of America was JPMorgan with $179 million in 58 deals, or 12.44% of the volume. It was followed by Morgan Stanley and Goldman Sachs.

“They did more in October than they did over the past two years.” – A market participant, commenting on CIBC’s structured products issuance

“Investors are pretty confused right now, and it affects not just structured products but investment in general.” – A structurer, noting the impact of U.S. elections on the market

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