Bloomberg News

S&P’s Best Start Since ‘98 Helps Equity-Tied Notes Reach Record

April 10, 2012

The best start for the Standard & Poor’s 500 Index in 14 years helped banks sell the most structured notes linked to stocks last month since at least January 2010.

Banks issued $2.75 billion in securities tied to equities in March, excluding products known as reverse convertibles, for 64 percent of all sales, according to data compiled by Bloomberg. The most popular underlying in the first quarter was the S&P 500 Index with $1.2 billion issued in 114 deals.

This year’s gains in the S&P Index have helped boost sales, said John Tessar, senior vice president and head of structured products at JVB Financial Group LLC. Better-than-estimated earnings and economic data propelled the S&P 500 to a 12 percent rise, the best first quarter since 1998.

“Investors are very aware of the S&P name,” making it easier to sell products tied to the benchmark, Tessar said in a telephone interview. “They see it all over the financial media.”

In March, Bank of America Corp. (BAC:US) underwrote the top six offerings tied to the gauge for $383.5 million. The Charlotte, North Carolina-based bank also issued $79.5 million in two-year notes linked to the S&P 500 on March 29, the largest such sale last month, Bloomberg data show. The securities pay three times any gains in the index, capped at 25.4 percent, with investors at risk of losing their principal, according to a prospectus filed with the Securities and Exchange Commission.

Ford Motor Co. (F:US) was the second-most popular among equities, with $123 million in seven offerings tied to its stock in the past month, followed by Apple Inc. (AAPL:US) with $115.8 million in 17 deals, Bloomberg data show.

Ford’s Sale Forecast

Ford, the second-biggest U.S. carmaker, has climbed 9.2 percent so far this year. The company increased its projection last week for U.S. vehicle sales this year to as much as 15 million from a range of 13.5 million to 14.5 million. Sales of cars and light trucks in America rose 13 percent in March, contributing to the best quarterly rate for the industry since 2008.

Banks have sold $265.9 million in notes tied to Apple in the first quarter, more than double the $106.9 million a year earlier, Bloomberg data show. The maker of iPhones and MacBook Air laptops has risen almost 90 percent in the past year. Cupertino, California-based Apple, which surpassed $600 a share on March 15 for the first time, announced March 21 a quarterly dividend of $2.65 a share for the period beginning July 1.

Structured notes are securities created by banks, which package debt with derivatives to offer customized bets to investors while earning fees and raising money. Derivatives are contracts whose value is derived from stocks, bonds, currencies and commodities.

To contact the reporter on this story: Matt Robinson in New York at mrobinson55@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net.


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Companies Mentioned

  • BAC
    (Bank of America Corp)
    • $15.44 USD
    • -0.17
    • -1.07%
  • F
    (Ford Motor Co)
    • $17.24 USD
    • -0.19
    • -1.1%
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