Wells Fargo & Co. (WFC:US) says “together we’ll go far” -- even if it means to the grave.
The San Francisco-based bank’s sales of structured notes that pay when the holder dies have surged. Investors have bought at least 11 times as many of the securities as last year, according to data compiled by Bloomberg. Ninety-seven percent of the bank’s $341.9 million of structured notes tied to interest rates issued this year contain a so-called survivor’s option.
The option, also known as a “death put,” is a feature more common in market-linked certificates of deposit, said Tim Bonacci of CD Funding Securities LLC, who’s helped about 30 banks start their own businesses to sell the CDs. Investors are buying more securities with the feature as banks extend maturities on CDs to offer more attractive rates. Deposits as much as $250,000 are guaranteed by the Federal Deposit Insurance Corp. only if they are held to maturity.
“CD maturities are getting so pushed out that people are probably creeping back to the note world and are spoiled because they are used to the features in a CD,” said Dayna Kleinman, first vice president and senior product manager for alternative investments at Robert W. Baird & Co., in a telephone interview from her office in Chicago.
Matt Ginsburg, head of structuring and distribution of market-linked CDs and notes to individual investors at Wells Fargo, and Shelley Beason, a spokeswoman for the lender, declined to comment on the increase in sales of notes with survivor’s options.
Bank of America Corp., Royal Bank of Canada and Barclays Plc issued fewer or the same amount of U.S. structured notes with survivor’s options this year compared with the same period a year earlier, Bloomberg data show.
Bank of America, the largest U.S. issuer of structured notes, sold $528.5 million of rate-linked notes that had the feature, 26 percent less. Barclays sold $79.8 million of the securities, about 40 percent less. RBC sold $40 million of the notes, or the same amount.
Matt Card, a spokesman for Bank of America, didn’t return a voicemail and an e-mail seeking comment. Mark Lane, a spokesman for Barclays, declined to comment. Kait Conetta, a spokeswoman for RBC, declined to comment.
Banks have sold $33.4 billion of structured notes in the U.S. this year, 18 percent less than during the same period of 2011.
Wells Fargo’s largest offering this year, $82.1 million of 17-year callable step-up notes sold on Oct. 23, includes a survivor’s option. The securities yield 3 percent for the first five years, then increase four more times to return 6 percent for the last two years, according to a prospectus filed with the U.S. Securities and Exchange Commission. The bank has quarterly options to call the notes after five years.
Terms of Redemption
A designated beneficiary can redeem the note and collect principal at face value plus any unpaid interest, without any fees being charged, according to the prospectus.
The survivor’s option is more attractive to conservative investors, Bonacci said in an e-mail. It’s “not really overtly marketed to clients,” he said. “However the feature does make it a more viable potential investment for older clients.”
Banks create structured notes by packaging debt with derivatives to offer customized bets to retail investors while earning fees and raising money. Derivatives are contracts whose value is derived from stocks, bonds, commodities and currencies, or events such as changes in interest rates or the weather.
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