The Italian market has been a difficult one to read and follow this year, with a medley of mergers and a dose of scandal distracting many of the major distributors. For those involved in the various merger arrangements, the promise is that 2008 will be the year in which they revitalise their product offerings and complete the consolidation of their structured products teams.
As allegations of improper conduct at some banks flew around - generally in relation to institutional deals - teams at the bigger local banks that had merged were reconstituted in the face of growing competition from international banks.
As the dust settles, one distributor can be seen to have carried on with business as usual, providing innovation and continuing to record impressive sales of its benchmark product. Best in Italy for 2007 is BancoPosta.
While other distributors tend to deal in products created within their own banks, BancoPosta has based its strategy on selecting a product provider that satisfies its specific requirements. "The issuer must be financially solid and must have a good level of funding," says Maurizio Di Luzio, head of capital markets and derivatives at BancoPosta, which is a division of Poste Italiane. "We only choose issuer banks that are rated investment grade. This year, our products were issued by banks such as Capitalia (now part of the Unicredit group), Goldman Sachs, Morgan Stanley (twice) and Merrill Lynch - quite solid institutions."
Di Luzio attributes the success of the distributor's products to four features: credibility - BancoPosta always selects only issuers with a high credit standing and its bonds are always 100% guaranteed; convenience - its fees are among the lowest; good potential payout - it always separates issuer selection from bond hedging. "BancoPosta bonds always offers the potential for a higher payoff than competitor issues," says Di Luzio. "Of the 54 bonds distributed since 1999, 38 have outperformed BTPs (Italian treasury bills)."
"Finally, we offer transparency," he says. "We publish the legal and advertising material on our website during the selling and throughout the life of the product. Daily liquidity on a regulated stock exchange is assured by a market maker who is selected on the basis of his ability to give maximum liquidity at a fair price. Our prices are published daily on our website and in the Milano Finanza newspaper."
For product type, BancoPosta has continued to lean on its benchmark Reload BancoPosta. The six-year equity-linked product is based on five international indexes: the DJ Eurostoxx 50, the Swiss Market, the Nikkei 225, the S&P 500 and the Hang Seng. "The Reload we are now distributing is issued by Merrill Lynch and pays interest that depends on an 'equity event'," says Di Luzio.
"The equity event occurs when all the indexes are higher or equal to 90% of their initial value. If this occurs, the investor will receive an extra variable coupon until maturity. The event is observed every year and this particular structure has a memory effect which gives the opportunity to recover unpaid variable coupons in previous years."
BancoPosta has also joined the march towards all things environmental and socially responsible with its Energialternativa BancoPosta. The commodity-linked ethical bond was issued by Morgan Stanley and has the UBS Diapason Global Biofuel Index Excess Return as an underlying. As of May this year, the index comprised corn (30%), raw sugar (29.26%), wheat (13.81%), rapeseed (7.17%), soybean oil (6.80%), unrefined sugar (3.71%), canola (3.03%), rice (2.21%), lumber (2.74%) and barley (1.28%).
The six-year Morgan Stanley 2007/2013 EnergiaAlternativa BancoPosta settled on July 9, 2007 and matures on July 9, 2013. If held until maturity, the product guarantees 100% repayment of the capital invested. The payoff is equal to 7% of the initial capital or 100% of the performance of the index during the investment period, whichever is greater.
"Energialternativa BancoPosta has been sold exclusively by Poste Italiane and it's absolutely the first bond in Italy on alternative energy which use the Global Biofuel Index," says Di Luzio. "The product demonstrates the insight of BancoPosta to choose financial products with innovation and our sensibility in ethical matters such as global warming."
"Apart from Premium BancoPosta distributed in 2004 - which had a basket with the DJ Eurostoxx 50, iBoxx and Deutsche Bank Liquid Commodity indexes - and Energialternativa BancoPosta, we have in recent years focused on equity-linked products, though we are studying new structures at the moment," says Di Luzio.
By the middle of October, BancoPosta had sold EUR5.3 billion of structured products and expects to sell a further EUR200 million by the end of the year.
The week on Risk.net, March 10-16 2018Receive this by email