RBS Global Banking & Markets (RBS) embarked 18 months ago on a Nordic strategy that promises to be the beginning of an expansion of its structured products business across Europe. In 2007, the bank invested heavily in recruiting new staff from the region and raised its profi le such that it is now the second largest foreign distributor. The bank has launched 63 RBS-branded public retail products across the region in 2007.
“When we looked at the Nordics, it was appealing,” says Robert Begbie, head of Structured Investor Products. “Once we had sorted the UK, we needed to see where scale and size allowed us to enter the market. In Germany and Italy, we would have been irrelevant. But the Nordics was an expanding market and one in which RBS had a growing corporate presence.” The initiative was called Project Trio and allowed the bank to serve up its own distribution – not possible in all markets – with additional leverage coming in the form of two strong partners in Scandinavia.
The strategy the bank adopted – building relations with local IFAs – proved effective, with other banks looking to extend their local presence in Europe by simply replicating this approach. “The main distributors were the big Nordic banks, which tend to offer fairly vanilla, index-linked products,” says Michael Nelskyla, managing director, head of sales Europe, Structured Investor Products. “IFAs and brokers said they wanted to be more empowered to meet client needs.”
The bank began launching products in the Nordics in September 2006. Taking its prompt from a knowledge of exotic rather than fl ow derivatives, the bank created two products, Autopilot and Alpha Centurion. “Other banks would not issue products like Autopilot because of the potential for confl ict with asset management businesses,” says Nelskyla.
“The launch of innovative products has helped distribution because the big banks are keen to distribute and co-create products,” says Begbie. “Autopilot started from here – it touched client needs, and addressed a mutual funds style of using actively managed funds.” Up to October 2007, each launch of the capital-guaranteed, high leverage and non-capital-guaranteed versions had sold at least EUR5 million.. The latest incarnation – Autopilot 8 – was closed on September 28.
The product is a fi ve-year structured note with the following underlyings: the iShares MSCI EAFE Index Fund, the iShares Emerging Markets Index, the FTSE European Public Real Estate Index, the Swiss franc/US dollar exchange rate, iPath Dow Jones AIG Commodity Index Total Return and Stibor. Autopilot 8 came in denominations of Skr50,000 and with a two-note minimum investment; it was available with issue price/participations of 100%/100%, 110%/160% and 20.5%/100%.
Alpha Centurion followed, so catching the wave of interest in hedge funds and particularly well-received in Sweden. “It takes the long/short strategy in a very simple way,” says Begbie. “Go long stocks doing badly last week, and short those doing well. We added on – addressing volatility – a volatility cap risk adjustment so that, if volatility goes up, you deleverage.“ Alpha Centurion sales amounted to over €60 million over two launches by early October.
The bank was also quick to adopt the green theme, launching a green index with a fairly broad sectoral approach.
The development by RBS of Brokerhub, which offered clients the opportunity to look at the products of other banks also helped, says Nelskyla. Brokerhub is a platform that allows brokers to keep track of their clients and reduce the paperwork burden. The system also accommodates secondary market trading with daily pricing, and has made derivativesbased investments palatable to those looking for shorter-term investments.
The second launch of Brokerhub will take the number of products on the system from 100 to 200. The bank had around 70 products on offer in the region this year, says Begbie. By early October, the platform has 332 registered broker users, with 882 client details and 1,622 products detailed.
The distributors that RBS paired up with intially were Finansforvaltning and Kaupthing, to which it added Finland’s eQ Bank and Nordnet Bank in Sweden. Norwegian IFAs were also targetted and added to the distribution list. “We wanted to create a pull association with RBS products,” says Nelskyla. It worked so well that RBS products have been taken by the major banks in the region and packaged for their private banking clients, he adds.
RBS intends to replicate its Swedish distribution model in Norway, targeting the country’s 170 savings banks after making new hires this year on the sales side. The bank has also noted the 200 savings banks in Denmark, which it plans to cover with tailored products.
The week on Risk.net, October 6-12, 2017Receive this by email