United Bankers Corporation (UB) received approval from the Swedish Supervisory Authority (Finansinspektionen (FSA)) to begin licensed operations in Sweden on January 2 and has appointed Nils Schalin as its chief executive. Schalin will retain his role as director, institutional sales, Scandinavia at UB. From year 2000 to 2006 Schalin worked in Handelsbanken Capital Markets and years 2006-2013 in Nordea.
The subsidiary of Finland’s UB Asset Management intends to replicate the success it has had in Finland selling products with continuous cashflow, such as credit-linked notes. “Credit-linked notes are a perfect example of how structured products can fulfil the needs of private individuals to get access to the credit market,” said Schalin.
“Although interest rates remain low and credits spreads narrow, which means that capital-protected products are tough to structure, there is definitely also an opportunity,” he said. “We have shirked funky pay-outs and the kind of risky products that you see in the market; we are quite conservative in the product types we are selling.
“We see some tricky autocalls with a worst-of structure linked to risky single name stocks. This is a concern and can damage the reputation for autocalls which as a type of structured product makes sense in a certain types of market environments. It’s questionable whether you should sell these structures to private banking clients if the client doesn’t completely understand what he is investing in and cannot grasp the risk,” said Schalin. “If you lose money on a structured product it should be because the ‘investment bet’ was wrong and the loss reasonable in relation to your individual risk profile, not because you invested in something you didn’t fully understand and exposed yourself to risks you didn’t want in your portfolio.”
“For structured products, it always starts with the underlying, which should always be what drives the product design: it’s futile to try to sell a structure in which you do not have a strong belief in the underlying investment; the wrapper or risk profile should be secondary,” said Schalin. “After the financial crisis, the importance of transparency became more obvious, as well as costs that are low and not hidden.” There remains a desire for liquidity, “because some of the more complex pay-outs can perform pretty badly in the secondary market.”
As a result of the crisis, there is more regulation to contend with, which has made the creation and distribution of new products more expensive. “Compliance issues are time consuming and a challenge for smaller players, which limits the range of products on offer to investors,” said Schalin.
For Schalin, the Finnish and Swedish markets have a lot in common, with the trends generally established first in Sweden. As a result, competition from international banks is most apparent in the larger of the two markets.
In year 2014, 19 providers were active in the Swedish market, issuing 1,496 products and a total volume of €3.532bn: the top three providers by market share were Nordea, Garantum and SEB with a total of 50% of the market. Fierce competition has assisted the development of the market, which continues to increase in size. In Sweden, 71% of the volume is in equities, 15% in hybrids, 7% in credit-linked products and the rest in various asset classes, according to SRP data.
The asset manager will concentrate initially more on real asset offerings, with structured products secondary, but there will be structured products spin offs from the real asset efforts, said Schalin.
UB had a strong performance in Finland this year and marketed the second highest selling structure in the market, Metsäobligaatio 1/2014, which sold €31m in February.
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