Throughout the years, UK banks have always been at the forefront of the structured products industry. This year is no different with HSBC the most prolific issuer of structured products by sales volume globally in the first quarter of 2017, mainly on the back of sales in the US and China, according to SRP data, while another UK bank, Barclays, finished just outside the top four.
SRP reviews the data and financial results of five UK investment banks for 1Q 2017.
HSBC was the most active provider by sales volume across all SRP databases during the first quarter of 2017. The bank issued 433 structured products worth $4.2bn (Q1 2016: 229 products/$1bn). Of these, 293 products with sales of $2bn were issued in the US. Eighty-four products with estimated sales of $1.6bn were sold in China, while there were also new issues in Japan (17 products), Sweden (six) and the UK, were the bank issued eight products via Walker Crips.
HSBC reported profit before tax of $5bn was down $1.1 compared to the first quarter of 2016, primarily due to adverse movements in significant items including fair value movements on the banks debt from changes in its own credit spread in Q1 2016.
Debt securities in issue stood at $2.1bn at the end of the first quarter, down from $2.8bn at December 31, 2016.
In retail banking and wealth management (RBWM), the adjusted profit before tax of $1.8bn was $0.6bn or 46% higher year-on-year, driven by increased revenue in life insurance manufacturing, current accounts, savings and deposits and investment distribution. The latter comprises mutual funds (HSBC manufactured and third party), structured products and securities trading, and Wealth Insurance distribution, consisting of HSBC manufactured and third-party life, pension and investment insurance products.
Barclays was the issuing party behind 397 structured products with estimated sales of US$2.7bn during the first quarter of 2017 (Q1 2016: 202 products/$1bn), according to SRP data. The bank was predominately active in the US where it was the most prolific issuer by sales volume, selling 381 products worth $2.5bn between January 1 and March 31, 2017. The bank's US products included the two-year Floored Floating Rate Notes USD 3M Libor which sold $250m during the subscription period.
A further 16 structures were sold by the bank in Japan. The products, which collected a combined volume of $85m, were distributed via, among other, Aizawa Securities, Chugin Securities and SBI Securities.
Barclays reported profit before tax more than doubled to £1.6bn in the first quarter of 2017 (Q1 2016: £815m). Core basic earnings per share increased to 7.2p (Q1 2016: 5.8p).
For the three months ended March 2017, Barclays PLC issued $5bn (£3.9bn) of fixed and floating rate senior notes and £0.95bn of fixed rate senior notes included within the debt securities in issue balance of £21.6bn (2016: £16.8bn). Wholesale funding outstanding, excluding repurchase agreements, was £166bn at the end of the quarter (December 2016: £158bn). The Group issued £6.3bn equivalent of capital and term senior unsecured debt from Barclays PLC of which £5bn was in public senior unsecured debt and £1.25bn was in capital instruments. In the same period, £3bn of Barclays Bank PLC capital and senior public term instruments either matured or were redeemed.
Lloyds Banking Group is no longer issuing structured products to retail investors. The SRP database registers 569 structured products distributed by Lloyds Bank and its subsidiaries, dating back to May 1996. Of these, the 5.5-year Sterling Income Deposit, which was sold in August 2013 via Lloyds TSB Offshore, is the most recent.
Lloyds Banking Group reported an increase in underlying profit to £2.1bn with an underlying return on tangible equity of 15.1% in the first three months of 2017. Liabilities included debt securities in issue of £73.8bn, down from £76.3bn the previous quarter.
Market volatility and other items were £72m in the quarter and considerably lower than prior year which included the write-off of the Enhanced Capital Notes embedded derivative and premium paid on redemption of the remaining notes (loss of £790m).
The bank said its differentiated UK focused business model continued to deliver with strong capital generation of 0.7% while the UK government shareholding is now below 2%.
'I am pleased to see that the hard work undertaken in the last six years to transform and simplify the business has allowed the UK government to recover their investment in Lloyds,' said António Horta-Osório (pictured), group chief executive, in a statement. '[...] £20.4 billion has now been returned to date, including dividends, on its original £20.3 billion investment, with further proceeds to come as UKFI (UK Financial Investments Limited) completes its divestment.'
Royal Bank of Scotland (RBS) has not issued any structured products since September 2014 when BNP Paribas took over the market making activities of the majority of their structured investment products. Currently the bank has 362 live products listed on the SRP database across 15 jurisdictions.
RBS reported an operating profit before tax of £713m for Q1 2017 and an attributable profit of £259m. Across Personal & Business Banking (PBB), Commercial & Private Banking (CPB) and NatWest Markets (NWM) businesses, RBS reported an adjusted operating profit of £1.3bn, an increase of £303m, or 30%, compared with Q1 2016.
Liabilities included £28.1bn of debt securities in issue as of March 31, 2017 up from £27.2bn the previous quarter.
According to the bank's interim management statement for the first quarter of 2017, certain members of the RBS Group have been named as defendants in US class actions relating to alleged manipulation of various interest rate benchmarks, each of which is pending in the United States District Court for the Southern District of New York. On March 10, 2017, the court in the action relating primarily to over-the-counter derivatives allegedly linked to JPY Libor and Euroyen Tibor dismissed the case on the ground that the plaintiffs lack standing. The plaintiffs are seeking to amend their complaint in an attempt to address the deficiencies identified by the court in its dismissal order.
Furthermore, the US Federal Deposit Insurance Corporation (FDIC) issued a claim in the High Court of Justice of England and Wales against RBS, other Libor panel banks and the British Bankers' Association, alleging collusion with respect to the setting of USD Libor. The action, on behalf of 39 failed US banks, alleges that the defendants breached English and European competition law as well as asserting common law claims of fraud under US law.
Standard Chartered launched 12 structured products in Taiwan aimed at private banking investors during the first quarter of 2017. The bank posted a profit before tax of $1bn for Q1 2017, up 94% year-on-year. Corporate & Institutional Banking income, at $1.6bn was 4% higher year-on-year and 6% lower quarter-on-quarter. Private Banking income of $117 million increased by 2% year-on-year and by 6% compared to the fourth quarter of 2016. Increases in deposit margins and higher sales of treasury products in Wealth Management in the first quarter offset lower lending balances and margins following actions taken to improve the risk profile of the segment during 2016. According to the bank there has been early momentum in 2017 with $0.9bn of net new money added in the first quarter.
Click the link to view the full Q1 2017 results for Barclays, HSBC, Lloyds Banking Group, Royal Bank of Scotland and Standard Chartered.
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