CACIB: redemptions have triggered a huge amount of recycling

CACIB has already surpassed its issuance and sales in Europe with US$4.4 billion across 132 products sold in Europe, compared to 117 /US$4.3 billion recorded in 2020, and is currently the third most active issuer in Europe, according to SRP data.

The bank has had “quite an extraordinary year” in the structured products market on the back of the alignment of several factors since the Covid vaccine was rolled out at the beginning of 2021.

“The global vaccine rollout and relaxation of quarantine rules led to market recoveries which have balanced out our books after a difficult 2020 for the whole industry,” says Riboulet. “Many of the products on the market that were not called in 2020 were redeemed in 2021, and that triggered a huge amount of recycling that is still happening.

The main trend seems to be ESG themed which can now be addressed through different dimensions - Gael Riboulet

“We are continuing to develop our structured products franchise, beef up our setup, continue to grow the team and expand into new geographies and segments.”

CACIB has focused on capitalising on new opportunities that have risen this year on market movements to deliver products that offer added value to our clients and be relevant in terms of content.

Aside from increased activity and volumes, Riboulet’s team continues to build up and evolve its ESG offering as one of the pioneers in the space.

“The main trend seems to be ESG themed which can now be addressed through different dimensions,” he says. “We have observed a shift in the market with products switching from standard benchmarks to bespoke QIS strategies that embed some ESG features. This global trend took off about two years ago and already accounts for almost 50% of the business in some countries like France.”

As the environmental repercussions of investments becomes increasingly important for investors structured products provider have been forced to address the concerns of investors and the impact of their investments, as well as meet new regulatory requirements.

“Regulation plays a vital role in the reorientation of capital towards sustainable investments and tackle current challenges concerning energy transition and carbon footprint reduction. Additionally, we must understand how EU Taxonomy defines ‘green’ products and secondly to align products with the EU’s requirements for Paris Aligned Benchmarks,” says Riboulet.

“We now have set EU regulations to comply with when selling products and indexes to achieve carbon neutrality by 2050.”

The bank’s new range of products, which are fully eligible for the European Paris-Aligned Benchmark label, has been well received by investors, in particular institutional clients, according to Riboulet.

However, to increase the adoption of these solutions by retail investors, some local regulators need to adapt their local rules of intelligibility and suitability to allow widespread distribution in their jurisdiction.

What developments would you highlight when it comes to ESG structured products?

Gael Riboulet: Sustainability in the equity market is not only about indices and underlyings. The main innovation that we have seen lately, which is also an area of focus for us, is the wrapper. Instead of issuing a standard note, we are providing green, social or sustainability-linked notes that comply with either ICMA’s green bond principles or social bonds principles. Through those wrappers, the proceeds of the notes are used to finance projects that have a positive ESG impact and that address some of our clients’ main concerns.

Additionally, we noticed an increasing interest in solidarity structured notes of which a percentage of the proceeds are donated to a humanitarian organisation. In this field, CFM Indosuez Wealth Management, collaborated with Crédit Agricole CIB, to create a solution contributing to energy transition and the preservation of the environment and that includes a donation to the Oceanographic Institute.

Do you think the overlapping and cross-over between new regulatory regimes such as SFDR, Mifid and Priips could jeopardise ESG adoption?

Gael Riboulet: A regulator’s challenge is to facilitate a market that permits a range of choices for investors, whilst at the same time protecting them through suitability checks and disclosure requirements. As with any industry, innovation is vital to bringing a diversified range of products to the market, therefore finding the right balance between regulation to protect investors and facilitating an environment that fosters innovation is important.

We have a dedicated team that ensures we are up to date on all the regulatory topics, to meet all the requirements once the new rules come into effect - businesses where we are well positioned and where there are strategic opportunities for us such as ESG. The challenge for the industry will be to deliver figures and metrics under short notice and according to specifications that are not yet finalised.

Do you think there needs to be more clarity about the difference between risk v complexity among investors and regulators?

Gael Riboulet: From our point of view, it is important to find an equilibrium between risk and complexity. The suitability requirements are needed to make sure the investment products being sold are properly understood by the client and match their appetite for risk. On equities, structured products are often less risky than investing directly in equity markets even though they can be more complex.

 With negative rates and the ongoing hunt for yield across markets and current risk aversion, protected equities could be a solution whereby we can achieve meaningful upside and mitigate drawdowns thanks to embedded permanent hedging strategies that provide efficient soft protection – a good example of a relevant product with less risk but more complexity.

What would you highlight in terms of innovation in the market?

Gael Riboulet: The focus continues to be on the underlying and the wrapper, not that much on the payoff which also continues to be dominated by auto calls. This structure has been successful because it has delivered good performance and returns to investors.

However, autocalls carry a risk both on the buy and sell sides, and that investors need to be aware of them and should mitigate the risk by diversifying their portfolio.

On the sell side, we saw last year how this risk can have a negative impact on trading books at times of sharp market corrections. Diversification can be achieved by serving different clients with different risk profiles, different products and different underlyings. To that extent, dividend and volatility risk can be mitigated when designing an underlying. For example, decrement indices allowed some diversification for the end clients with better pricing conditions.

Are platforms helping to grow the pie and promote structured products adoption in the buy-side?

Gael Riboulet: Multi-issuer platforms offering b2b connectivity have helped to streamline the issuance of products and is reducing the amount of admin work distributors must do, and so this has had a positive effect on the market and increased adoption. They are a good development for the industry because it allows a higher number of trades.

ESG gains traction According to Matthieu Monlun (right), head of domestic markets & CA group sales, equity solutions, CACIB, the bank’s philosophy in the ESG space is “to pay attention to distinguish the different value of ESG products”. “There are a lot of things to consider because it is a complex topic, so we approach it with caution, but clearly it is a key part of our strategy to increase our global footprint leveraging our ESG capabilities,” he says, adding that sustainable finance is one of three pillars of the CACIB’s medium-term plan up to 2022. “[As part of the] strategy it was decided at a group level that every single product line would contribute to that goal. Our increased ESG activity directly reflects our clients’ investment demand. The French bank has issued this year more than €1 billion of green notes in Europe linked to ESG or green equity underlyings. “We have already distributed structured products linked to the new MSCI index in various European countries. The main focus for us continues to be domestic Europe and non-domestic Europe across a wide pool of clients from retail and private banking to institutional investors. This is an area where we see interest from different types of clients, and we are expecting a significant increase in demand.”