Goldman Sachs has been the issuing counterparty for an increasing number of distributors in France since the beginning of the year with ABN Amro PB France, Banque Neuflize-OBC, Barclays, Irbis Finance, Kepler Cheuvreux Solutions and Equitim bringing to market a total of 17 medium term notes (MTN) hedged by GS' financial engineering team. Marine Abiad (pictured), director distribution France at Goldman Sachs, spoke to SRP about the company's progress in the French market, as well as its focus and plans for the year.

"Our business model, primarily focused on investment banking, allows us to benefit from more attractive long term funding (thanks to our liquidity conditions) and this with credit ratings equivalent to French retail banks," says Abiad. "Our ambition is to offer retail customers the simplest products paired with partial or total protection of the capital. In fact, on longer maturities (eight to 10 years), funding benefits make it possible for us to structure capital protected products despite the low interest rate environment, which is an interesting investment alternative to the sharply declining returns of euro-denominated funds."

The US bank has started to develop its franchise via the private banking and the wealth management networks, according to Abiad. "We are seeing increased client demand for diversification of issuers," says Abiad, adding that Goldman is working around three major pillars to support its "clear willingness" to become a major player in the distribution segment in France. "We put in place a documentation to meet insurers' constraints (liquidity letter, external valuation, commercial documentation in French). We have significantly strengthened our sales team seeking to expand the coverage of the region, as well as our structured products dedicated financial engineering team. [Additionally,] we have developed and made available to our customers 'Marquee Space', an automated pricing tool."

Goldman is currently building on these axes with a view to strengthening its presence by addressing the needs of retail networks, insurance companies and independent wealth managers, according to Abiad. "The distribution through the life insurance channel [with products offered as unit-linked wrapped notes], has allowed us to extend our franchise and to gain visibility through public offerings," she says.

Although the current market conditions (low interest rates, low volatility) are not favorable for structured products, the investment bank's sales volumes are steadily growing driven by rising markets and early redemptions of autocallable products. This type of structures continues to dominate the market "very clearly", according to Abiad. "We see innovation in the increased use of optimized indices with synthetic dividends, enabling to respond to the unfavorable market conditions (e.g. Solactive Eurozone 50 Equal Weight 5% AR), and single equity underlyings (for targeted investment)," Abiad says. "In the more risk averse client segments, sales of long-term fully capital guaranteed products are also on the rise benefiting from our attractive funding, and allowing arbitrages within the Euro-denominated funds contracts."

Goldman Sachs has been largely opting for shares for its products with three products linked to the Total share, and other individual launches referenced to the Capgemini, Casino Guichard-Perrachon, EDF, Philips and Publicis stocks. In addition, the bank has hedged eight equity index-linked products, including four linked to the Eurostoxx 50, and two linked to each the Eurostoxx Select Dividend 30 Index and Solactive Eurozone 50 Equal Weight Net Total Return Index.

"Investors are increasingly attracted by the micro vs the macro aspect in investment," says Abiad. "Indeed, even if traditional benchmarks, such as the Eurostoxx50 or the Cac 40 are often regarded as less risky [and] more diversified, it is also true that they give less targeted access to the market and the various sectors. Hence, investors anticipating a sector rotation and therefore a dispersion of returns, tend to prefer to narrow their investment universe."

According to Abiad, this kind of custmised index can benefit from more attractive market parameters and to improve the payoff (higher coupon or lower barrier as compared to an index-linked investment).

Goldman Sachs is behind four MTNs which are currently being offered to retail clients, including Neuflize Objectif Croissance Novembre 2024 and Barclays Autocall 8 ans, both autocallable life-wrapped MTNs linked to the Eurostoxx 50 and with maximum term of investment of seven and eight years, respectively. The investment bank is also the issuer of a 10-year Luxembourg-listed autocallable note distributed by Equitim. The 10-year play is linked to the Orange share and offers the possibility for early redemption every quarter a year after the product's strike date. Additionally, the autocall trigger goes even down to -20% at maturity, with which investors are still entitled to receive an overall 175% return.

Defensive structures that provide a better chance to trigger early redemption, as well as products paying regular coupons even when the underlying falls continued to dominate in 2017, according to SRP data. Falling barriers and more frequent observation dates have been regular features in France year to date which shows a shift in focus from the payoff structure to the underlying.

"We rely on our research to place the focus on the underlying theme rather than on the products' payoff," says Abiad. "This is a fairly differentiating approach compared to other banks which are historically more focused on the products' formula. We build Goldman Sachs' strategy up around the simplest possible payoffs, which is fully in line with the AMF's requirements for a limited number of mechanisms [for public offerings]."

There are 512 structured products listed on the SRP France database in 2017 of which 149 have been issued by Natixis, followed by Societe Generale (128), BNP Paribas (72), Amundi (31), Goldman Sachs (17) and Morgan Stanley (13).

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