Societe Generale brings cliquet back to Belgium after four-year absence

The cliquet payout structure has returned to the Belgian market after an absence of more than four years. There are currently two products in subscription linked to the payoff – both issued via Societe Generale – for which the return is calculated as the sum of the performance of an underlying over a sub-period within the product term, typically with a cap on the maximum return in each sub-period.

The first product, the ESG Leaders Annual Restrike Note USD, which is distributed by Crelan, is linked to the Stoxx Global ESG Leaders Select 50 Index. Every year during the five-year investment period, the performance of the index is measured, subject to a cap of 8.5% and a floor of 0%.

The structuring costs of the cliquet, are higher than for other products, such as autocallable structures, according to Koen Theys (pictured), product manager, product management off-balance sheet at Crelan. “That’s why this structure is only possible when the interest rate is sufficiently high,” said Theys. “We are now launching this structure in a US dollar-denominated version, using the USD interest rate (which is higher than the EUR rate) which allows using the cliquet payout structure. When we would bring this structure in a EUR version, we believe that the offered product terms are not interesting enough at this moment in time. In that case there would be a strong negative click and we do not want that.”

The second product, the Eurostoxx SD 30 Annual Restrike Note is marketed by Nagelmackers, and other than Crelan, the bank opted for the euro as the underlying currency. The 10-year medium-term note locks the annual performance of the Eurostoxx Select Dividend 30 with a maximum of 6% and a minimum of -6% and at maturity the investor receives 100% capital return plus the sum of the 10 annual performances, subject to an overall minimum capital return of 104%.

“We have opted for the cliquet payoff in case there will be a strong correction in the financial markets during the coming years,” said Gianni Pauwels, product manager off balance, Nagelmackers. The starting point, or strike, of a structured product is very important, according to Pauwels. “With the annual restrike (cliquet) formula you will be able to cover yourself against possible losses,” he said. “If there is a market correction, losses will only be taken into account up to a maximum of -6%, and not for the full decrease if there was a heavier correction of for example -20%. Due to the long duration of 10-years we think we have a product with a lot of potential, also because whatever happens, the minimum coupon is 4% at maturity,” Pauwels concluded.

There are 752 cliquet products dating back to June 1997, listed on the SRP Belgium database. KBC, with 374 products was the most prolific provider, followed by BNP Paribas Fortis (125), ING Belgium (45), Crelan (42) and Generali (25). The majority of cliquet products were linked to a single index of which the Eurostoxx 50 was the most commonly used.

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