Santander is the latest financial firm to enter Brazil’s structured notes market, locally known as certificados de operações estruturadas (COEs). The Spanish bank follows a number of local and foreign firms including Bradesco , Itaú , Safra and Citi, which started marketing their products in January after the country’s regulators approved the introduction of structured notes to the retail market.
The Spanish bank is marketing four capital-protected structures (COE High Dollar Award , COE Low Dollar Award , COE Award Bovespa High and COE Award Bovespa Low) offering two choices of underlying (Bovespa and US dollar) which have been designed for its Select and Private Banking segments. The minimum application for Select customers is $15,000 and while the minimum contribution for Private Banking customers is $100,000.
“The product is suitable for those who want to diversify their investments and at the same time seek to protect the main capital,” said Claudia Getschko, executive superintendent of treasury at Santander. “The choice of a product with capital protection is one of the strategies banks are adopting to test the acceptance of the product.”
Getschko said that the bank wants customers to try to test the products before considering them as a distinct alternative for their portfolio. Santander has not yet disclosed any data on the initial uptake of its COEs.
COE sales
The Central de Custódia e de Liquidação Financeira de Títulos (Cetip), the largest depositary of private fixed-income Latin America and largest private asset clearing house in the country which provides registration, custody, trading and settlement of securities, reported that COEs have recently exceeded R$2bn in sales.
The clearing house authorised by the Central Bank of Brazil and the Securities and Exchange Commission (CVM) has registered more than 8000 structures issued by twelve banks since the launch of the funding instrument in the domestic market on January 6.
Of the products on offer, about 97% are protected at par value and 26% have a term of more than two years. The most commonly used assets classes have been stocks and indices of domestic shares, exchange rates and inflation rates.
Cetip reported that Bradesco has sold $150m in structured notes up to early March when the initial expectation was that this figure would be reached by the entire market during the first months after their introduction.
“The value is much higher than expected – it was a positive surprise,” said Ricardo Scarpelli Cassiano, director of Treasury at Bradesco. “This shows that the product is very good and works well. The COE startup has been better than expected.”
The two main COEs issued by Bradesco are linked to the dollar and the S&P500 index. The bank does not provide details on the strategy for products but stressed that both structures have capital protection.
Charles Nogueira Ferraz, chief investment officer of Itaú Private Bank, said that the initial focus will continue to be on high-yield simple structures and products with capital protection. “For now, we will follow that, but I believe that the next step will be towards products with controlled loss, stipulating a certain percentage of portfolio loss,” said Ferraz.