BNP Paribas Fortis is one of the most active providers of structured products in Belgium. In 2014, the bank distributed 72 structured solutions, worth €1.3bn, capturing a 13.6% share of the Belgian market, third behind market leaders KBC (51%) and Belfius (14.5%). This year, the bank has launched 42 structured products with a combined sales volume of €571m.
The vast majority of BNP Paribas Fortis’s structured notes are issued via the bank’s BNP Paribas Fortis Funding vehicle, with a small number – mainly autocalls – issued by BNP Paribas Arbitrage. The unit-linked life insurance products (Tak23) are sold in collaboration with AG Insurance.
Jurgen Vanhaverbeke (pictured), head of product management save & invest at BNP Paribas Fortis, spoke to SRP about the bank’s plan to enhance its socially responsible investing (SRI) offering, why flexible funds are only used as underlying for the bank’s private banking products, the demise of structured funds in Belgium and why so many of the bank’s structured products are denominated in foreign currencies, especially the US dollar, but also lesser seen currencies such as the Norwegian krone.
“We have a positive view on the dollar, which is the first important element, says Vanhaverbeke. We believe that the dollar will strengthen against the euro over the longer term,” he says. “Secondly, the interest in the dollar is slightly higher than in euro, which makes it easier to offer better terms. So, if we believe in the dollar and are able to offer better conditions, we have two good arguments to offer dollar denominated structures to our clients. Finally, there are quite a few of our customers with positions in dollars who are looking for investment opportunities.”
When it comes to the Norwegian krone, the bank is positive about this currency, says Vanhaverbeke. “As with the dollar, the interest in krone is a little bit higher than in the euro,” he says. “Furthermore, we have had a lot of maturities in Norwegian krone, in several types of investment products. This has resulted in important positions in krone on current accounts and term deposit accounts which we are hoping to capture among others with a new product we recently launched (BNP Paribas Fortis Funding (LU) NOK Coupon Note Defensive Stocks 2021). We specifically want to offer solutions to those customers who have Norwegian krone in position and are looking for capital protection at maturity.”
Socially responsible investing (SRI) is a very important theme for the BNP Paribas Group in general and BNP Paribas Fortis in particular, says Vanhaverbeke. “We have created an ethical index (Ethical Europe Equity), which we use as an underlying for structured products,” he says. “We are also seeing an increasing demand from customers. Certainly, if they see there is no impact on the return, clients are interested in SRI products.”
With the Ethical Europe Equity index, the bank has a compelling story. “We have an index with an equal or even slightly better performance than the Eurostoxx 50 benchmark, or the Stoxx 600,” says Vanhaverbeke. “So, a good performance and a sustainable character, yes, then you indeed have a story which appeals to the customer.”
When it comes to structured products it is important to know these are certified by Forum Ethibel, an independent Belgian player. “That’s a double certification, at the level of the underlying index, the Ethical Europe Equity, but also the invested capital,” he says. “The money invested by the customers is lent for projects which undergo certain focus tests on corporate social responsibility (CSR).”
The bank typically uses funds as underlying for its private banking products, and any structured notes linked to funds offered to private banking clients come with two options: a direct investment in the underlying funds or an indirect investment via a structured note which offers capital protection. “The possibilities in private banking are larger since they work with an open architecture,” he says. “Because of this, both in-house and third party funds are offered. Our retail bank, on the other hand, uses closed architecture and only offers in-house funds from BNP Paribas Investment Partners. This limits the possibilities when it comes to diversification and pricing.”
Vanhaverbeke sees interest in flexible funds such as Ethna and Carmignac Patrimoine. “These flexible funds are quite interesting in the current macroeconomic context, creating a demand for fund linked structured products,” he says. “Due to the lower volatility of these funds we are able to offer attractive conditions via structured notes. Since we only proactively sell these funds though our private banking network, these deals are targeted towards our private banking clients.”
The reason for not issuing structured funds is the current context of low rates. “The cost structure of the fund, within our set-up, is a little bit higher than for structured notes and the Tak23 products,” says Vanhaverbeke. “So, given the higher costs and the low interest rates and funding spreads, we prefer notes and insurance products giving our clients access to solutions that are more cost effective.”
Through notes and Tak23, BNP Paribas Fortis provides long-term funding to its own bank. ”Of course, this can also be done via funds, but in that case you can only have 20% exposure to an issuer (due to Ucits legislation), and collateral must be deposited to reduce exposure, which has a cost attached to it, and that cost in the current context is a little bit too high,” says Vanhaverbeke. "In the market, you clearly see a movement where the funds have lost ground compared with notes and Tak23."
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