Societe Generale Private Banking has become the first provider in Belgium to use the Euronext BeNe 40 Equal Weight index (BeNe 40) as underlying for a structured product. The five-year Natixis Structured Issuance (LU) Autoswitchable Note is denominated in US dollar and protects at least 90% of the nominal invested. The BeNe40, which was launched on September 28, was specifically licensed by Euronext to Natixis for the creation of structured notes.
"At the end of September we came across an article in the financial press in Belgium which read that Euronext had launched a new index, the BeNe40," said Klaas Van Iseghem (pictured), structured product specialist at Societe Generale Private Banking in Ghent. The index immediately caught the bank's attention because it is composed of the 40 most traded companies included in the Belgian Bel 20 (the benchmark index of Euronext Brussels) and Dutch AEX (the 25 most traded stocks on Euronext Amsterdam) indices, said Van Iseghem. "For our clients this is very important because they are familiar with the stocks in these indices," he said. "We thought [BeNe 40] would be very interesting for our clients, also from the viewpoint of diversification, because many structured products are linked to the Eurostoxx 50 or other benchmark indices."
The BeNe 40 rebalances at each quarterly review which helps to keep the volatility low, according to Van Iseghem. "We sometimes see that certain indices are heavily weighted. They have a number of very large shares while the remaining shares barely play a role. With BeNe40 all shares are weighted equally, which was also very positive for us."
The note offers 100% participation in the positive performance of the BeNe 40. However, if the index trades at or above 115% of its initial level, on any of the semi-annual observation dates, the product automatically switches to a fully capital protected note with a fixed coupon of 2.5% (5% per annum). In that case past coupons are recovered. "Say, for example, there is an auto-switch event after the third semester, you will get 100% capital return plus a coupon of 7.5% and further movement of the index no longer applies," said Van Iseghem.
Societe Generale Private Banking has launched several products on the auto-switch payoff recently and they have proved very popular with the bank's clientele according to Van Iseghem. "What we see now is that these products, now the equity markets are performing well, have increased strongly on the secondary market," he said. "So straight away you start with a higher delta compared to other capital protected notes." The Belgian public typically likes bonds and capital protection, said Van Iseghem "That's why we have come up with a capital protected product with a high coupon."
The Natixis Structured Issuance (LU) Autoswitchable Note is only available to clients who hold moveable assets with Societe Generale Private Banking Belgium that exceed €500,000 due to the fact that the product is seen as particularly complex according to the Financial Services and Markets Authorities (FSMA) moratorium on the distribution of particularly complex structured products. "That's correct," said Van Iseghem. "We offer products under the opt-out rule but we also issue public offers or private placements which do not come under the opt-out. For these products we always ask the FSMA's approval before commercialisation."
SRP's Belgian database lists 46 structured products, with a combined sales volume of €582m, linked to the autoswitch payoff. Of these, 12 structured products, including offerings from BPost Bank, Belfius, BNP Paribas Fortis, Crelan, Deutsche Bank, Societe Generale Private Banking and VDK Spaarbank, have been distributed in Belgium this year.
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