Kempen has launched two new memory coupon notes (MCNs) in the Netherlands. The MCN Eurozone 16-20 and MCN USA 16-20 were both issued on the paper of the merchant bank's parent company Van Lanschot and offer conditional annual coupons of 6.25% and 5.75%, respectively. "MCNs work well when the volatility is high," said Laurent Guntenaar (pictured), director, structured investments at Kempen. "[High volatility] is good for all product types which offer a coupon, such as MCNs and autocallables," he said. "What we see now is that with a coupon barrier of 70% investors are still able to get a decent coupon even though the financial markets are down."

In October 2015, Kempen issued three MCNs, on Europe, the US and China, which were introduced at Euronext Amsterdam via trading. This time, however, Kempen opted for a subscription period. "Back in October, the market went up very quickly so these products listed well above par within a very short time," said Guntenaar. "If a product offers a coupon of 6%, but you have to buy the product at 103% of the nominal then you end up financing half your coupon," he said. "That's why in this case we have opted to work with an introduction period, so all our clients have until Wednesday to subscribe at 100% of the nominal."

The October MCN on the US is currently trading around par while the Eurozone MCN is not much below par, according to Guntenaar. "These products, and other products too, if they list below par they are being picked up again by investors because apart from the [memory] coupon build in the product, you can also get some capital gains," he said. The MCN on China, however, is well below par, which means investors are always a little bit more wary, said Guntenaar.

Kempen has chosen not to launch a MCN on China this time around. "China has of course been one of the drivers why the markets have started the year so badly. You find that especially private banking clients, temporarily refrain from China," he said. There is also a technical reason according to Guntenaar. "Because the underlying index, the Hang Seng China Enterprises (HSCEI), has fallen so much, you see that the dividend yield we calculate is very high." The bank has been looking at the dividends paid by the underlying companies of the HSCEI for the past four years - the term of the product - and concluded that the dividend yield was so high that it was almost at the level of the coupon, said Guntenaar. "Then you can argue, why should I invest in a note if the dividend yield on the underlying index is so high?"

Although the current MCNs are public offers, Guntenaar expects there will be some spin offs for the bank's private banking clients. "We do a lot of bespoke products and that's something I'm certainly expecting now too," he said. "You also see that because of the high volatility which we have seen the past month we have done many private placements, mainly autocallables, because the coupon was so much higher than normally would have been the case."

For 2016 Kempen is hoping to launch a capital protected Index Guarantee Note (IGN) which, instead of being linked to equities, is linked to a mixed fund. "We have already done a number of private placements on mixed funds," said Guntenaar. "That goes back to the fact that the volatility is so high which means IGNs with capital protection are not working very well on indices." Mixed funds have equities, bonds and cash as an investment asset and because of that the volatility is lower than on an index, said Guntenaar. "Often those indices have a certain target volatility. What you find in the Netherlands is that mixed funds strangely enough are not very popular. But in the neighbouring countries Belgium and Germany they are very popular and very well known. These are huge funds with large assets," he said.

"We would like to issue a capital protected note linked to a mixed funds. But only if it's possible. The interest rates are still very low and the funding spread is low too."

SRPs Dutch database registers 70 structured notes from Kempen of which 44 are still live. The vast majority of the live products are linked to equities (34), while there are also products linked to the interest rate (five), inflation (two) and real estate (two).

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