Max Darer, Lowes Financial Management, 17/04/2024 

The first three months of the year saw a busy period for the UK retail sector and structured product issuance. The sector also saw the introduction of a new counterparty to the UK sector in Canadian Imperial Bank of Commerce (CIBC).  Whilst CIBC aren’t classified as a Globally Systemically Important Bank, they are a leading North American Institution and are one of the highest rated banks by credit rating agencies. CIBC backed retail structured products will be offered exclusively by a new provider, hop investing. hop are set up in a similar way to MB Structured Investments as an appointed representative of Meteor Asset Management.

Another counterparty re-entered the sector in Santander UK, after a period of five-years out of the market.  Santander is back offering deposit-based contracts via Walker Crips. We certainly welcome the addition of two more counterparties to the sector, increasing potential for diversification of counterparty exposure.

Q1 2024 saw 204 structured products issued (by strike date), utilising 12 different counterparties. 63 of the 204 were deposit-based or capital ‘protected’ plans. By comparison to the same period in 2023, issuance has been over 13% greater.

 

11 different providers consistently issued plans during the quarter, the chart below showing the split between autocalls, income and growth products. Walker Crips, MB and Meteor sticking out as the largest issuers by volume.

The mainstay of the UK retail sector being FTSE 100* linked capital at risk autocalls, remained as the most commonly issued product type, accounting for over 43% of total issuance in the quarter. The average advertised coupon for these was 7.77%, ranging from 6.25% on step-downs to 11% per annum on hurdle contracts.

Whilst no autocall contract had a maximum term of less than five-years, we remain outspoken about the fact that the longer an autocall has to run, the greater chance it has to mature positively. Extended market drawdowns are more likely to be negated the longer a plan has to run. Almost 43% of capital at risk autocalls had a maximum term of just five years whereas just over 30% had maximum terms of 7 years or more. By comparison to 2019 in what seemed to be the peak of longer term issuance of autocalls, over 80% of new issues had a duration of more than 6 years and no capital at risk autocall had a term of less than 6 years.

2024 will see another bank of 6-year maximum term autocalls relying on their final observation for positive maturity, otherwise capital will be returned provided there is not an extreme market correction.

*including FTSE CSDI

Further evidence above of continued use of FTSE 100 as the most favoured underlying.

To read our article discussing Q1 2024 maturity results click here.

 

All data sourced from StructuredProductReview.com

 

Structured investments put capital at risk.