New Invest Ideas

Three new notes for you:

5Y USD 100% KG Callable Step Up Note, 3.18%-3.98% p.a.

The yield curve at the end of last year inverted between the 2-5 years maturities and compressed transversely. The yield topology expressed usually the increase of recession fears which the FED cannot ignore. The recent tightening path spilled globally and slowed economic activity, and the FED should be aware not to provoke recession
The enclosed strategy offers a guarantee of the capital initially invested, in 5 years’ unless earlier called. The qualified investor will receive a guaranteed first coupon of 3.18% after one year, if not called in the follower years the coupon steps up by 20 bps every year. This strategy should fit qualified investors with a neutral view of rates with potentially rates going down overtime. The callability of the investment is at the discretion of the issuer and callability usually happens if rates have gone down
In terms of timing, if qualified investors think the interest rates could still go up then better to wait to invest in this strategy later. If not, then it could be better to strike sooner than later to at least secure a 3.18% return over 1 year

Product Parameters

Issuer rating A+ (rated by S&P)
Currency USD
Maturity 5 Years unless issuer called
Capital protection 100% at maturity
Guaranteed coupon Y1 3.18% p.a.
Guaranteed coupon Y2 to Y5 3.38%, 3.58%, 3.78%, 3.98% (0.20% step up per year, until maturity, unless issuer called)
Frequency Annually (30/360 basis)
Max payout 117.90%
Comparable 5Y USD swap rate (spot 2.527%)
Investor Profile Conservative
Delivery Cash

Mechanism

Scenario 1:After 1 year, rates are higher than today (comparable is 5Y Annual Swap USD)
Payoff:The issuer will probably not call the Note and qualified investors get 3.18% coupon. Investment continues

Scenario 2:After 3 years, rates are lower than today (comparable is 5Y Annual Swap USD)
Payoff:The issuer will probably call the Note and qualified investors get 100% capital back + 3.58% coupon = 103.58% (6.56% already paid)

Scenario 3:At maturity, if the note has not been called by the issuer
Payoff:Qualified investors get 100% capital back + 3.98% coupon = 103.98% (13.92% already paid)

The following graph represents the performance of the level of 5Y Annual Swap USD over the last 5 years:

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5Y USD CLN Hybrid Brazil, USD 3m Libor, 6.04% p.a.

Since Bolsonaro was elected on the 28th of October 2018 for a term of 4 years, markets have shown confidence in the intendent reforms of Brazil's new president - placing a pro-business American style aura in the country. The recent change in credit risk for the Federative Republic of Brazil, as can be observed risk conditions have softened

The enclosed strategy offers a potential enhancement of yield when comparing to investing into Brazilian sovereign debt over 5 years. The annual coupon of 6.04% p.a. paid quarterly is dependent not only on a possible credit event of Brazil but also depends on the 3 months USD Libor ($3mL) daily movement. The coupon is daily accrued as long as $3mL is in the range [2% - 5%]. If $3mL trades within this range then the qualified investor cashes in the full coupon, otherwise coupon level can be lower

In terms of timing, such strategy could pay less return if the Brazilian CDS continues tightening and if the forwards on $3mL flatten a bit

Product Parameters

Issuer rating A+ (rated by S&P)
Currency USD
Maturity 5Y
Exposure credit Brazil Sovereign CDS (level 173.032)
Exposure rates USD 3m Libor (spot 2.76)
Market recovery At maturity
Conditional coupon 6.04% p.a. * n/N
Convention Quarterly, 30/360 basis, accrued unless credit event
Investor Profile Neutral sophisticated
Where n = # of days where $3mL is in the range [2% - 5%] N = # of days in the period
Pricing Date 24/01/2019

Mechanism

Scenario 1:During Q1, $3mL traded daily within the range [2% - 5%] and there was no credit event on Brazil
Payoff:Qualified investors get 1.51% coupon (6.04% p.a.), the investment continues

Scenario 2:At the end of Q8, $3mL traded 10 days out of the range and no credit event occurred
Payoff:Qualified investors get 1.34% coupon (1.51% p.q. * 80/90), the investment continues

Scenario 3:At the end of Q12, a credit event occurred, regardless of how $3mL traded
Payoff:Market recovery determined by ISDA. No coupon paid
Scenario 4:At maturity, during Q20, $3mL traded daily within the range [2% - 5%] and there was no credit event on Brazil
Payoff:Market recovery determined by ISDA. No coupon paid

The following graph represents the performance of the Brazil Sovereign CDS and USD 3m Libor over the last 5 years:

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18M USD 55% Low Strike DRA on French Banks, 10% p.a.

European broad fiscal stimulus combined with a healthy wage growth throughout the Euro Area and mild financial conditions should support credit demand in European Banks. French banks such as BNP Paribas and Societe Generale’ s exposure to Italy and the recent losses incurred by Natixis trading desks meant a peak in volatility and stock prices under pressure (BNP Paribas -36.42%, Credit Agricole -32.50%, Societe Generale -35.55%, Natixis -38.30% in 2018). Except for Societe Generale (-7.44% YTD), the YTD performances of these stocks show a slight recovery with +6.51% for Natixis, +2.94% for Credit Agricole and +1.27% for BNP Paribas

The enclosed strategy offers a return of 10% p.a. paid quarterly and accrued daily as long as the 4 banks, do not lose more than 25% from their initial level. The strategy offers quarterly exits from month 6, so qualified investors could get cash back earlier than 18 months. If for any reasons the stocks enter a sever bear trend, the product will provide extra safety with a leveraged put at 55%

Product Parameters

Issuer rating A (rated by S&P)
Currency USD
Maturity 18 Months unless called
Underlyings (WO) BNP, Credit Agricole, Societe Generale, Natixis
Low strike (leveraged put) 55%
Frequency Quarterly (Non-call 6 months)
Autocall trigger 100%
Coupon trigger 75%
Coupon 10% p.a. daily accrued
Investor Profile Aggressive Sophisticated
Delivery Physical
Alternative EUR, 6% p.a. daily accrued coupon

Mechanism

Scenario 1:In Q3, WO is up 3% (above the Autocall trigger) and the 4 stocks traded every day above 75% from their initial level
Payoff:Qualified investors get 100% capital back + 2.50% coupon (10% p.a. daily accrued). Investment early redeemed

Scenario 2:In Q4, WO is down 10% (below the Autocall trigger), and 1 stock traded 10 days below 75% from initial level
Payoff:Qualified investors get 2.22% (2.50% p.q. * 80/90). Investment continues

Scenario 3:At maturity, investment not early redeemed. WO is down 15% and the 4 stocks traded every day above 75% from their initial level
Payoff:Qualified investors get 100% capital back + 2.50% coupon (10% p.a. daily accrued)
Scenario 4:At maturity, WO is down 60% and the WO traded 10 days below 75% from initial level
Payoff:Qualified investors get 72.73% capital back (40%/55%) + 2.22% coupon (2.50% p.q. * 80/90)

The following graph represents the performance of the 4 underlyings over the last 5 years and the products payoff:

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