New Investment Ideas

There are three new notes for you:


3Y USD Athena decreasing on US Stocks, 16.00% p.a. memory

According to NY Times, both the United States and China seem to be digging into their positions in ways that will be hard to resolve with the kinds of mutual face-saving that typically turns high-stakes negotiations into deals. Nevertheless, media reported recently a commitment on both sides to solve the conflict. The actual political tensions create uncertainty in markets and allow qualified investors to benefit from potential drops

An escalation of the trade war has been and seems to be the main risk. Qualified investors might be interested by protecting themselves against a potential escalation of tension. As US markets gained after China reaffirmed commitment to resolve trade, we selected a basket of US consumer staples / solid stocks: Coca-Cola (+7.94% since the lows in Dec18), McDonalds (+16.14% since the lows in Dec18) and Apple (+25.90% since the lows in Dec18) to benefit from recent peak in volatility

The below strategy is a 3-year maximum duration providing quarterly exits with decreasing autocall triggers and a potential 16.00% p.a. memory coupon (max payout = 48%) paid if the product early redeems. At maturity qualified investors will benefit from a conditional capital protection (50% European Barrier on the lowest performer)

Product Parameters

Issuer rating A (rated by S&P)
Currency USD
Maturity 3 Years, unless called
Underlying (WO) Coca-Cola (KO US), Apple (APPL US), McDonalds (MCD US)
Observations Quarterly
Autocall triggers From 100% to 75% (-5% every 2 quarters)
Recall Coupon 16.00% p.a. (memory)
European barrier 50%
Alternative 1 - USD, Athena Airbag (last AC Trigger = EU KI = 50%), Recall Coupon 11.60% p.a. (memory)
Alternative 2 - GBP, Athena, Recall Coupon 13.30% p.a. (memory)
Alternative 3 - EUR, Athena, Recall Coupon 10.95% p.a. (memory)
Alternative 4 - CHF, Athena, Recall Coupon 10.40% p.a. (memory)

Mechanism

Scenario 1:On Q3, if not called before, WO is down by 2% from its initial level (above 95% AC Trigger)
Payoff: Qualified investors get 100% capital back + 3 * 4.00% coupon (16.00% p.a.) = 112%. Product early redeemed

Scenario 2: On Q8, if not called before, WO is down by 17% from its initial level (below 85% AC Trigger)
Payoff: No coupon paid. Product continues

Scenario 3: At maturity, if not called before, WO is down by 20% (above 75% AC Trigger and 50% European Barrier)
Payoff: Qualified investors get 100% capital back + 12 * 4.00% (16.00% p.a.) = 148%

Scenario 4: At maturity, if not called before, WO is down by 30% (below 75% AC Trigger but above 50% European Barrier)
Payoff: Qualified investors get 100% capital back. No coupon paid

Scenario 5: At maturity, if not called before, WO is down by 55% (below 75% AC Trigger and 50% European Barrier)
Payoff: Qualified investors get 45% capital back. No coupon paid

The following graph represents the performance of the 3 underlyings over the last 5 years

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3Y USD 120% Participation on SX5E, 10.80% p.a.

Equities in Europe have been recovering since the beginning of the year with an ongoing tense geopolitical situation and the fear of global growth, market appreciation should run out of steam. The Euro Stoxx 50 Index (SX5E) increased by 19.65% from January to beginning of May. Since the beginning of the month, SX5E decreased by 5.50% and is now slowly recovering

The below strategy allows qualified investors to take advantage of the potential downtrend over the first year (with quarterly observation), with a 10.80% p.a. conditional coupon paid quarterly if SX5E trades quarterly below current level (entering a bearish trend). If such bear trend happens, we may expect a recovery in the index in 3 years. The strategy offers 1.20 times uncapped exposure in 3 years (at maturity) if the index closes above current level. The capital is also conditionally protected with a 70% European Barrier

Such strategy is suitable for qualified investors strongly believing European equity markets might suffer losses next year in that case will get rewarded with a quarterly coupon and if market recovers can be rewarded with an upside appreciating in 3 years

Product Parameters

Issuer rating A+ (rated by S&P)
Currency USD
Maturity 3 Years
Coupon Observations Quarterly (Q1, Q2, Q3, Q4)
Conditional Coupon 10.80% p.a.
Coupon Condition If closes below its initial level
Participation Observation At maturity (Y3)
Participation 120% on the positive performance
European barrier 70%
Investor Profile Bearish Speculative over 1Y, Bullish Speculative in 3Y
Alternative 5Y USD, 28.20% p.a. paid quarterly on the first year, 120% participation on the positive performance at maturity (Y5)

Mechanism

Scenario 1: On Q1, SX5E is down by 20% (below its initial level)
Payoff: Qualified investors get 2.70% coupon (10.80% p.a.), product continues

Scenario 2: On Q2, SX5E is up by 10% (above its initial level)
Payoff: No coupon paid, product continues

Scenario 3: At maturity, SX5E is up by 25% (above 70% European Barrier)
Payoff: Qualified investors get 100% capital back + 120% * 25% = 130%

Scenario 4: At maturity, SX5E is down by 15% (above 70% European Barrier)
Payoff: Qualified investors get 100% capital back. No participation

Scenario 5: At maturity, SX5E is down by 35% (below 70% European Barrier)
Payoff: Qualified investors get 65% capital back. No participation

The following graph represents the performance of the underlying over the last 5 years

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5Y USD CLN on iTraxx Main [4-8], 7.20% p.a. guaranteed (*)

Recently, iTraxx spreads have widened (+19.73% in one month on the iTraxx Main 5Y). The iTraxx Main Index has just overtaken its 5-year historical average (average 66.76, actual spread 67.97)

According to Moody’s, European default rates are currently at their lowest levels since 2008, and although they are expecting a moderate increase in the default rate by the end of 2019, so far there have not been any recorded default this year. In the current market environment, there is potential to lock in these rising spreads by selling credit protection on the iTraxx Main index through a Credit Linked Note (CLN) Tranche

The below strategy exposes qualified investors to the Tranche [4 - 8] on iTraxx Main S31 and provides an exposure to the investment grade credit market

The product allows qualified investors to benefit from an annual coupon of 7.20% p.a. (paid quarterly) and a 100% capital redemption at maturity if the number of entities impacted by a Credit Event is less than 4. (*) If 4 or more Credit Events have occurred since the inception, the value of the coupon and the capital redemption will be reduced by 1.44% and 20.00% respectively for each Credit Event

It might still be too early stage to gain exposure to the iTraxx Main, as the spread decreased by 26.88% since the beginning of the year. Such trend can reverse, and timing could be optimized at a later stage to invest in this strategy

Product Parameters

Issuer rating A+
Currency USD
Maturity 5 Years
Underlying iTraxx Main S31
Tranche 2.40%-6.40% [4-8]
Coupon payment Quarterly
Guaranteed Coupon 7.20% p.a. unless credit event
Recovery Fixed at 0%
Settlement European
Investor Profile Sophisticated
If N Credit Events (N > 3): Coupon = Max[7.20% * [1 - (N - 3) / 5], 0%], Redemption = Max[100% - [1 - (N - 3) / 5)], 0%]

Mechanism

Scenario 1: On Q2, the Number of entities impacted by a Credit Event is equal to 0
Payoff: Qualified investors get 1.80% coupon (7.20% p.a.)

Scenario 2: On Q3, the Number of entities impacted by a Credit Event is equal to 3
Payoff: Qualified investors get 1.80% coupon (7.20% p.a.)

Scenario 3: On Q5, the Number of entities impacted by a Credit Event is equal to 4
Payoff: Qualified investors get 1.442% coupon (5.768% p.a.) and capital redemption at maturity is fixed at 80%

Scenario 4: At maturity, the Number of entities impacted by a Credit Event is equal to 3
Payoff: Qualified investors get 100% capital back + 1.80% coupon (2.70% p.a.)

Scenario 5: At maturity, the Number of entities impacted by a Credit Event is equal to 6
Payoff: Qualified investors get 40% capital back + 0.721% coupon (2.884% p.a.)

Credit Event: If a credit event occurs, further coupons are forgone and the CLN will redeem at the final auction settlement price determined by International Swaps and Derivatives Association (ISDA: www.isda.org)

The following graph represents the performance of the underlying over the last 5 years:

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