Many structured products dealers cut staff covering the Latin American market last year and reduced their coverage owing to severe market dislocation. Distributors across the continent, disconsolate, complained that issuers refused to answer calls and simply declined to make secondary market bids on poor-performing products. The standout exception was Société Générale Corporate and Investment Banking (SG CIB).
"Many dealers weren't answering the phone, much less giving bids on products," says one Brazilian distributor. "But SG, in terms of creativity and being responsive, especially in the last quarter of 2008, really stepped up to the plate. We've rarely seen the flexibility and sharpness of pencil when needed that we get from SG."
One Chilean distributor says SG CIB is the strongest provider in the Latin American market. "It has been very active in keeping us appraised of market opportunities and the latest views on multi-asset strategies, and it has the cleanest execution and secondary market service," he says. "We haven't found that kind of service from any other provider on the street."
Amid the decimation of other banks' teams, the bank took the opposite approach and began to build its squad. "It has been a very difficult year for everyone in the structured products business and LatAm was no exception," says David Armstrong, managing director, equity derivatives, Americas at SG CIB in New York. "But it has also been a great year in terms of opportunities for those able to take advantage of the market conditions. We did not collapse our teams like other dealers and, because of our hiring, we have managed to increase our market share and move into areas where other banks pulled back."
With a strengthened team, SG CIB's structured products business has been characterised by two themes. First, the French bank focused on fostering new ways to deliver products locally to Latin American clients, and second, it garnered a host of new institutional clients as it expanded into new countries. It was also on hand to restructure products with negative mark-to-markets and offered investors an option of switching notes to a new strategy without any additional capital investment.
"We placed a huge emphasis on discovering new business that we could provide locally for clients," says Julien Lascar, director and co-head of Latin America structured products at SG CIB. "For example, regulations for Fundos Multimercados changed last year, allowing this type of fund to invest up to 100% in offshore assets. We immediately got one of our funds, the Lyxor Focus Fund, registered as a Fundo Multimercado, which meant the fund was available for onshore investment and investors could access offshore assets through a local vehicle." The Lyxor Multimercado fund, registered in November, is aimed at qualified investors including institutionals and high-net-worth individuals.
Another area where SG CIB has pushed boundaries is with the launch of locally listed exchange-traded funds (ETFs) in response to the shift in many of the region's pension funds, which have opted to buy ETFs instead of investing with local asset managers. In January this year, the bank started the process of listing six ETFs on the Mexican Bolsa and plans to launch a further five to 10 every month this year. It is also in the process of finalising the listing of ETFs in Chile.
In May last year the bank also traded the first listed structured product in Bolivia, which was sold to a major pension fund. The eight-year note, with a notional of US$50 million, was linked to the Liberty Multi-Strategy Fund, a Lyxor fund comprising Lyxor managed accounts. The trade was done even though the hedge fund industry was undergoing massive redemptions and liquidity freezes. But because none of Lyxor's managed accounts activated gates or were driven to segregate illiquid assets, the product was unaffected.
SG CIB also made groundbreaking moves in Uruguay in May. The bank traded with four major pension funds (Republica Afap, Afinidad Afap, Union Capital Afap, and Integracion Afap) an equity-linked note issued by the World Bank. It was the first time the pension funds have been able to invest in foreign assets in more than 12 years. The trade (US$50 million notional) was a 10-year, 100% principal protected product linked to a basket of three indexes comprising the Topix, the S&P 500 and the DJ Eurostoxx 50 indexes. SG CIB then compounded the success by trading another product with Republica Afap in October.
The bank continued to blaze a trail of market firsts in other regions such as Chile, where it traded the first commodity-linked product for Chilean retail investors. The issue combined three-year call warrants on the Dow Jones AIG Commodity index, which were structured by SG CIB and marketed by BBVA Chile via a structured fund that guaranteed principal protection. A notional amount of more than US$10 million was placed.