28 Jan 2005, Risk magazine
This view is shared by others in the industry: "In past years, the structured product business was done on equity- and bond-linked notes, then came hedge funds, and now in the last six months or so, we’ve started doing currency structures," said Alex Keil, senior investment adviser at Barclays Private Bank. "There is very fast growth at the moment because now, both bankers and clients are aware of what there is available and the yields that are possible," he added.
With possible returns of 12% on some types of note, these products have a definite attraction. "A structured deposit is the primary strategy that the more sophisticated private bankers are recommending to their clients," said Keith Styrcula, chairman of the Structured Products Association and senior marketer of equity structured products at JP Morgan Chase in New York.
He said private bankers and wealth managers prefer the idea of using structured products for currency exposure as opposed to the OTC currency derivatives markets. "Risky speculation in the derivatives markets can be achieved by going to an institutional FX desk and buying a forward or an option on the currency. Structured investments can be a more prudent way to take a market view on currency fluctuations," he said.
These concerns are particularly relevant in the US, where the trading activities of Henryk de Kwiatkowski still resonate. De Kwiatkowski, a private investor, lost $215 million over a four- to five-month period in the mid 1990s. At one point, his long dollar futures positions were worth 30% of the total open interest in some Chicago Mercantile Exchange currency contracts.
De Kwiatkowski then sued Bear Stearns, his broker, for negligence, failure to warn him of the risks and not keeping him appraised of market forecasts. He originally won $164 million in damages, but the verdict was overturned on appeal by Bear Stearns, which successfully claimed it was not its duty to provide unsolicited advice to non-discretionary clients.