Credit Suisse has been quietly making a name for itself in the corporate derivatives market. This year it made a splash with one of the largest leveraged employee share ownership plans (Lesops) in Europe for Intesa Sanpaolo.
The Italian bank wanted to raise capital while securing its employees' buy-in to its business plan and aligning their interests with those of its shareholders. Credit Suisse designed a structure whereby employees would enter into a three-and-a-half-year forward sale of Intesa Sanpaolo ordinary shares. In return, Credit Suisse distributed certificates to the employees offering the returns of leveraged call options referencing the underlying shares.
Employees stand to gain five times leverage on the embedded call options, plus capital protection. The transaction raised €500 million ($548 million) of capital for Intesa Sanpaolo, while employees locked in a 16% discount on the face value of each share they purchased through the scheme.
"We had a proposition for this co-investment plan, but Credit Suisse was distinctive in offering something with a more structured payout plus capital protection, which significantly appealed to our employees and resulted in a record level of participation. They proved extremely flexible in tailoring their solution and handling the implementation issues - from legal to operational," says Renato Dorrucci, head of human resources at Intesa Sanpaolo.
Credit Suisse has extensive experience in structuring share ownership plans, having executed more than 40 plans around Europe since the early 1990s for household names including Axa and Air France. But this particular deal was one of the largest ever issued, with significantly higher than average take-up among employees.
Credit Suisse was distinctive in offering something with a more structured payout plus capital protection, which appealed to our employees
"The Lesop builds on this experience and is an innovative offering. We think it is an attractive product in the current environment where a number of our corporate clients are interested in both raising capital and finding new ways to remunerate their employees," says Walter Rotondo, head of equity derivatives for Europe, the Middle East and Africa (EMEA) at Credit Suisse.
The Lesop market is one in which the bank believes it has a unique edge. "This relies on a relatively unique combination of retail structured products expertise with institutional and corporate structuring abilities. Credit Suisse's EMEA equity derivatives business brings these skill sets together, meaning we are exceptionally well placed to grow this business," says Rotondo.
Credit Suisse also continued to build out its platform for servicing individualised constant proportion portfolio insurance (iCPPI) policies to meet demand from insurance companies for a capital-efficient hedging solution that also provides flexibility for investors. The bank offers a full-service platform with committed pricing on gap-risk hedging, operational risk management, and legal and regulatory structuring expertise.
The platform's strength was highlighted this year when Credit Suisse was selected to act as one of two hedge providers for Italian life company Fideuram. Assets under management protected by Credit Suisse on the insurer's new range of unit-linked policies incorporating the iCPPI technology stand at €350 million.
"This structure allows us to give every client the choice of a batch of funds while maintaining capital protection. Credit Suisse is expert with this technology. We need a counterparty that we can be confident will deliver as these structures take a long time to arrange - 18 months in this case. They also need strength from a technical standpoint as there needs to be flexibility within each portfolio and the protection level for each account has to be checked and the assets rebalanced every day," says Roberto Modafferi, head of products structuring and delegated portfolio management at Fideuram.
Credit Suisse has also been touting its own brand of multi-asset risk premia strategies to Swiss insurance companies. One firm wanted to offer retail clients a unit-linked product referencing a systematic investment strategy with a volatility control mechanism so that it could offer principal protection at a discounted cost.
A fund was set up on the client's own platform, with Credit Suisse Asset Management acting as manager. The investment bank then provided the fund with allocation orders based on an in-house algorithm designed to restrict realised volatility to 4% and minimise the regulatory capital requirements for the insurer associated with the provision of the capital guarantee. The fund has accrued more than $1 billion to-date.
"The performance has been above its peer group. They are strong at developing new investment angles, and they have always been willing to discuss subtle details of the index. We did one transaction with them earlier this year, and we recently followed up with a second one for another fund," says a Swiss insurer transacting on the strategy.
The week on Risk.net, December 9–15 2017Receive this by email