Structured Products Europe Awards 2016
These are tough times for investors in the Iberian peninsula. On the one hand, traditional investments offer only the most niggardly rates of interest; on the other, investors in this region are traditionally conservative and look askance at riskier products.
Commerzbank has demonstrated the adroitness to plough a middle course, and has carved out for itself an enviable niche in Iberia. The bank has been the most active and comprehensive provider of exchange-traded products (ETPs) in Spain and Portugal for several years, and now boasts a total market share of roughly 30%. It offers more than 3,700 live products in Spain and around 1,500 live products in Portugal, including warrants, turbos and reverse convertibles.
Key to its progress was the decision taken six years ago to partner with Renta 4, a leading online Spanish broker. Together, they built the Renta 4 Directo/Icom trading platform that now has a 10% share of all Spanish ETPs, compared to around 8% in 2014.
"In Spain, it is pretty complicated and normally takes one or two weeks to issue and list a product on exchange. Our distribution solution with Renta 4 means we can issue on a daily basis or even intraday. This is a huge competitive advantage," says Helio da Silva Claudio, head of international public distribution at Commerzbank in Frankfurt.
Thanks to the Renta 4 link, the bank can issue products every day and clients can trade them during an extending trading session, which runs from 9am to 10pm. An important recent development has been the issuance of multi-warrants "illimitados" on the platform, which, in contrast to the multi-warrants traditionally issued on exchange, have no maturity with competitive pricings.
The ETP side of Commerzbank's structured products business in Spain and Portugal is handled by the ETP distribution team, but it also has a financial institutions marketing team, which has been in existence since the beginning of the century and which concentrates upon the provision of bespoke over-the-counter solutions for financial clients in equities, commodities and funds.
Clients comment upon the competitive pricing Commerzbank offers, as well as its intimate knowledge of the Spanish market. Banca March treasurer Enrique Saenz de Santa Maria, whose firm is a regular buyer of structured notes from the bank, has high praise for it in this regard.
"They price the derivative much more competitively than other non-Spanish banks. They really understand the Spanish market and their pricing is much more in line with what you'd see from a domestic institution," he says.
Peter Rodrigues, a director of wealth management at Banco de Investimento Global, which has had a relationship with Commerzbank since 2000, echoes these sentiments. The bank, he says, is a "partner we can always rely on to provide innovative and top-quality products alongside first-class customer service. Commerzbank's experience in the field of levered products is clearly visible in the breadth of its product offering and the continuous innovations to it."
Spanish and Portuguese investors are by nature a play-it-safe bunch, and those instincts have been galvanized by the unprecedented political turmoil that currently consumes Spain. The country has been without an effective government since the June elections and there is no end to the stalemate in sight.
"The Spanish market has been affected by international and domestic factors. In this context, retail clients prioritise investment in products that seek to preserve the principal invested over products that seek to maximise the return," says Jaime Uribe, head of institutional sales at Commerzbank.
In this environment, only two types of product are thriving: digital options and autocallable notes.
Sergio Contreras, head of equity derivatives and commodity sales at Commerzbank in London, says: "If you're an investor, you can do two things: take no principal risk and leave your money in a deposit account, which will earn a small return; or invest in a digital or autocallable product with low or no principal at risk, which could generate a larger return." He cites autocallables on the S&P Europe Low Volatility Index as one example.
In an effort to generate yield, the bank has also created a risk premium index, which seeks to isolate four uncorrelated factors to provide yield, value, quality and momentum. It says the index offers positive returns with low volatility, but even with products such as these, the most enthusiastic buyers have been high-net-worth clients.