Taiwan house of the year: Natixis

Structured Products Asia Awards 2018

nicolas reille
Nicolas Reille, Natixis

Natixis’s success in the Taiwan structured products market can be attributed to its ability to design products that meet the long-term funding needs of clients and enhance yields in a volatile environment.

The French bank has been the biggest issuer of formosa bonds so far in 2018, launched the first equity-linked offshore product last year, and introduced its Reverso dispersion strategy to the market. Natixis also opened its first branch in Taipei in 2017, as part of a plan to expand its Asia-Pacific footprint.

While the bank has consistently featured among the top structured products issuers in the Taiwan market over the past four years, its innovation and enhanced local presence has allowed it to step up a notch this year. Natixis’s local presence has also emboldened it to offer a broad range of products, with repack notes linked to exotic interest rate payouts and principal-protected notes linked to the performance of collateralised loan obligation equity gaining the support of clients.

“Natixis has always been a reliable structured products provider in the Taiwan market,” says a wealth management company executive in Taipei. “We can always go to them for innovative product ideas and creative solutions to tackle uncertainties under volatile market conditions.”

The bank issued its first equity-linked offshore structured product for professional investors in Taiwan in April 2017, with Taishin International Bank as the distributor. The 10-year US dollar-denominated structured note with an issuer call gives investors exposure to a basket of 10 US-listed stocks through the bank’s Reverso strategy. 

“We have just entered the Taiwan offshore structured products market,” says Nicolas Reille, head of global market sales and financial engineering for Asia at Natixis. “Here again, we are taking a different approach, trying to bring new, interesting solutions to investors, such as, for example, the Reverso payoff. This dispersion trade offers true absolute return to investors. We see lots of interest in this particular payoff.”

The Reverso strategy operates as a dispersion measure of a basket of stocks. The coupon is linked to the outperformance of an equally weighted basket over a predetermined number of worst performers in the basket. This structure allows the product to generate payouts under almost any market condition, providing the underlying stocks in the basket exhibit some diversity in performance.

The bank is currently working with a Taiwanese asset management company to launch a Reverso principal-protected fund in the domestic market. That product is ready and is currently awaiting regulatory approval. The Reverso fund will be the first equity-linked structured retail fund launched in Taiwan since 2008, Reille says. 

“In Taiwan, we are also seeing convergence between our formula-based investment strategies and the strategies offered by asset managers,” he says. “We believe there is a demand for capital-protected funds. Those products should fit naturally into retail investors’ portfolios, offering a tailored risk/return profile, suitable for investors looking for lower risk. We are looking closely at potential opportunities there.”

It is not all about equity derivatives in Taiwan, however. The bank is also tapping clients’ interest for longer-dated funding and higher yields to offer interest rates products.

Natixis has seen higher revenue from fixed-income operations in Taiwan over the past 12 months. Long-dated, fixed callable hedges, for instance, reached US$33 billion over the course of the year, representing almost 15% growth year-on-year. 

The bank was especially active in the formosa market, in the service of its life insurance clients. More than US$960 million of formosas were issued between January and June, making Natixis the largest issuer in the market in terms of the amount issued. In addition to US dollar-denominated notes, the bank has also issued callable notes and traded back-to-back hedges denominated in yen, euro and Australian dollar in Asia, with maturities of up to 40 years. 

The formosa issuance generated sizeable and long-dated interest risk for the bank to manage, which can be problematic in non-G3 currencies where interest rate options are markedly less liquid. The bank has been working closely with hedge fund clients in order to recycle the associated risks from these trades, thereby reducing its regulatory capital constraints while providing liquidity to institutional investors. 

“We managed to be successful with the long-dated business, such as formosa zero-callable notes leveraging the yield appetite of local lifers and banks, and optimising scarce funding resources,” says Kirk Liu, head of global market sales for Greater China at Natixis. “This business is also a strategic opportunity to increase the intimacy with these key Asian investors and build some tailor-made products.”

Other fixed-income products include yield enhancement structures that combined a range accrual payout and a credit default swap overlay for additional pick-up. An example is the 10-year range accrual credit-linked notes referencing Bank of China issued by Natixis. The product pays a range accrual coupon of 2.7% per annum over three-month US dollar Libor as long as the spread between US dollar CMS 30-year and US dollar CMS two-year remains above –0.1%. 

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