The Spanish retail market is currently one of the success stories of the structured products world. According to estimates from Spanish investment bank Grupo Santander, the Spanish market has almost overtaken Italy as the second largest retail market in Europe (Germany leads the way). Estimates from Santander now value Spain's market at approximately EUR22 billion a year, and the country is, by all accounts, developing a retail interest in more complex derivatives-based investments.
Cashing in on this general retail growth has been Catalan savings bank La Caixa. The bank has managed to build a significant distribution business, which has undoubtedly helped expand Spain's mass retail market. The bank has more than 5,000 branches throughout the country that sell structured products, giving it a powerful distribution platform. "We market all our products in branches and support them with wider marketing campaigns across Spain," says La Caixa's Barcelona-based head of structured products, Juan Ignacio Trujillano. "Our business has grown in line with the favourable market conditions."
Incorporating both retail and private bank sales, La Caixa distributes around EUR3 billion of structured products in deposit-linked structures per year, making it the largest distributor of deposit wrappers in the country. Through its retail network La Caixa distributes 30 issues per year with each issue on average selling approximately EUR70 million, Trujillano says.
The Spanish retail market is famously one of the world's largest consumers of equity-linked structured products. According to figures supplied by Santander, for example, equity products account for 87%, or EUR19 billion, of the retail market in Spain. In line with this, La Caixa also estimates that more than 90% of its distribution lies with equity-linked products.
"We mainly distribute index-linked products using the DJ Eurostoxx 50 or the Ibex 35," Trujillano says. These products are relatively vanilla when compared with offers by the bank's competitors. "We like to keep the message simple, typically distributing index trackers with one- or two-year maturities," he says.
But appetites are changing. Spanish regulators finally opened hedge funds to retail investors last year, after years of saying "wait and see". And several banks, including BBVA and Santander, have enjoyed success with hedge fund-linked structured products. La Caixa, while continuing to focus on its staple equity offerings, has also moved with the times, enjoying some retail success with a hybrid structure, for example.
The product allocates 50% to the DJ Eurostoxx 50 and 50% to the Euribor one-year swap rate. The one-year product is a monthly cliquet with 100% capital protection. This type of hybrid product is fast catching on in the retail market, Trujillano says, and although focusing on more vanilla products the savings bank says it is keen to offer its retail clients a range of offerings.
New ideas in the mix
During 2006, La Caixa distributed products linked to foreign exchange, commodities and interest rates. "In the beginning it was difficult but now it is getting easier to introduce new product ideas to the market," Trujillano says. This has been helped by increased awareness resulting from the heavy promotion and marketing of products in the press and in branches. "We are currently looking for new trends with Spanish interest rates set to play an important role in 2007," he says.
Unlike its bigger distributor rivals, Santander and BBVA, La Caixa does not have a full-scale structuring desk. Its strategy is to use its distribution power to profit without taking on the trading risk.
La Caixa uses a mixture of all the counterparties in the market, including the Spanish investment banks, Trujillano says, although he declines to divulge specific names. In many instances, La Caixa takes the basic structure from counterparties and modifies it to suit client demand. This may involve adding an additional underlying, shortening the maturity or changing the payoff. "While we don't have the trading desk to structure all our own products, we do have product ideas tailored to our client base," Trujillano says.
In the private banking space, La Caixa works closely with structuring houses to create bespoke solutions for clients. It distributes products with a minimum investment of EUR150,000 and can issue products for up to EUR3 million on a bespoke basis. Private bank clients in Spain are already more than comfortable with using complex structured products in their portfolio, Trujillano says.