Profile: Making a habit of innovation

Special report: Focus on España


Savings bank Caixa Catalunya has developed a burgeoning structured products business in its Catalunian stronghold in north-west Spain, where almost three-quarters of its 1,000 or so branches are based. The bank currently issues around five or six deposit-format structured products each year for its retail client base, and last year issued around E125 million in structured product deposits. Xavier Alsina, head of trading at the treasury department at Caixa Catalunya, has been at the forefront of the bank's structured products business since its inception in 1999.

While working as a credit analyst in the bank's credit department in 1995, Alsina submitted a paper on portfolio modelling of one-premium contracts to the journal of the Catalunian actuarial society. Caixa Catalunya's head of treasury at the time was impressed by the paper and invited Alsina to work alongside him on a project reorganising the asset and liability management functions of the company's insurance division.

Alsina later switched to the structured products division, working on the first retail products issued by the bank in 1999. But his initial foray into the business was far from easy, he says. "Six years ago things were difficult because the law didn't account for these products. We had to use an ancient law from 19th century, making it a risky market for investors," Alsina notes. "However, we aimed to resolve this issue by only issuing capital-guaranteed products."

Alsina left structured products to set up the bank's credit derivatives business in 2000, executing one of the first credit default swaps in Spain. Three years later he moved back to run the bank's treasury division and was at the forefront when Caixa Catalunya began ramping up its retail-focused structured products business.

The first of these products were based on simple call options dependent on the boom in the equity markets at the time. But they gradually developed into more exotic structures. "When rates fell we started to use cheaper structures, call spreads, Asian calls and, finally, exotic options in order to have cheaper premiums to match the zero coupon with the low rates," Alsina says.

A tougher climate

Although the 2001 equity market slump hit the structured products businesses across Europe hard, Spanish issuers avoided any major debacles due to their adherence to capital protection. But Alsina says recent products have proved harder to sell than those of a few years ago, as poor performance has deterred retail investors.

He remains bullish about the market's potential, as shown by the huge success of Spain's two largest banks, Santander and BBVA, which currently account for around 80% of the structured product market. And although Caixa Catalunya hasn't spent as much on marketing its products as those banks, Alsina believes that it can rely on its traditional investment stronghold in Catalunya as a base from which to expand its business.

"We don't make the same noise as other banks but I think that we have more or less the same products to offer to our investors," says Alsina. Between 10% and 15% of Caixa's active customers – ie those who look to it to manage their money – invest in its structured products, and Alsina thinks this figure will rise.

He is currently developing complex structures for the retail sector, such as worst-of baskets and commodity-linked products, that would probably have been considered unattractive in the past.

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