'Media misinformation' is harming US structured products industry

A torrent of misinformation printed by the media and calls from plaintiff law firms for investors to bring claims is damaging the industry, according to structured product bankers and lawyers

Mainstream media is damaging US structured products

The US media's constant attacks on and misinformation about structured products is the biggest challenge for the business, say industry participants. Law firms looking to bring class actions involving structured products and regulator scrutiny adds fuel to the fire and makes marketing more difficult, they say.

"It is this little vicious circle of the plaintiff firms and the media together creating reputational damage," says one capital markets lawyer at New-York based law firm.

"These are more complex than your average bond so for those who don't spend time learning what they are or aren't then it is easy for these things to get blown out of proportion."

One of the latest attacks on structured products comes from the American Association of Retired Persons (AARP), which issued reports of a man who lost $130,000 on structured products backed by Lehman Brothers, which were sold by UBS.

The article goes on to state that "To date, investors have lost an estimated $164 billion in structured products and similarly risky investments." According to Keith Styrcula, chairman and founder of the Structured Products Association (SPA), this figure refers to the asset-backed securities market, not the medium-term note market.

"A significant challenge for the industry is the confusion the financial media has regarding asset-backed and mortgage-backed securities," says Strycula.

"These are not 'structured products' as our industry defines them, but as mortgage securities began to default, the financial press was unable to make the distinction, which became confusing to investors and some regulators."

Alice Yurke, New York-based partner at law firm Ashurst, agrees that this is a big part of the problem. "When the economic crisis hit, a part of the problem was the use of the word ‘structured' – it took on a bad meaning, it was opaque and you were doing it to get around something."

The AARP article – like many others – accuses regulators of inadequate oversight of the structured products market. But those in the industry disagree. "It's one of the most regulated products," says Cheryl Gan, director, structured products, US and Canada capital markets at Citi Private Bank in New York.

In fact, the Financial Industry Regulatory Authority (Finra) has made structured products one of its focuses for the year. But this scrutiny does not always help the industry, according to the capital markets lawyer.

"In that document, Finra mentioned a focus on securities which are privately placed and sold to retail investors... Finra also mentions a continuing focus on non-conventional instruments... from structured credit to structured products. I think that is what has got picked upon and taken on a life of its own."

This is just one of many articles to hit the press and cause a stir among the structured products industry. Other recent examples include warnings about the products from the lawyers Ronald Marron, Deutsche and Lipner, and Gilman and Pastor, all of which come with a note that the firms can pursue claims relating to structured products. The mainstream media also publishes misinformation about structured products, say industry participants.

The banks' internal policies and those imposed on them by the US Securities and Exchange Commission often leave them not being able to defend themselves. "Investment banks often have a policy of not commenting in articles discussing a particular product. Since the banks usually cannot be quoted, it may be difficult for them to correct inaccuracies or to provide the positive commentary which would balance the article out," says Anna Pinedo, New York-based partner at Morrison and Foerster.

There is a consensus in the industry that education is needed: "The profession owes a duty to the media to talk to them," says Yurke. "The media owes it to the industry to give a balanced story."

The SPA is working on a joint effort with other industry associations and with those involved in manufacturing and selling structured products to try to get the message across.