Eurozone banks back 14% of structured products

A total of 106 structured products made available to advisers since the start of 2011 have a eurozone bank as a counterparty, Investment Adviser can reveal.

The figure represents 14 per cent of the total of 750 structured products issued to advisers and sold to clients over the period.

Spain last week became the latest eurozone state to see a raft of its banks have their credit ratings cut, with Moody’s downgrading 16 of the nation’s lenders including ‘big three’ giants Santander, BBVA and La Caixa.

This came as a political crisis in Greece and rising peripheral European government bond yields threatened to derail the entire single euro currency project and throw the Continent’s banking sector into a prolonged crisis.

If a eurozone bank was to collapse, the capital held in structured products that used the bank as a counterparty could be at risk although the European Central Bank is continuing to take steps to ensure the stability of the eurozone.

Data from StructuredProductReview.com, which lists all structured products available through UK advisers, shows that 62 products launched since the start of 2011 are backed or partly backed by the UK arm of Spanish bank Santander, including 12 through its Abbey National subsidiary.

These include 15 products issued by Legal & General, and four issues of Aviva Investors’ Defined Growth Plan, which include Abbey National among six counterparties.

Meteor Asset Management chose European banks as counterparties for 25 of its 54 products launched since January 2011, including Rabobank, based in the Netherlands, France’s BNP Paribas and Spain’s second biggest lender BBVA.

BNP Paribas and fellow French investment banking giant Société Générale backed nine products between them, while other counterparties used included Ireland’s Ulster Bank.

StructuredProductReview.com founder Ian Lowes said: “Advisers should be very aware of counterparties in order to diversify - limiting exposure to one counterparty is critical.”

He said Rabobank remains AAA-rated by two major agencies, and that BNP Paribas was “arguably no more risky than Royal Bank of Scotland”, which backs 199 structured products issued since January 2011.

“One way of seeing how the market reflects risk is by looking at the credit default swaps for each counterparty, as it shows how the market values that risk,” Mr Lowes added. “That’s very volatile though so you can’t use it as a definitive indicator.”

Santander’s UK arm earlier this month moved to reassure investors that it would not be adversely affected by the crisis engulfing the Spanish banking sector, after some UK county councils stopped placing overnight deposits it.