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Funny products from creative banks

The Swedish bank Handelsbanken (SHB) recently announced a new product connected to the Chinese and Russian markets with a fixed 28% ROI (minus fees) if both the markets show positive returns after one year (as little as 0.1%). If this criteria is not meet the coupon goes on another year and so on up to 5 years. Every year gives a 28% return (IE 56% after two years, 84% after three up to 140% after 5 years). If not both markets are positive (at least one is negative) after the fifth year but none has fallen more than 40% the coupon defaults and pays 100% back. If at least one of the markets are down by 40% the coupon pays 100 - the worst markets return, IE if the Russian market falls 45% you get 55% back.

The most likely outcome is that both markets are positive after the first year (64% when backtracked march 1998 - march 2008) and the second likeliest outcome is that both are positive after two years (23% when backtracked). These two scenarios then make up 87% of the backtracked outcomes returning a very healthy 22,9 - 23,8% (including fees). In the backtracked period 2% of the tested months gave a negative return after five years, and I think that is very unlikely in today’s market also.

I think this is a excellent ‘alternative’ product as part (perhaps 5%) of a well balanced portfolio since it very likely locks in a profit of over 20% over a 1-5 year period. The last day to sign up is 17th of May 2009 and the Coupon will also be traded on the OMX Exchange from 28th of May 2009. The courtage when bought from SHB is 2% so perhaps it can be beneficiary to buy coupons on the secondary market (where you will be charged your normal courtage).

I will sign 200 coupons myself.

Link: http://hcm.handelsbanken.se/struktureradeprodukter/Warranter-och-certifikat/Erbjudanden/Kupongcertifikat-/

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