Why Consider Market Linked CDs and Notes - S&P Dow Jones Indices

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Transcript of Why Consider Market Linked CDs and Notes - S&P Dow Jones Indices

Slide 1Tuesday, December 4, 2012 at 4:15 p.m. (EDT)
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Bernd Henseler, CFA
Vice President, Structured Products Channel
S&P Dow Jones Indices
Bernd Henseler is vice president at S&P Dow Jones Indices, responsible for the channel management efforts for structured products globally.
Prior to joining S&P Dow Jones Indices, Bernd was a vice president at an independent asset manager in Toronto. Before that, Bernd was an executive director for Morgan Stanley, London, in the retail structured products group where he was responsible for setting up a structured products platform and development of investment solutions for private clients. Prior to Morgan Stanley, Bernd was a vice president for the equity structured products platform at Deutsche Bank in Frankfurt and London. He also worked as vice president at Sal. Oppenheim in Frankfurt in the equity derivatives department developing solutions for private and corporate clients and extending the structured products offerings.
Bernd is a CFA charter holder. He holds a master’s degree in business administration from Indiana, University of Pennsylvania and a Diplom Kaufmann degree in business administration and finance from Gerhard- Mercator University in Duisburg.
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Keith Styrcula
Founder and Chairman
Structured Products Association
Keith Styrcula is the founder and chairman of the Structured Products Association and was a senior marketer in JPMorgan’s Structured Solutions group until January 2006.
His career started in 1991 when he joined CSFB’s Legal Department from Fordham University School of Law to oversee legal, regulatory and compliance issues related to First Boston’s derivatives effort. While practicing as a derivatives attorney, he was a member of the FIA Law & Compliance Executive Committee, the SIA Options and Derivatives committee and served on the Business Conduct Committee of the Philadelphia Stock Exchange.
He moved to the business side of equity derivatives in February 1997, reporting to the head of equity derivatives at SBC Warburg (renamed UBS following the merger). At UBS, he created the first structured product linked to the Dow Jones Industrial Average (issued by IBM). He returned to CSFB in July 2000 to launch the structured products platform for the newly acquired DLJ Private Client Services group, which placed $1.2 billion in its first year. He founded the 1,700-member Structured Products Association in August 2003. www.structuredproducts.org.
He is frequently quoted in the financial media as an authority on derivatives, structured products and the next generation of investments for U.S. and was profiled in the February 2004 issue of Risk magazine on his vision for the future of structured investments. The March 2006 issue of Structured Products Magazine interviewed him on his groundbreaking new structured products platform he launched in the U.S.
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Cary Immesoete
Wells Fargo
Cary is Managing Director of Product Development and Marketing for the Customized Investment Solutions Group. In this capacity, Cary and his team develop, offer and issue Market Linked Notes and CDs to Retail, Mass Affluent and High Net-Worth clients.
Cary joined the Wells Fargo Corporate Development Group as a Mergers and Acquisitions Specialist in February 2000. While in Corporate Development, he participated in the negotiation, analysis, and due diligence of numerous transactions, including the acquisitions of Montgomery Asset Management, First Security Corporation and Strong Financial Corporation.
Cary received a M.A. in economics as well as a M.B.A. from SUNY at Buffalo. He completed his undergraduate studies at the University of Rochester with bachelor’s degrees in Physics and in Economics.
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Eric Miller
HSBC Bank USA, N.A.
Eric has been advising high net worth individuals and their consultants on the use of derivatives for risk management and structured investments for seventeen years. He joined HSBC to assist in the effort to distribute structured investments through third party channels. Prior to joining HSBC, he held head of structured product sales roles at Natixis and ABN AMRO. At ABN AMRO, he created the S-NoteSM marketing concept for educating third-parties and their advisors on the appropriate positioning of structured products to clients with varying risk tolerance and asset allocation needs.
Before joining ABN AMRO, Eric worked at UBS, where upon UBS's acquisition of PaineWebber, he was chosen to lead the effort to distribute derivatives through their wealth management channel. Prior to that, Eric was at Lehman Brothers where he was involved in hedging, monetization and structured product solutions for Lehman's private client services group in the U.S. and Latin America.
Eric received his M.B.A. from the Kellogg School at Northwestern University. He has a B.S. in Computer Engineering from the University of Rhode Island and a Masters Degree in Electrical Engineering from Clemson University.
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Deryk Rhodes
Incapital LLC
Deryk Rhodes is Vice President with Incapital LLC’s Structured Investments Group. Mr. Rhodes is responsible for the distribution of both new issue and secondary structured retail products globally across all asset classes.
Deryk joined Incapital in November 2010. Deryk was formerly with Newbridge Securities as head of structured products trading. Prior to joining Newbridge, Mr. Rhodes was a director at Citigroup focusing on structured products sales to third party dealers and institutional accounts. Previously, Deryk was vice president within the structured products structuring and trading group at Nomura Securities.
Mr. Rhodes has been a frequent speaker at industry conferences and is regularly quoted in investment journals.
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Tim Mortimer
Future Value Consultants
Tim Mortimer is Managing Director of Future Value Consultants, a research, product design and analytics consultancy specialising in structuring products.
He has worked for 20 years in derivatives and structured products, previously as a Quantitative analyst at Paribas, UBS and Zurich Capital Markets before founding FVC in 1998.
His experience includes model development and product structuring as well as the business, mathematical and technical aspects of creating innovative services in the structured product market. His passion is for bringing powerful and accessible tools which help the transparency and education process in financial markets.
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Market Linked Certificates of Deposit
•12
Innovative ways to pursue your investment strategy
Investors are challenged to find the optimal balance between risk and reward in their portfolios. One way to potentially achieve growth while also reducing market risk is to invest in a Market Linked CD. Investing in Market Linked CDs can be an effective strategy to participate in the appreciation of various asset classes while limiting downside exposure when held to maturity.
•Market Linked Certificates of Deposit (CDs) can provide a creative solution for investors looking to gain access to the markets while reducing
their exposure to market risk when held to maturity.
•Before making an investment decision, please work with your financial advisor to determine which investment products may be appropriate given your financial situation,
investment goals and risk profile. If you and your financial advisor determine that a Market Linked CD investment may be suitable for your portfolio, this brochure will help you better understand the potential benefits, risks, considerations and features associated with these
products.
•13
What are Market Linked Certificates of Deposit?
Wells Fargo Securities partners with Wells Fargo Bank and other FDIC insured institutions (the Issuer) to issue Market Linked CDs. Unlike traditional CDs, Market Linked CDs typically offer no fixed coupon and instead provide an interest payment at maturity based on the performance of an underlying market measure. Market measures may include, but are not limited to, equity indices such as the Standard & Poor’s (S&P) 500® Index or Russell 2000® Index, a basket of stocks, a basket of commodities or commodity indices, a basket of currencies, or an inflation benchmark such as the Consumer Price Index (CPI).
•Market Linked CDs provide for the return of your original deposit amount at maturity while also offering the potential for capital appreciation based
on the performance of a specified market measure.
•Characteristics
•Market measure. Linked to the performance of equities, currencies, commodities, interest rates, or a combination of one or more asset classes
•Minimum investment. Available in increments of $1,000, typically with a $4,000 minimum investment
•14
Advantages
•Some of the advantages of investing in a Market Linked CD include:
•Market risk reduction. Repayment of the original deposit amount, if held to maturity, subject to the creditworthiness of the Issuer. FDIC insurance applies up to applicable limits
•Convenience. A single strategy designed to help protect against market risk losses if held to maturity, while offering the opportunity to generate interest based on the performance of
various underlying asset classes, subject to creditworthiness of the Issuer
•Return diversification. Interest exposure to a variety of markets, including domestic and international equities, commodities, currencies and fixed income
•Sophistication. Participation in investment opportunities that may otherwise be difficult to replicate as an individual investor
•15
Risks and considerations
•As an investor, your should consider these risks when investing in Market Linked CDs:
•Performance risk. While Market Linked CDs provide for a return of the deposit amount at maturity, there is generally no assurance of any return above the deposit amount. The return generated by the Market
Linked CD, if any, may be less than the return that could have been achieved by investing directly in the underlying market measure or in a conventional interest-bearing deposit with a similar maturity to the
Market Linked CD. The return of certain Market Linked CDs may be limited by a predetermined maximum return.
•Liquidity risk. Investors may not have the right to withdraw the deposit amount of a Market Linked CD prior to its maturity date. Market Linked CDs are only appropriate for investors who do not have liquidity
needs prior to maturity.
•Market risk. Investors may be unable to sell their Market Linked CDs prior to their maturity date and the value of the Market Linked CDs prior to maturity will be affected by numerous factors. There is no
assurance that a secondary market will develop. If an investor chooses to sell a Market Linked CD prior to maturity, assuming a buyer is available, the investor may receive substantially less in sale proceeds than
the deposit amount of the Market Linked CD.
•Costs. The inclusion of placement fees and structuring and development costs in the issue price of the Market Linked CDs and certain hedging costs are likely to adversely affect the price at which investors can
sell their Market Linked CDs.
•16
Risks and considerations (continued)
•Credit risk. Although Market Linked CDs are FDIC-insured, any investment in a Market Linked CD that exceeds the applicable FDIC insurance limits is subject to the credit risk of the Issuer.

•Tax treatment. An investor who owns a Market Linked CD that is treated as a contingent payment debt instrument will be required to pay taxes on imputed interest income at ordinary income-tax rates each
year over the term of the Market Linked CD, based on the Issuer’s estimated comparable yield, even though the investor may not receive any interim interest payments. In addition, any gain or loss realized
upon sale, early redemption or at maturity of a contingent payment debt instrument will generally be treated as ordinary income, based on the investor’s adjusted tax basis. This tax treatment applies unless
the investor owns the Market Linked CD in a qualified tax-exempt or tax-deferred account such as an IRA. More information about tax consequences is available in the Disclosure Statement. For complete tax
advice, clients should consult their tax professionals.
•Call risk. A Market Linked CD may be callable at the option of the Issuer. If the Issuer exercises its call right, it will pay the call price on the call date. The Issuer has no obligation to call a callable Market Linked CD and any decision to call a callable Market Linked CD will be made in its sole discretion when it is most advantageous for the Issuer to do so. If a Market Linked CD is called, it is possible that the investor may not be able to reinvest the proceeds at the same or greater yield, which is described as reinvestment risk.
•17
Market Linked Certificate of Deposit features
Return of deposit amount at maturity. The investor will receive at least 100% of the original deposit amount at maturity, subject to the creditworthiness of the Issuer.
Supplemental interest payment calculation. There are numerous ways that the performance of the market measure can be calculated. The precise return methodology of a particular Market Linked CD and examples of calculations can be found in the Preliminary Terms Supplement.
Minimum interest. Some Market Linked CDs may pay a minimum interest amount at maturity with the opportunity to earn a greater interest payment linked to the performance of the underlying market measure.
•Terms of a Market Linked CD will vary from one offering to the next. Potential investors must read the applicable Preliminary Terms Supplement
and Disclosure Statement and consider the following
•aspects of each Market Linked CD before investing.
•18
Market Linked Certificate of Deposit features (continued)
Estate feature. In the event of death of the beneficial owner of the Market Linked CD, the estate feature allows the owner’s estate to redeem the Market Linked CD at par prior to maturity.
FDIC insurance. The FDIC standard maximum deposit insurance amount (MDIA) is $250,000 per depositor per FDIC-insured institution. The MDIA refers to all deposits held by a depositor in the same account ownership category at a single FDIC-insured institution. There is no maximum limit on the amount that may be deposited in Market Linked CDs, but the FDIC deposit insurance only covers Market Linked CDs up to the insurance limit, including the aggregate of the deposit amount and any interest that has been finally determined, through the date of the insured bank’s closing. The FDIC has taken the position that any interest that has not yet been ascertained or finally determined and any secondary market premium paid by an investor above the deposit amount of the CD are not insured by the FDIC. Furthermore, FDIC insurance does not apply to secondary market trading losses. See “Deposit Insurance” in the Disclosure Statement.
•19
Return characteristics at maturity
•Unlike traditional certificates of deposit, Market Linked CDs typically do not offer a fixed rate of return. Instead, Market Linked CDs offer an interest payment at maturity based on the performance of an
underlying market measure.
•Example 1: Price of market measure has decreased.
•All Market Linked CDs provide for the return of your original deposit amount at maturity, subject to the
creditworthiness of the Issuer, even if the market measure has decreased.
•Example 2: Price of market measure has increased.
•In addition to the deposit amount, investors have the potential to receive an interest payment at maturity based on
the performance of the underlying market measure.
•The market linked interest payment is dependent upon the performance of the referenced underlying asset and the return calculation. Each Market Linked CD is unique and you should thoroughly familiarize
yourself with all the terms and conditions (described in the Preliminary Terms Supplement and Disclosure Statement) before making an investment decision.
•20
Value prior to maturity
•The value of a Market Linked CD will fluctuate between inception and maturity. Market linked CDs provide for the return of the deposit amount only at maturity and selling a Market Linked CD prior to
maturity may result in a loss.
•The value of a Market Linked CD will depend on many factors, such as underlying asset performance, interest rates, market volatility and time remaining
to maturity. Notice that the value of a Market Linked CD can be above or below par between inception and
maturity. If the Market Linked CD is sold prior to maturity, you may receive substantially less in sale
proceeds than the original deposit amount.
•21
Who should consider investing in Market Linked Certificates of Deposit?
•Market Linked CDs can be used as an alternative to a direct investment, as part of an overall asset allocation strategy, or as a portfolio risk-reduction tool.
•The volatility frequently associated with financial markets can make investors hesitant to consider a direct investment in certain asset classes. Furthermore, it may be difficult for
individual investors to access particular asset classes and/or strategies directly. These issues may lead investors to favor traditional fixed income investments, which are typically less
volatile than riskier asset classes. However, a portfolio that excludes these asset classes may also reduce an investor’s long term growth potential.
•Market Linked CDs may be an alternative for investors who are seeking growth, but want to reduce market risk within their portfolios. Market Linked CDs can help investors with both
of these goals by providing the opportunity to participate in market gains (equity, commodity, foreign exchange or fixed income) while protecting against a decline in the
market measure at maturity, subject to the creditworthiness of the Issuer. In some cases, Market Linked CDs can give investors access to…