6.5 C
New York
Tuesday, March 28, 2023

Credit score Suisse’s Notorious ETN Misadventure Might Be Limping to Finish

(Bloomberg) — UBS Group AG’s abrupt takeover of Credit score Suisse Group AG might mark the start of the tip for one of many trade’s extra infamous franchises.

At one level one of many largest issuers of exchange-traded notes — cousins of exchange-traded funds that include a riskier fame — Credit score Suisse has been on the coronary heart of a number of the enterprise’s ugliest moments.

Most notably, it was a Credit score Suisse ETN that performed a starring position in 2018’s ‘Volmageddon’ episode. Two years later, an oil word run by the financial institution was additionally worn out when crude costs turned damaging. Shortly afterward, Credit score Suisse shocked the market by delisting a set of ETNs value roughly $3 billion, however made the controversial determination to permit them to maintain buying and selling within the wilderness of the over-the-counter markets. 

Now, as UBS takes management of Credit score Suisse’s property, the destiny of its remaining exchange-traded merchandise is unknown. All instructed, the lender manages about $700 million over 12 ETNs. Given the spotty historical past, buyers will seemingly exit the merchandise organically even when the enterprise isn’t shut down, in accordance with Bloomberg Intelligence.

“Persons are achieved with Credit score Suisse” ETNs, Bloomberg Intelligence ETF analyst Athanasios Psarofagis stated on Bloomberg Tv’s ETF IQ. “They’ve already seen flows begin to come out of their merchandise. I feel now they’re going to maneuver to ETFs or they’re going to maneuver to different ETN issuers.”

Representatives for Credit score Suisse and UBS declined to remark.

In contrast to their fund brethren, ETNs are unsecured debt obligations backed by the financial institution that issued them, fairly than the property the product is linked to. The notes are sometimes used as a method to get leveraged publicity to asset courses that may not match into the confines of a conventional fund — a follow that’s drawn scrutiny from regulators.

It was that leverage element that put the ill-fated VelocityShares Each day Inverse VIX Quick-Time period ETN (ticker XIV), which was designed to revenue when markets are calm, on the coronary heart of Volmaggedon. Credit score Suisse was compelled to liquidate the almost $2 billion word after Cboe Volatility Index futures surged, kicking off what merchants theorized was a suggestions loop. 

Six years earlier, the VelocityShares Each day 2x VIX Quick-Time period ETN, or TVIX, went off the rails, veering away from the index it was created to imitate as buyers grew to become obsessive about utilizing it to wager in opposition to shares.

The majority of the property nonetheless left in Credit score Suisse merchandise sit within the $323 million X-Hyperlinks Crude Oil Shares Coated Name ETN (USOI) and the $136 million Credit score Suisse X-Hyperlinks Silver Shares Coated Name ETN (SLVO). There’s lower than $100 million every within the Credit score Suisse X-Hyperlinks Gold Shares Coated Name ETN (GLDI) and the Credit score Suisse S&P MLP Index ETN (MLPO). 

Outdoors of these 4 merchandise, Credit score Suisse made the weird determination to not liquidate the ETNs it delisted again in 2020. As such, the bulk are nonetheless buying and selling on an over-the-counter foundation, although with little or no in the best way of property — the VelocityShares Each day 3x Lengthy Pure Gasoline ETN (UGAZF), for instance, holds simply over $200,000. 

Of all of the potential suitors for Credit score Suisse, UBS is the financial institution probably to depart the Credit score Suisse merchandise working, in accordance with VettaFi’s David Nadig, given UBS already has its personal suite of ETNs. The financial institution has a number of different choices it might pursue as properly.

“The 4 Credit score Suisse extant ETNs have early name provisions, so UBS might completely simply recall them — give everybody their a reimbursement basically,” Nadig stated. A extra controversial possibility could be “to delist with out closing, which Credit score Suisse has achieved up to now.” 

Related Articles


Please enter your comment!
Please enter your name here

Latest Articles