Bristol & West Financial Services has purchased equity-default swaps in a still rare example of using the instruments for a retail product. The thrift purchased the deep out-of-the-money equity options, referred to as equity default swaps, on 32 FTSE blue-chip companies. The EDS will be set at 45% of the corporates share price on July 14. The retail product, dubbed Capital Secure Income Bond, is structured as a six-year bond, which pays an annual coupon of 7%, providing no more than three of the stocks lose
45% of their value. The thrift launched a similar product last month, but several sellside derivatives professionals did not know of any other firm launching a similar product in the U.K.
Bristol & West worked with parent company Bank of Ireland Global Markets and an undisclosed counterparty to structure the deal. "We looked at using credit-default swaps, but we thought that equity-default swaps were easier for IFAs and customers to understand," said Jim Goddard-Jones, head of third-party distribution at Bristol & West Financial Services in Bristol. Goddard-Jones declined to reveal the name of the counterparty, but said Bristol & West works with eight firms.
