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Derivatives

Fortis Structures Reverse Convert

Fortis Bank has structured a two-year reverse convertible on shares of Dutch banking giant ABN AMRO, because ABN's shares are trading near their 52-week low and because the high implied volatility on options on ABN facilitates structuring a guaranteed coupon of 11.25%. Koen Zoutenbier, senior account manager on the derivatives and structured products desk in Amsterdam, said the bank began pitching the note to investors last week and is aiming to sell a notional value of EUR15 million (USD13 million) of the product.

Financials are particularly attractive as underlyings because of their current low valuations and the high volatility on options on these stocks, said Zoutenbier. He added that ABN AMRO is a well-known name in the Benelux countries, which is where the product is being sold. In the note, the puts on ABN AMRO will have strikes set at the level at which the stock closes on Dec. 19. The shares were trading at EUR18.95 last Tuesday and the 52-week low was EUR15.26, with the high at EUR27.83.

A reverse convertible is the synthetic equivalent of an investor buying a bond and selling an equity put. The premium investors earn from selling the put is used to beef up the coupon on the bond.

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