Deutsche Bank Adds Novel Twist To Capital Guarantee

  • 15 Apr 2002
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Deutsche Bank is working on a new way of creating capital guaranteed products, which it plans to launch this summer and market to investors as an over-the-counter swap. At the moment most capital guaranteed products are structured using either an option and a zero-coupon bond or with constant proportion portfolio insurance (CPPI). The new method, dubbed timing invariant portfolio protection (TIPP), is an evolution of CPPI, according to Xuan Karen Fang, v.p. in structured equity products in London.

TIPP offers investors a step up in the level of capital guarantee if there is an increase in the reference portfolio. However, because the flow is never reset downwards if there is a fall in the value of the reference asset the exposure is reduced. As a result this is designed for conservative investors.

Capital guaranteed products with step ups already exist but are mostly frequently structured with zero-coupon bonds and ladder options. However, Fang explained that ladder options can only be structured on liquid assets whereas the TIPP structure can provide guarantees for most types of underlyings.

Fang said the advantage of this product is that it can be redeemed at any time. For example if there is a boom followed by a bust investors can sell the product, taking the locked in guarantee, and reinvest in fallen angels. In a traditional structure investors have to wait until maturity to take their guarantee.

In the swap the client pays Deutsche Bank LIBOR and it receives the performance of the note after fees.

  • 15 Apr 2002

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5 Morgan Stanley 331.78 2 5.91%