While many other derivatives houses have stuck to tried and tested derivatives products, Merrill has been experimenting with a wide range of third-generation products. At the same time it is attempting to improve the execution of such first-generation products as plain-vanilla swaps and options. Adding Merrill’s very large distribution network to its track record of derivatives innovation and you are on to a winner.
Among the products Merrill has introduced this year is structured financing. One such deal, which Merrill co-led, was for the Kingdom of Denmark. Investors were able to choose principal repayment in one of four currencies and the deal was placed with both institutional and retail investors.
Another winner for Merrill was inflation-linked structures. It was the first bank to execute a 10-year inflation swap, and pioneered trader options, an innovative product that at expiration allows the investor to receive any positive P&L from trading and has no downside except for the initial option premium paid.
Merrill has also moved into emerging market and credit derivatives. One deal included a credit-spread-linked financing that allowed the issuer to reduce its financing costs by buying its own credit spread. Another, a Brazilian convertible swap, allowed investors to customize their exposure to local-currency convertibility risk.
Merrill’s biggest coup in the past year was perhaps its hurricane bond. The bank was the first to come to market with a product based on hurricane risk on the US east coast. Merrill was able to price and transfer such an unusual product very efficiently. Its competitors have a long way to go before they start to match it – it takes self-confidence and sheer audacity to come to market with products that no-one else has even thought of.
Top tier SBC Warburg SBC Warburg, like Merrill Lynch, has a strong trading presence and a very diverse business. It is top in currency warrants and has a number of important deals under its belt, including the Bank of Scotland’s shared appreciation mortgage.
Top tier Citibank Citibank believes that derivatives are the linchpin of corporate finance and that these tools help clients meet specific financial goals and objectives. Taking this holistic approach has positioned Citibank as the leading provider of tailored derivatives solutions. In 1996, Citibank’s derivatives revenues were $544 million.
