Global Best structured product house: BNP Paribas

The new Awards for Excellence are live – View the winners now

Euromoney Awards for Excellence 2006

Also shortlisted in this category:
Deutsche Bank
Société Générale

French banks BNP Paribas and SG Corporate and Investment Banking have arguably carved out a niche in the past decade as the leading players in structured product innovation. Traditionally, SG was seen as the leader of the pair, generally first to market with some of the big leaps forward in equity-based structured notes. But in the past few years its long-running rival, BNP Paribas, has upped its game.

Its performance in the past year in particular has been outstanding, making it a worthy recipient of this inaugural structured product award.

Kara Lemont: driving the inflation market forward

In February, BNP Paribas issued the first ever hybrid step note, which pays a coupon rate linked to foreign exchange rates and Euribor, a product that many banks would shy away from even trying to price. And in March it did the first ever long-dated Nikkei/US dollar/Japanese yen hybrid note. “The biggest volume products that have been going through the markets in the last six months on the rates side have been inflation and rates hybrids,” says Kara Lemont, the bank’s London-based senior interest rate and hybrid structurer for fixed income. In November the bank executed a €50 million inflation-capped euribor-Ice note for Royal Bank of Scotland, and in October transacted the first ever structure linked to Belgian inflation, a hybrid capped at a multiple of the steepness of the euro curve. “These appear to be simple structures. But for an inflation market that is reasonably young and generally undeveloped, they’re very exotic and hard to price,” says Lemont. “We have been the driver in this market. We also did the first callable inflation notes a few months ago, which forced the market to start quoting a whole volatility surface on inflation.”

And when it comes to equity-based products, the area in which structured notes first emerged, BNP Paribas is still innovating. The bank’s Dispersion notes enable institutional investors and private bank clients to take positions in both volatility and correlation, for instance. Jean-Eric Pacini, London-based head of European structured products sales at BNP Paribas, explains the structure. “The principle,” he says, “is to pay an annual coupon based on the absolute value of the difference between the performance of each individual stock and the performance of the basket of stocks minus the strike level – a reference level. So the greater the volatility and the lower the correlation between the components of the stock basket, the greater the coupon.”

The interplay between two different parts of BNP Paribas’ business – on the one hand selling derivatives to hedge funds, on the other selling structured products to retail networks – has ultimately led the bank to take products such as dispersion trades mainstream. It was in the past few years that BNP Paribas started to really build up its flow business to hedge funds, whereas it had been selling structured notes to the retail market for years. Its success in this area means that it can now repackage some of the risks it generates on the retail structured product side and sell them to the hedge fund market. Conversely, this gave the bank the idea of selling private banking clients, pension funds, insurance companies and other institutional investors some of the pay-offs that hedge funds were interested in but in a less risky format. Hence the marketing of dispersion-linked structures with capital guarantees. “In essence, it relies on the same concepts as dispersion swaps that hedge funds have been trading for a couple of years now,” says Pacini.

The bank traded more than €500 million of dispersion-linked structured notes in the first quarter of this year. Investors in the products at that point, by going long volatility and short correlation, will now be sitting on a big mark-to-market gain, given the way volatility jumped up in the second quarter. Of course, the corollary of this is that today the trade does not look nearly as compelling. Still, Pacini says long-term returns are reassuring, with back-testing to the mid-1990s producing average yields of above 10%.

Meanwhile, the bank is making inroads into the notoriously awkward US structured products market – where investors are used to direct equity, rather than coupon-type products and have therefore been reluctant buyers of notes. And the Asian market has embraced its products. Last year it launched the All Best series, first in Taiwan, then in Singapore, Korea and Hong Kong. The product is linked to the performance of three portfolios reflecting different risks levels and sold over $100 million in notional.

Tags Awards Asia Pacific Awards for Excellence Banking BNP Paribas Capital Markets Emerging Europe Emerging Markets Foreign Exchange Middle East and Africa Surveys and Awards

Global Best structured product house: BNP Paribas

The world’s best for markets 2026: BNP Paribas

The world’s best fixed income house 2026: Citi

Global Best structured product house: BNP Paribas

The responsible AI bank: Combining trust, technology and talent at Banreservas

Redefining treasury: FX moves from back office to boardroom

The world’s best for markets 2026: BNP Paribas

The world’s best fixed income house 2026: Citi