The wide variety of Structured Notes offered by BNP Paribas Fortis means that there is a package to suit every investor profile. There are packages that repay capital at full nominal value at maturity to meet the expectations of cautious investors. More aggressive investors will prefer more risky packages, such as Reverse Convertible Notes on equities or stock market indices, that target a potentially higher return.
The principal risks with Structured Notes are the following:
- Risk of no return: if the yield mechanism does not provide for a minimum return, there may be no return on maturity if the trend for the underlying asset is negative.
- Capital risk: if the Structured Note does not provide for full capital reimbursement, a negative trend for the underlying asset can result in partial or total loss of the capital.
- Insolvency risk: this is closely linked to the quality of the issuer. Investors can get an idea of the quality from the ratings attributed by rating agencies. As a Structured Notes issuer, BNP Paribas Fortis has an “investment grade” rating(Standard & Poor's ratings going from AAA to BBB- and Moody's from Aaa to Baa).
- Liquidity risk: this depends on the existence and operation of a secondary market for the Structured Note. Basically, the higher the total amount of the issue, the higher the volume of transactions is likely to be, which reduces the counterparty risk. Since the Structured Notes market can be limited and therefore lack liquidity, investors may have to hold on to their investments until maturity.
- Exchange riskwith Structured Notes issued in foreign currencies. Exchange risk means that at maturity, the investor may receive an amount in euros that is less than the initial euro investment.
- Other risks: the price of a Structured Note varies in line with overall interest-rate fluctuations, but also with the trend for the underlying asset and market volatility.