Crelan, AXA in SG steepener collab

Crelan collaborated with Société Générale for the launch of Fixed to Floating CMS Linked Coupon Note 2028 in Belgium.

Belgium, which has been part of Crelan Group since the start of the year. The note is Crelan’s first structured offering in more than a year, and the bank’s first interest-linked structure since June 2020 when it launched the Goldman Sachs International (UK) CMS Coupon Note 2030.

“Thanks to the recent rates increases, we are finally able to introduce interest rate structures with a coupon again,” said Koen Theys, product, market & marketing specialist at Crelan.

The Belgian bank’s first interest-linked product in two-years was simultaneously distributed via AXA. It collected €150m during its subscription period.

The six-year steepener pays a fixed coupon of 3.75% p.a. for the first three years of investment. From year four to six, the annual coupon is equal to twotimes the difference between the 30year EUR constant maturity swap (CMS) rate and the five-year EUR CMS rate, subject to a minimum of two percent and a maximum of five percent.

At maturity, the product offers 100% capital return, plus the final variable coupon. It is also available via AXA Bank

“The majority of investors still prefers to receive an annual coupon, and this formula guarantees a minimum return at maturity, which is another very attractive feature.”

The product brochure states that the possibility to receive the maximum coupon of five percent is ‘almost non-existent’ and even the chance of receiving an annual coupon higher than two percent is ‘very small’.

The additional text is a requirement set by the FSMA, according to Theys.

“The performance scenarios from the KID are based on the historical performance of the underlying asset over the past five-years,” he said.

Between October 2017 and June 2019, the difference between the 30-year EUR CMS and five-year EUR CMS exceeded two percent (= the minimum variable coupon). After that, the spread was lower, and the investor would have received the minimum coupon of two percent.

“For most of the period, the difference was therefore lower than the minimum coupon,” said Theys, adding that the percentages are the result of a calculation model based on the CornishFisher formula, an asymptotic expansion used in probability calculations.

Having been absent for more than a year, now that interest rates are back at levels that make it once again possible to structure products with attractive terms and conditions, Theys is expecting to see more products from Crelan in the near future.

“For 2023, we have the ambition to launch various new issues,” he said.

Interest-linked products have dominated Belgium in 2022 to date, claiming a 62% share of the market that was achieved from 34 products worth an estimated €670m. By comparison, in the whole of 2021, they claimed a 22% market share from 23 products that sold €310m.