Nomura 12.5% Autocall-Limited Time Availability

07.03.2009

Capital Protection.

With due regard to investor concerns on the security of Nomura (along with general investor concern regarding counterparties for structured products). This is an issue we take very seriously, and we do monitor the banks we work with. We’ve investigated alternative counterparties (other banks, using Gilts as collateral etc) and the best solution we’ve arrived at, taking into account the strength of security and the cost, is using SEK as the issuer of the structured notes. In blunt terms, this means that the payments due under the note will be made unless SEK default (it doesn’t matter what happens to Nomura).
 
SEK (The Swedish Export Credit Corporation) is wholly owned by the Swedish state. It provides financing to support municipal and government infrastructure projects throughout the Nordic region, as well as supporting business in the export market and providing a range of other financial solutions. It has credit ratings from S&P of AA+ (Very Strong) and Moody’s of Aa1 (High Quality). Although nothing is “guaranteed” these days, Sweden has a diversified economy (hi-tech as well as manufacturing and good supplies of raw materials) and the banking sector was “cleared-out” a few years ago.

Maturity Bonus.

There is a maturity bonus of 10% paid if the product gets to the end of the 5 year term without maturing (the indices are never higher on an anniversary). This won’t be paid if the 50% barrier has been breached (when capital is at risk) but could be a nice “interest replacement” if markets continue to disappoint.
 

Coupon Level.

As a result primarily of the changes (particularly the increased capital security) the coupon level is now 12.25% for each year to maturity. This is obviously still extremely attractive.

This product isn’t for you if:
-        you believe equity markets will grow by 12.25% or more per year and you’re not worried about downside risk
-        you believe equity markets will fall by a further 50% or more with no prospect of recovery
 

This product could be for you if:
-        you think equity market growth could be low in the next few years
-        you think that equity markets are unlikely to halve again from current levels
-        you would be happy with returns capped at 12.25% per year over a 1 to 5 year period.

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