WSJ on Structured Products

June 24, 2009

On May 28, the Wall Street Journal published an article critical of structured products, particularly once-popular US reverse convertibles, for not providing investors protection and being costly. The article highlights falling sales of US structured products in 2008, and a slight increase in early 2009 from those low levels. Although not stated directly in the article entitled “Twice Shy On Structured Products?”, high commissions have led to mis-selling of structured products in the past – especially ones incorporating high-risk derivative structures on single stocks. The importance of counterparty risk is alluded to by mention of the Lehman Brothers bankruptcy which affected at least $900 million worth of structured products issued in 2008 alone. As several investment bankers point out in the article, the structured product market is changing from risky and exotic, to conservative and somewhat mundane.