Wealthy Clients Are Snapping Up Structured Notes

Just one day to digest everything. That’s all David Bailin, chief investment officer of Citigroup Inc.’s private bank, wanted after last week.

Saturday would be eaten up by writing about the markets, but on Sunday, he’d finally be able to take a deep breath and reflect on how much the world had changed in such a short time.

A big part of his job is synthesizing the implications of events taking place, and working with Citi’s markets teams, macroeconomists, portfolio managers and political strategists to try and create some order out of chaos.

Bailin spoke about what how clients are investing and what he’s telling them may be down the road. Comments have been edited for space and clarity.

What kind of transactions are you doing for clients?

We’ve done an enormous number of structured notes. We’ve seen people buy structured notes that offer less downside and a levered upside for selected baskets of equities and equity indices -- a note might protect 10% to 15% on the downside but accelerates returns by, say, 150%, on the upside to a cap. Another popular note sells volatility to create income. The client needs to assume market risk if the underlying index falls to a level, say 25% below today’s price. We did more than $100 million in such structures last week.

We’ve also been identifying areas of the market that have been hard-hit. In particular, we see value in dividend stocks of companies that are growing earnings and dividends, especially in areas like health care. We put clients toward U.S. and non-U.S. dividend growth stocks in very large volumes.

Also, and I wouldn’t call this bottom-fishing, but people are changing the return profile of equities they want to buy. For example, we see a lot of interest in Brazil, which I think is unusually dislocated and inexpensive on a historical basis.