Bank of America Corp. raised $4.7 billion selling structured notes to U.S. investors through June, the most of any issuer and more than its 2009 total, as sales of the securities rose to a record pace.
Banks have sold $22 billion of structured notes to individual investors in the U.S. this year, according to data from regulatory filings compiled by Bloomberg. Sales are on pace to exceed what was a record $38 billion in 2008, according to StructuredRetailProducts.com, a database used by the industry.
The securities are created by banks, which package their own debt with derivatives to offer customized bets to investors while also raising money. Last year, Bank of America sold $4.1 billion of the products, second to Barclays’ $4.5 billion in sales, according to StructuredRetailProducts.com.
Structured notes, while offering potential for tailored returns, come with notable risks. Their complexity often masks hidden fees and intricate features that can lead to unexpected losses. The underlying assets or indices may perform unpredictably, leading to diminished returns or principal loss. Liquidity can be a concern, as these notes may be hard to sell before maturity without incurring significant costs. Additionally, they are often issued by financial institutions, adding counterparty risk if the issuer faces financial trouble. Understanding these risks is crucial for investors, as the sophisticated nature of structured notes requires careful evaluation of both potential rewards and dangers.