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Rekenthaler Report

Beware of Banks Bearing Promises

Too often, structured products and exchange-traded notes mislead their buyers.


Icarus Tumbled
Care for a 13% yield? This January, Barclays Bank issued a two-year structured note that pledged to pay $130 annually on each $1,000 of principal value. Try getting that deal from the United States Treasury. Then again, the U.S. Treasury tends to fulfill its promises, while Barclays' note did not make its very first scheduled quarterly payment. It will not again next quarter, barring a minor miracle.

If 13% strikes you as insufficient, consider upgrading to an 18% payout. An investor named William Mark enjoyed such receipts for five years, from a leveraged exchanged-traded note, or ETN, issued by UBS Group. He enthusiastically plowed those profits back into that security … until it went belly-up. Lamented Mark, "I'm 67 years old, and I'm basically bankrupt in just two weeks."

John Rekenthaler does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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