A gray-haired woman picking a flower with a young girl adorns the cover of an HSBC Holdings Plc brochure that promises investors both “the growth of the market” and “the security of FDIC Insurance.”
By tying interest rates to everything from the Dow Jones Industrial Average to precious metals, the pamphlet for HSBC’s Market-Linked Certificates of Deposits explains U.S. investors have the potential to earn “enhanced returns” over as long as seven years. A separate disclosure states that they also may earn zero, getting just their original principal back after the CD matures, while brokers may collect fees of 6 percent or more. Investors that need to get their money earlier must find a buyer for the CD, risking a loss.
“It is questionable whether some of these products should be sold to retail investors in the first place,” said Moritz Seibert in Westport, Connecticut, the former U.S. head of equity derivatives structuring at the Royal Bank of Scotland Group Plc who’s now starting an alternative investment business. “Traders at issuing banks understand the nitty-gritty pricing of those products very well. It seems that professional institutional investors would be a more suitable clientele.”
Wow! Derivatives for the great unwashed! What will they think of next? This very long Bloomberg piece was posted on their website on Tuesday...and I thank reader Ken Metcalfe for sending it along. The link is here.
