The Zhitong Finance App learned that UBS Group and Nomura Holdings are trying to sell complex fixed income products to the European super-rich and compete with institutions such as BNP Paribas.

UBS has been increasing its structured interest rate products for the past 6 months. UBS scaled back its fixed income business in 2012, focusing on less capital-intensive business areas. Today, UBS is using the expertise it gained when bailing out Credit Suisse last year to integrate its complex interest rate products for a large wealth management client base.

Executives at Japan's largest brokerage firm Nomura said that the company is also selling products such as credit-linked notes, floating interest rate notes, and inflation-linked bonds to high-net-worth individuals in Asia through private banks. The company entered the Swiss market and wanted to expand its operations to France, Luxembourg, Italy, Northern Europe, and Portugal.

The two companies said the most aggressive global interest rate hike cycle since the 1980s has prompted ultra-high net worth individuals and family finance offices to refocus on fixed income products. However, competition in this field is becoming increasingly intense, and many banks, including BNP Paribas, are active in this market.

Marco D'Agostino, co-head of global market solutions sales for Europe, Middle East and Africa at Nomura Securities, said: “Due to the sharp drop in interest rates over the past 10 years, these products disappeared a bit and are now back.” “Wealthy people want to have a cash investment tool that gives them a fixed income.”

Macro background stimulates demand for structured interest rate products

Nomura executives said that currently customers can obtain stable profits of 5% to 8% through many interest rates or credit-related products.

Nomura has added around 45 new private banks and distributors to issue these products, and plans to introduce more partner institutions. This marks a break from the traditional customer base of insurers, hedge funds, and asset managers.

Customized products

Meanwhile, UBS Investment Bank has been working to integrate Credit Suisse's macro-structural services into its interest rate business. Adrian Bracher has mainly sold structured interest rate products to Credit Suisse institutional clients and wealth management clients over the past 20 years, and he is leading the strategy to expand services to UBS Wealth clients.

“We brought additional knowledge, resources, and manpower from Credit Suisse to UBS,” Bracher said. “The commercial reasons are clear; UBS wants to grow its wealth management business with the best products in its category.”

Bracher said that the rise in interest rates at major central banks over the past few years has stimulated interest in bond products. In years when interest rates are close to zero, they usually pay more attention to stocks. Customer growth was strongest in Europe and Asia.

“It's a competitive industry, but the more custom products you have, the less others will copy your practices,” he said. “It requires complex technology, and it comes at a cost — some people would rather focus on more standardized products so they can take advantage of large machines rather than have a bunch of individuals handle it on a case-by-case basis.”

Nomura's executives believe that given the high interest rates in many major economies, now is the right time to expand.

D'Agostino said, “The current high interest rates have definitely increased the appeal, making special products such as redeemable bonds and credit linked notes a once-in-a-decade opportunity.” “We are always striving to be the first choice for fixed income products that provide structured credit and innovative payments at structured interest rates.”