JPMorgan plans 30% reverse exchangeables offering; emerging markets-linked deals are hot, insider says

By Sheri Kasprzak

New York, Aug. 15 - JPMorgan Chase & Co. headed up structured products news this week with a unique issue - 30% reverse exchangeable notes linked to the least-performing common stock in the Dow Jones Industrial Average during the life of the notes.

The notes are due Aug. 29, 2007 and expected to price Aug. 24.

Noteholders will receive par unless any stock included in the Dow Industrials falls below its protection price during the life of the notes, in which case the payout will follow the standard reverse exchangeable formula: investors will receive a number of shares of the worst-performing stock in the Dow Industrials equal to $1,000 divided by the stock's initial share price, capped at par in cash.

JPMorgan's own stock is excluded from the Dow Industrials for the purposes of the notes.

Also at JPMorgan Tuesday, the company announced the imminent pricing of 0% buffered return-enhanced notes linked to the Nikkei 225 index. Those notes are due Sept. 6, 2007 and are expected to price Aug. 17.

The maximum total return on the notes will be set at pricing but will at least exceed 24%. The principal on the notes will be protected up to a 10% decline at maturity.

The company also plans to price 0% buffered return-enhanced notes linked to the Standard & Poor's 500 index. Those notes, due Dec. 5, 2007, are set to price Aug. 17.

The maximum return on those notes will also be set at pricing, but will not be less than 14.3%. The notes are also principal-protected up to a 10% decline at maturity.

The structure is a unique one, at least according to a market source at another investment bank. So much so that he had never seen anything quite like it.

"I have no idea what they're doing," he said Tuesday afternoon. "It's a new one to me."

HSBC prices 9.5% reverse convertibles

Elsewhere, HSBC USA Inc. priced a $1 million issue of 9.5% reverse convertible notes linked to Popular, Inc.

The notes are due Aug. 17, 2007.

Pay out at maturity will be par in cash if Popular stock is at or above its initial price, $18.59, on the valuation day, Aug. 10, 2007. Otherwise, investors will receive a number of Popular shares equal to $1,000 divided by the initial price.

That offering, according to Steve Peters, vice president of structured products trading for JVB Financial Group, is being distributed by HSBC itself. The investment bank has looked to third parties to distribute their shorter-term offerings, but chose to distribute this one itself, Peters noted.

"They chose us to sell their shorter maturity [notes]," he said. "We specialize in three to six months while most [distributors] focus on one-year maturities."

Emerging markets in favor

Peters' company distributed the first-ever best-efforts reverse convertible notes linked to iShares exchange traded funds for HSBC.

"Emerging markets have been very popular," he said.

Linking to the exchange provides diversification for his clients, he said, especially with Latin American countries or exchanges.

"Global diversification seems to be appealing now," Peters added. "Certain economies are doing very well, like China and some Latin American countries. We hear from our broker-dealer clients that this is what they want and emerging markets is something that's very popular."

Also, Peters noted, the iShares-linked securities were a diversification for the distributor since his company distributes several oil-linked deals.

UBS's iShares' linked notes

And speaking of notes linked to iShares, UBS AG announced its plans to price 0% five-year market performance notes linked to a basket of iShares exchange-traded funds.

The basket includes the iShares Dow Jones Select Dividend Index Fund with a 75% weight and the iShares MSCI EAFE Index Fund with a 25% weight.

The notes are expected to mature on Aug. 21, 2011.

Payment at maturity will be par of $10.00 plus any positive return on the basket multiplied by the participation rate, which is expected to be between 1.45 and 1.6 and will be determined at pricing. Investors will participate fully in any loss on the basket.

UBS Investment Bank and UBS Financial Services Inc. will be the underwriters.

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