JPMorgan, Credit Suisse both plan high/low coupon callable notes linked to S&P, Gold Miners

By Sheri Kasprzak

New York, Oct. 3 - At least two upcoming offerings will be linked to the performance of both the S&P 500 index and the Market Vectors Gold Miners exchange-traded fund. One of the high/low coupon callable yield notes offerings comes from JPMorgan Chase & Co. and the other from Credit Suisse AG, Nassau Branch.

For the JPMorgan notes, a knock-in event occurs when either underlying component closes at or below 50% of its initial level. Unless this knock-in event occurs, investors can expect to receive a 15.25% coupon per year. If the knock-in event does occur, investors will receive a 2% coupon per year for that and each subsequent interest period. Interest is payable monthly.

Similarly, the Credit Suisse notes pay a 15.5% coupon unless a knock-in event occurs for either underlying component. Either component must close at or below 50% of its initial level in order for a knock-in event to occur. If a knock-in event occurs, the investor will receive a 1% coupon per year for that and each subsequent interest period. Interest on these notes is payable quarterly.

For both notes, the payout at maturity will be par unless a knock-in event occurs, in which case the payout will be par plus the return of the lowest-performing component, up to a maximum payout of par.

Both notes have a one-year term.

Fifty percent is 'serious'

"A 50% fall is serious business," said one sellside source.

"Could it happen? Sure. Do I personally think it's going to happen? Not really. I'm sure the index will suffer some losses in the coming year, but 50% is pretty hard to imagine. It would take some serious economic crisis, which I realize isn't out of the question."

Although a 50% decline might not happen, the S&P 500 suffered a major blow on Monday, giving up 32.19 points, or 2.85%, to close at 1,099.23, its lowest level since last September.

The ETF underlying the notes seeks to replicate the price and yield performance of the NYSE Arca Gold Miners index. The index is a modified market capitalization-weighted index that provides exposure to publicly traded gold mining companies. The fund has gained 17.9% over the past year and 10.3% for the month of August. The fund includes 31 gold mining or related companies.

The JPMorgan notes were scheduled to price Tuesday, and the Credit Suisse notes will price Wednesday.

CPI-linked notes ahead

Also coming up, JPMorgan announced plans to price more fixed-to-floating-rate notes linked to the Consumer Price Index.

The notes have a 10-year term and pay a 4% coupon for the first year. After that, the rate is equal to the year-over-year change in the Consumer Price Index plus 100 basis points, subject to a maximum rate of 7%. Interest is payable monthly and will not be less than zero. The payout at maturity is par.

Those notes are expected to price Oct. 11 and settle on Oct. 14.

Morgan Stanley recently announced plans to come to market with fixed-to-floating-rate notes linked to the CPI. Those notes have a seven-year term and bear interest at 6% for the first year. From the second year through maturity, the rate will equal the year-over-year change in the CPI plus 300 bps. Interest is payable monthly and cannot be less than zero. The payout at maturity is par.

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