Best in Japan - HSBC

HSBC entered the Japanese structured products business as recently as 2008, but its range of top-drawer products has succeeded in capturing a significant chunk of the market despite the financial crisis and the damage caused by some banks mis-selling Lehman Brothers-linked plans.

Spotting a niche, HSBC used its prowess in currency trading to produce two notes that soldwell - the Dual Currency and Triple CurrencyDeposits - while its competitors werecaught up dealing with the fallout from theLehman collapse.

"We had an effective strategy, which was clearly focused on foreign exchange trades," says Gifford Nakajima, senior vice-president and head of product development at HSBC Premier in Tokyo. "Lehman sent shock waves through the market. Suddenly, guarantees on principal-protected notes were undermined, which meant there was a lot of nervousness and mistrust around the marketplace. But HSBC has never sold Lehman-linked notes and we realised there was an opportunity for us to use our skills in foreign exchange to capture a niche in the market."

The flagship product, the Triple Currency Deposit, is a three- to six-month note in which the investor makes an initial trade in yen and receives principal back in one of three currencies - yen, US dollars or euros - at maturity. It is basically a different version of the Dual Currency Deposit. "The Triple Currency Deposit sets us apart from the rest of the market," says Bonnie Tse, Tokyo-based head of wealth management, personal financial services in Asia and Pacific countries at HSBC Premier.

The product was aimed at customers seeking to invest in US dollar and euro-denominated interest rate products, which earn higher interest than yen deposit accounts. Adding the extra currency on top of the usual two gives investors even higher yield. Regardless of the currency in which the principal is repaid, interest payments will be made at an annual rate of 10%.

The bank's other star offering, the Dual Currency Deposit, works much like any other currency-linked product. The investor makes a trade in one currency and gets back their principal in the weaker of the two. As a reward for taking some currency risk, the plan pays out higher-than-normal interest rates.

What really distinguishes this product from the rest of the competition is its customisation options. Investors can set the strike price, spread and tenor, while choosing from 73 currency pairs. If the strike price that is chosen occurs at maturity, no foreign exchange fee is charged to the investor. This is in contrast to a normal currency conversion, where customers are charged a commission for the service.

Investors can freely specify the spread between the strike rate and the base rate, and can choose a tenor between one week and one year. "This is the ultimate flexibility. It allows customers to fine-tune the risk they want to take,"says Nakajima. "Our competitors only offer these kind of products in tranche form with fixedterms, but we allow investors to customise the product to suit their preferences. They can choose from a range ofglobal currencies - even the Turkish lira, which is something our competitors don't do."

The third product from HSBC that proved immensely popular this year was the Kangaroo deposit. The four-year plan offers investors thechance to gain exposure to the Australian dollar, which gives higher yields than yen-based deposits. The interest payment in the first year is fixedat 4.2%, but thereafter the rate is determined by reference to the exchange rate between the Australian dollar and theyen. The product has an autocall feature, which when triggered pays back the principal in yen. Early redemption occurs if the exchange rate at the evaluation date is equal to, or higher than, an agreed level set at inception.

Despite being a relatively recent entrant to the Japanese market, HSBC has steadily increased its footprint by focusing on its core strengths and brand name.

This year, the bank's structured product operations have grown by 50%, which makes it the fastest-growing part of the business in Japan, and structured products now account for nearly 10% of the bank's assets under management.

Such impressive growth can be attributed to HSBC's product range and customer focus, says Tse. "We have concentrated on plain vanilla products that make it easy for our customers to understand the level of risk they are taking. The proof of our strategy can be seen in the growth of our business in Japan. I think the fact that our products - the currency deposits - have been so successful proves that we know the market and our customers," she says.