Profile: Abaxbank - made in Italy

The Italian structured products market is dominated by the major European and US investment banks, and few Italy-based structurers have flourished. But Milan's Abaxbank is hoping to reverse that trend. It explains its strategy to Daniel Sheehan

"We are relatively small, so we have to be on the edge of innovation to compete in the structured products market," says Maurizio De Martino, head of business development with Abaxbank. The Milan-based bank has been one of the few Italian institutions to focus its attention on manufacturing products for distribution in Italy.

Abaxbank was established in 2000 as a boutique investment bank. Its business has evolved towards alternative investment strategies, with an emphasis on structured products. "All our partners gained structuring experience working on the desks of investment banks in London and they have brought their expertise back to Milan," De Martino says. One of the criticisms of the Italian market has been its inability to retain homegrown structuring professionals, but Abaxbank is looking to change that. Backed by one of Italy's largest banking groups, the bank has the desk size to trade in substantial structured products deals.

Abaxbank is the investment banking arm of Credem Group, which also owns retail banking chain Credito Emiliano. The chain has 455 branches in Italy and last month announced plans to open a further 82. There is also speculation that Credito Emiliano will purchase many of the Banca Intesa branches that are due to be auctioned as a result of the consolidation of the Sanpaolo and Banca Intesa retail branch networks. The expansion will make Abaxbank's retail partner one of the largest structured products distributors in the north of Italy.

Product mix

Abaxbank has no grand expansion plans for its desk, however. "We provide niche products for niche markets," says Prospero Simonetti, head of CPPI products at Abaxbank. "We are not interested in competing with the banks on volume size but we offer flexibility, unique structuring capabilities and post-sales support," he says.

"A lot of our focus is on meeting retail market demand," Simonetti says. Abaxbank structures some Credito Emiliano products distributed through its branch network, but this makes up only 5% of its total structured products business.

Most of its business comes in the form of third-party chains for retail products, including Italian small and medium-sized retail banks, insurance groups and its network of independent financial advisers. Abaxbank's other arm is an institutional division, which sells to trading desks and asset managers.

The bank uses a full range of underlyings across its structures, including fixed income, equities, commodities, foreign exchange and credit. Abaxbank is also an active CPPI structurer and is focusing on bringing innovative strategies to the structured products market. For example, its latest equity-linked product, which is about to be released to market, is based on the outperformance of a basket of Italian banks against the MSCI Italy index. "We believe the convergence of the Italian banking market will increase the share value of the banks, and this product gives investors access to that strategy," Simonetti says.

In commodities, it has successfully issued structures tied to the performance of Brazil, Russia, India and China (Bric) commodities. It is a strategy that many issuers in Italy are now starting to latch on to, with Bric equities and commodities currently proving popular in the Italian retail market.

The bank says its greatest strength lies in CPPI products, particularly those in fixed-income or credit. Its latest CPPI release, the Extra Yield Dynamic 2006-2014, is a series of CPPI notes that invest in a leveraged loan collective investment scheme (UCI) actively managed by a fund manager. The notes utilise CPPI technology to capital guarantee 80% of the original investment. The note will pay a coupon at least to the equal of Euro Interbank Offered Rate (Euribor). "The characteristics of leveraged loans make them a stable, low volatility asset class not particularly influenced by the periodic trends of the credit cycle, which is useful for portfolio diversification," De Martino says. The notes have an eight-year maturity and will be marketed to institutional and retail channels.

Abaxbank is keen to see an end to regulatory confusion in Italy (see page S8) so it can continue to expand its offerings for retail distribution, Simonetti says. The bank is hopeful that, in time, the regulator will allow it to distribute new products with underlyings such as funds of hedge funds.