Counting the cost of counterparty risk

A few years ago no-one worried about counterparty credit risk. Then a year ago that was all anyone cared about. As markets begin to settle down, the shake-up could have longer-term implications for the structured products market. By John Ferry

Go back seven or eight years and there were essentially two aspects of a structured product that investors were interested in: the safety element – whether they wanted full or partial principal protection or some other variant – and the option component, which gave them exposure to a risky asset. Then came the development of an expanded set of wrapper possibilities, which meant there were three aspects of the product the potential buyer – be it a third-party distributor or an institutional