Back to top

Image: Bigstock

Barclays Stops Offering Structured CD to U.S. Investors

Read MoreHide Full Article

Per a Bloomberg report, Barclays PLC (BCS - Free Report) will no longer issue structured certificate of deposits (CD) to its retail clients in the U.S. Moreover, Todd Dilatush, who was engaged in selling such CDs, has also left the bank.

People familiar with the matter said that these highly complex CDs looked attractive to investors, but often yielded no return. Also, official data for the number of CDs sold is not available since structured CDs are not registered with the Securities and Exchange Commission, thereby increasing concerns.

For years, regulators have cautioned investors regarding such products as the returns on such instruments are usually related to a basket of stocks or other risky assets. Hence, if one of the company’s shares included in the basket falls, then investors get zero return altogether.

In fact in 2012, the Financial Industry Regulatory Authority said it was trying to evaluate whether investors understood the risks associated with these kinds of products or not.

Per a Barclays’ summary, a CD can offer annual yields of as much as 5% for a five-year investment, which is much higher than the average 1.19% for a conventional CD of the same duration (according to Bloomberg’s data).

Notably, from Oct 2010 to May 2016, the London-based company sold more than 300 certificates. However, of these, almost one-fourth of the structured CDs issued between Oct 2010 and Oct 2013 yielded zero return.

Going forward, banks, in general, are likely to stop offering structured CDs altogether probably because other sources of funding are cheaper or may better suit their assets. Additionally, if the products are properly placed together, they could offer higher returns to investors compared to what a regular CD offers.

Further, Chris Sandys, a wealth manager at Belpointe Asset Management said, “The equity-basket CDs were structurally flawed.” However, he also said that in recent months Barclays sold certain CDs that were linked to more stable stocks. It seemed to offer better returns as it was built by the bank through a proprietary index.

Currently, Barclays sports a Zacks Rank #1 (Strong Buy).

Some Other Stocks to Consider

Some other favorably ranked stocks in the same space include Banco de Chile (BCH - Free Report) , Societe Generale Group (SCGLY - Free Report) and Banco Santander (Brasil) S.A. (BSBR - Free Report) .

Banco de Chile has witnessed an upward earnings estimate revision of 3.1% for the current year, over the past 90 days. Its share price has risen more than 17% year to date. It currently boasts a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Societe Generale also sports a Zacks Rank #1. For the current year, over the past 90 days, its Zacks Consensus Estimate increased 11.4%. Its share price has increased 5.8% year to date.

Banco Santander carries a Zacks Rank #2 (Buy). It has witnessed an upward earnings estimate revision of 75% for the current year, over the past 90 days. Its share price is up more than 100% year to date.

Zacks' Top Investment Ideas for Long-Term Profit

How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>.

Published in