Structured Product Losses Mount From Ukraine War

Wall Street brokers such as UBS, Morgan Stanley and Merrill Lynch sold billions of dollars in complex “structured products or notes” to their retail customers in recent years. Brokers pitched the structured products as “low risk” bond-like investments with higher yields. Unfortunately, many customers were not told of the significant downside risks of these investments.

Structured Products vs. Regular Bonds

Structured products are vastly different from regular bonds. Although they are technically debt obligations with a maturity date, say one to two years, neither the coupon payment nor the full return of principal is guaranteed. Instead, returns are contingent on the performance of an underlying index such as the S&P 500 or even Cathy Woods’ ARK Innovation ETF, or a stock, such as Apple or Tesla. Falling prices in the underlying assets could result in huge principal and interest losses.

The fine print of structured products often explains that there are caps on the upside and limited downside protection. For example, a structured product based on the S&P 500 may have downside protection against losses up to 20% of the initial value. If the index loses more than that, the investor is exposed to the downside and would suffer principal and interest losses. Structured products based on the ARK Innovation ETF have broken through the 40 % downside barrier resulting in outsized principal losses for investors.

What The War Means for Some Investors

As stock indexes and individual stocks have fallen from the market turmoil resulting from the Ukraine War, unsuspecting investors have suffered massive structured product losses. Similar structured product losses occurred during the March 2020 Covid-induced market fall.

Investors also need to be aware that structured products or notes have no secondary market or liquidity and cannot be sold in a down market like bonds.

Get the Help You Need From Our Investment Loss Attorneys

Investors suffering structured product losses should contact one of our knowledgeable investment loss attorneys to see if they have recourse against their brokers for selling unsuitable investments or committing investment fraud. Contact us online, by phone at 212-742-1414 or by emailing Jake@zamansky.com.