A Credit Suisse product once valued at $2.2bn has fallen victim to Wall Street’s dramatic equities sell-off, leaving institutional investors and hedge funds nursing heavy losses while the Swiss bank said it had emerged financially unscathed.
Credit Suisse said on Tuesday that it would begin the early redemption of a product that allowed investors to profit when volatility was low but lost 96 per cent of its value overnight on Monday after Wall Street suffered its worst day in six years.
Japanese bank Nomura also announced the closure of a similar product that rewarded investors for low volatility, writing to clients that “we apologise from the bottom of our hearts for causing great inconvenience for the holders”.
Exchange traded fund (ETF) specialist ProShares, whose short volatility product was suspended amid Monday’s freefall, said it would continue to operate the fund “as usual” since performance was “consistent with its objectives”.
This week’s slide in exchange traded notes and funds ended what had until recently been a stellar trade. Buyers bet on market tranquility and the notes more than doubled in value during 2017 as the Vix volatility index reached record lows.
The collapse of the products, and the central role of two significant banks, also shone an unwelcome glare on a financial industry that has suffered in the past for its creation of complex financial products that hurt both their clients and the economy at large.