New York Securities Lawyer Blog
A recent investigation and analysis into auto-callable structured products has uncovered massive losses for investors, with the 100 worst-performing ones collectively losing over $1 billion. To put that into perspective, that’s more than 55% of their original total value of $1.84 billion. This sheds light on the significant risks tied to these complex financial investment products, which are commonly issued and recommended by financial institutions like UBS, Goldman Sachs, JP Morgan, and Morgan Stanley.
Auto-callable structured products are a type of investment that pays periodic interest and can be redeemed early, but only if certain conditions tied to an underlying asset are met. If the asset performs well, the investment is called early, and investors get their principal back with interest. But if things go south and the asset’s value drops beyond a certain point, investors can face serious financial losses.
According to an article analyzing the $1 billion loss in 100 auto-callable notes, Goldman Sachs alone is linked to $234 million of the losses from the worst-performing 100 auto-callables. Other major financial institutions, such as JP Morgan, UBS, Morgan Stanley, and Credit Suisse each racked up more than $100 million in losses. According to the article, there are also concerns that UBS, Credit Suisse, and Bank of Montreal may have overstated their initial valuations in their regulatory filings, which could explain why their products experienced higher-than-average losses of 62.6%, compared to 53.4% for other issuers.
One of the biggest losses recorded, according to the article, involved a three-year JP Morgan-issued note tied to ViacomCBS, which launched on June 11, 2021, when the stock closed at $42.35. The way this product was structured, if ViacomCBS never closed above that price during any of its 11 quarterly reviews, the note wouldn’t be called. Worse, if the stock dropped below $27.53 (65% of the original price), coupon payments would stop altogether. By the time it matured, ViacomCBS had plummeted to just $11.04, meaning investors only got back $2.607 for every $10 invested—a staggering 73.93% loss, totaling nearly $28.4 million.
This example highlights just how risky, speculative and complex auto-callable structured products can be, especially when tied to volatile stocks. While they’re often marketed as a way to earn higher returns, the downside can be severe for investors. Financial institutions and financial advisors have a duty to clearly explain these risks and ensure these investments are appropriate or suitable for their clients and in their best interests.
If you have suffered losses due to investments in auto-callable structured products and would like to discuss your options, our firm has extensive experience representing investors in arbitration claims against financial institutions and financial advisors. Please contact us to schedule a consultation.