What Are Autocallable Notes and Are They Risky Investments
Published On: April 19, 2024

Stoltmann Law Offices, P.C., a Chicago-based securities, investment fraud, and investor rights law firm that offers victims representation on a contingency fee basis nationwide, continues to file FINRA Arbitration cases for aggrieved investors who have lost money in structured notes.  The Big Banks specifically, JP Morgan, UBS, Morgan Stanley, Goldman Sachs, and Citigroup, have sold a combined $122 BILLION dollars in auto-callable structured notes over the last four years.  These notes almost always find their way on the desks of financial advisors and their firm’s preferred products to sell lists, and thus, find their way into the “fixed income” portion of retail investor’s investment accounts.

What Are Autocallable Notes and Are They Risky Investments?

An “Autocallable” note is a hybrid, or engineered, investment that pays interest over a specific period of time.  It looks like a fixed income security, like a bond. But this duck may quack like a duck, but it walks like a dog. These autocallable notes are linked to the performance of either a specific stock or pair of stocks, or an index of some sort. Typically, at maturity (usually pretty short term like a year or two), the note will pay the face value if the price of the underlying stock or index is above a specific price at the valuation date, which is shortly before the note’s maturity date. If the price is below the “threshold” or “knock-in level”, then the investor stands to lose the percentage decline from the pricing date to the valuation date.  If this makes perfect sense to you, then autocallables may be right for your portfolio.  If you are like most people and this all seems like gibberish, you’re right – it is.

These notes offer above market interest rates because they offload the risk of owning single stocks or indices to the investor. Basically, as an investor if you own an autocallable note on Tesla, you are exposed to all of the short term risk of owning that stock, but you get no participation on the upside.  Instead, you get some fixed rate of interest paid and if the stock performs, you get your money back at maturity.  But you don’t participate in the gains, so even from a tax perspective, this stinks because your gains will be taxed as ordinary income, instead of the capital gain you’d pay if you just bought and sold Tesla stock.  If this doesn’t sound like a great deal, that is because it is not.

Why Do the Big Bank Issue These Notes If They Are Bad Investments

Banks issue hundreds of billions of dollars in these structured notes because they make a ton of money doing it. And the brokers that sell them get paid handsome commissions too.  These complicated products are designed to generate transaction based fees.  Although it appears on the face of these notes that the issuer is participating in the risk proposition of the underlying stock, the reality is a little different.  These notes make the retail investor “short” the stock, and the issuer “long”.  On day 1, the issuer locks in its profit and creates whatever hedge is necessary to mitigate its risk.  It can sell put options on the stock, it can sell the stock outright.  Basically, the Big Bank has all of the tools on earth at its disposal to mitigate whatever risk it takes by issuing the note. Retail investors do not have that capability, and instead, buy the note and are at the mercy of the downside risk of a product that offloads all of the risk, and not much reward, to the investor.

A great example of how horribly this can all go, are several autocallables linked to Silicon Valley Bank. Credit Suisse, Citigroup, and HSBC collectively issued five autocallables between August 2021 and March 2023 linked, at least in part, to the performance of Silicon Valley Bank stock.  Investors in these notes will get virtually nothing at maturity, because SVB stock tanked in March 2023.  Inexplicably, Citigroup issued its note on March 9, 2023, amidst rampant media reports that SVB was literally failing.  These notes had a March 14, 2023, settlement date, which means these notes were literally worthless before they hit customer accounts.

What Should I Do if I Lost Money in Autocallable Notes?

If your financial advisor recommended that you invest in a structured note, and you lost money as a result, you should call Stoltmann Law Offices, P.C. at 312-332-4200 for a no-obligation, initial consultation with an experienced securities arbitration attorney.  We will review your autocallable note investments, free of charge, and advise you whether we believe you have a legal claim to pursue through FINRA Arbitration.  We are a contingency fee law firm which means we do not get paid unless you do.


The posting on this site are mere OPINIONS and NOT statements of fact in any way whatsoever. The information should not be relied upon and there have been no findings made against the firms or individuals referenced on this site. In addition, this Blog is made available for educational purposes only and incorporates information from the web as well as to give you general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand that there is no attorney client relationship between you and Stoltmann Law Offices (161 N Clark Street 16th Floor Chicago, IL 60601). The Blog opinions should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.


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