Multi Barrier Reverse Convertible on Schneider Electric & Siemens Energy

The product pays a fixed 14.20% p.a. coupon (3.55% per quarter) on the EUR 1,000 denomination. The scheduled coupons are paid in any case (subject only to early redemption) — the risk is to the return of capital, not to the coupons themselves. In 90.7% of simulated paths the investor ends with a positive return (an annualized return of +14.20% per path); in 9.31% of paths a steep fall in the worst-performing share cuts the redemption amount enough to more than offset the coupons, producing a negative total return. The headline coupon rate therefore overstates the average outcome: the expected annualized return is 10.03%, and the tail is material (99% VaR of −41.95%).

• Issuer: Basler Kantonalbank (S&P AA+ / Fitch AAA) · Listed on SIX Swiss Exchange
• Denomination: EUR 1,000 · Issue price: 100% · Settlement currency: EUR
• Underlyings (worst-of): Schneider Electric SE (Euronext Paris) and Siemens Energy AG (Xetra)
• Coupon: 14.20% p.a., paid quarterly (EUR 35.50 / quarter)
• Barrier: 55% of the initial level, continuously observed
• Strike: 100% of the initial level
• Issuer callable: yes — observation on 19/04/2027 & 19/07/2027 (redemption 26/04/2027 & 26/07/2027)
• Maximum term: 12 months (final fixing 18/10/2027)

1. You are paid a high 14.20% annual coupon. The scheduled coupons are paid in any case unless the note is redeemed early — a bad share performance does not cancel them. Your real exposure is to whether you get all of your capital back.
2. A 55% barrier provides conditional protection. As long as neither Schneider Electric nor Siemens Energy ever trades at or below 55% of its starting level during the product's life, you get your full EUR 1,000 back at maturity, plus all coupons.
3. If the barrier is breached, the “worst-of” rule bites. The redemption is then linked to the weaker of the two shares: if that worst share ends below its starting level, capital is reduced one-for-one with its decline (delivery of the worst-performing share); if it ends at or above its starting level, EUR 1,000 is still returned. The scheduled coupons continue to be paid on top.
4. The issuer can redeem early. At two observation dates the issuer may call the note and return 100% plus the coupon then due — capping the life of the trade at 6 or 9 months.
5. Upside is capped. There is no participation in share gains beyond the coupon: the best possible total return is the coupon stream (14.20%).

Interpretation. The structure cuts volatility by roughly 60% (13.3% vs. 34.3%) and reduces the probability of a loss from ~35% to ~9%, at the cost of giving up most of the upside: the expected annualized return (10.03%) is below the basket's total-return expectation (16.50%). The trade is therefore a classic yield-enhancement profile — you sell the basket's upside to buy a high coupon and partial downside protection.

• Outperform the risk-free rate (2.03%): ≈ 90.68%
• Best case (>10% p.a.): ≈ 90.65%
• Negative return (worst case): ≈ 9.31%

• 6 months (called): 37.58%
• 9 months (called): 10.23%
• 12 months (maturity): 52.19%

Note on holding-period effects. Roughly 48% of paths end before 12 months, so annualized figures for those paths are the short holding-period return scaled up (e.g. a 7.10% six-month return annualizes to ~14.2%). The expected total return of 7.00% over an average holding period of ≈9.4 months should be read alongside the annualized figure of 10.03%. The 90.7% “positive return” probability refers to the sign of the return, not to receiving the maximum number of coupons.

Points in favour

• A high 14.20% p.a. coupon for a structure with a comparatively low expected volatility (~13%).
• A 55% barrier with conditional protection: in about 9 of 10 paths the investor ends with a positive return and, in the large majority of those, principal is repaid at par.
• Coupons are not contingent on performance — they are paid regardless of share moves (subject only to early redemption).
• Worst-of construction on two high-quality European industrials, with the coupon compensating for the additional worst-of risk.
• A defined, short maximum term (12 months) and two possible early-redemption dates.

Points to weigh

• Capped upside: total return cannot exceed the coupon (14.20%); the investor forgoes all share appreciation.
• Worst-of exposure: the payoff is driven by the weaker of Schneider Electric and Siemens Energy, which increases the chance of a barrier breach versus a single-name note.
• Material tail risk: with the barrier at 55% and no protection below it, the 99% VaR is −41.95%; the worst simulated outcome was about −58%. Capital is genuinely at risk.
• Issuer credit risk: returns depend on Basler Kantonalbank's ability to pay.
• Early call risk: if the shares rally, the note is likely to be called at 6 or 9 months, capping the number of coupons received.