[Editor's Note: We are rerunning some of our best stories of the year.]
It's usually not big news when an exchange-traded product is shut down. Dozens of ETPs are routinely shuttered each year due to lack of interest from investors. In those cases, it makes total sense for an issuer to close a product that's not popular and likely not profitable.
That's what makes last week's news that Credit Suisse intends to delist two of its oil ETNs so surprising. The VelocityShares 3x Long Crude Oil ETN (UWTI) and the VelocityShares 3x Inverse Crude Oil ETN (DWTI) are anything but unpopular. As of Friday, the two had assets of $1.6 billion and $222 million, respectively―amounts that would make many issuers envious.
“It’s completely unusual," said Eric Balchunas, senior ETF analyst for Bloomberg. "UWTI is the first ETF or ETN with over $1 billion in assets to close.”
According to a Credit Suisse press release, the firm is making the move to delist these products to "better [align] its product suite with its broader strategic growth plans."
If the firm's recent moves are any hint, those strategic plans may include an exit from the exchange-traded note (ETN) business. Earlier in November, Credit Suisse announced plans to shut down another one of its ETNs, the Credit Suisse X-Links Cushing MLP Infrastructure ETN (MLPN), which also has substantial assets—more than $500 million.
"It's become clear that Credit Suisse is trying to clean up its balance sheet," explained Dave Nadig, CEO of ETF.com. "Since these products are large and therefore probably quite profitable, it's not a ‘pruning’ exercise. And because the underlyings are oil, there's zero chance this is an inability-to-hedge problem. The only remaining reason to shutter them is to clean up the liabilities on their balance sheets.”
ETN Launches Slow
Unlike traditional ETFs, ETNs are a liability for the issuing company―typically big banks. In a year in which Europe's banking woes have been widely advertised, it makes sense that Credit Suisse, and others, may be trying to shrink their liabilities any way that they can.
“Launches are down," according to Bloomberg's Balchunas. "There’ve been 14 ETN launches in a year with 208 launches, and you’ve seen about 20 ETNs close or delist. You have twice as many ETNs going away as entering the market—that’s the opposite of the ratio ETFs are seeing.”