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Structured Notes Linked to FANG and Technology Are in Deep Trouble

Main street investors who have purchased FANG or other technology related structured notes face a stark reality check.

With banks selling $2 billion of structured products linked to one or more of the now-struggling FANG members this year alone, investors are getting schooled on the risks lurking in complex debt securities — even those laden with protective buffers.

They’ve already missed out on coupon payments and unless this month’s $2 trillion U.S. equity rout reverses course, investors face haircuts and more lost income.

The hardest hit are structured securities tied to Nvidia Corp., with $221 million linked to the chipmaker sold globally this year alone. The timing couldn’t be worse: the stock is worth about half as much as it was at the start of last month after disappointing forecasts.  Nvidia’s trading below the threshold required to receive the touted 11 percent return per year.

Citigroup sold $7.34 million of structured notes tied to Netflix in June when the shares were rocketing toward an all-time high. The six-month securities pay an annualized coupon of 13.75 percent as long as the streaming service remains above $308.32.

With the stock trading below the $308.32 price investors would have received no coupon this month and risk losing at least a quarter of their principal when the notes mature on Dec. 28 — unless Netflix stages a rally to the tune of 20 percent.

Holders of notes issued by Goldman Sachs Group Inc. that are linked to Facebook Inc., Amazon.com Inc. and Netflix also stand to forgo coupons unless there’s a robust equity rebound by January.

All the same, the missed payments highlight how the tech blow-out is reverberating beyond the equity market, with a rising count of potential victims.