Notes’ returns tied to Station stock

Friday, June 11, 2004 | 11:09 a.m.

In the increasingly complicated world of financial derivatives, Wells Fargo & Co. has issued $63 million in 10-year notes whose return will be determined by the stock price of Las Vegas casino operator Station Casinos Inc. (which isn't involved in issuing the derivatives).

Initially, the bank will pay holders of the note interest at a rate of just 0.25 percent annually. Over time, the holders may get more money, depending on the performance of the stock. So far this year, Station shares have soared about 60 percent.

Wells said it crafted the unusual deal after one of its customers approached the bank. The investor wanted exposure to Station's stock without actually owning it, says Nino S. Fanlo, Wells' treasurer.

The notes are callable by Wells after three years. When the bonds are cashed, holders may receive 17.6 times the closing price of the stock, or, if the stock price falls, they are guaranteed a return of principal. The notes may be resold to other investors. Banks and others previously have issued notes tied to a stock index or to a basket of stocks. However, Wells says this is the first time it has issued a note tied to the performance of a single stock.

Station owns and operates eight major hotel and casino properties in the Las Vegas metropolitan area, including the namesake Palace Station and Boulder Station.

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