I've just read the article in the link below and would like to know if someone can elaborate on a statement. I have added the whole paragraph, but highlighted the part about the use of ETNs as cheap funding. How does banks use ETNs as funding?
I live in Denmark where the only ETF-like offerings are ETNs and I'm trying to figure out why none of the banks are creating ETFs.
The investment banks take advantage of their superior sophistication. From the get-go, the ETN is a fantastic deal for banks. It's in the DNA of the product; once held, an ETN almost can't help but be fabulously profitable to its issuer. Why? They're dirt-cheap to run because the fixed costs are already borne by infrastructure set up for structured products desks. They're an extremely cheap source of funding, the life blood of the modern bank. More important, this funding becomes more valuable the bleaker an investment bank's health. As a cherry on top, investors pay hefty fees for the privilege of offering this benefit. This isn't enough for some issuers. They've inserted egregious features in the terms of many ETNs. The worst we've identified so far is a fee calculation that secretly shifts even more risk to the investor, earning banks fatter margins when their ETNs suddenly drop in value.
The article is from Morningstar: Exchange-Traded notes are worse than you think