NEW YORK When Credit Suisse Group AG left the business of working with hedge funds, it set off a battle among banks for market share. According to prime brokers and new industry data, the three biggest players grew.
Credit Suisse said in November that it would stop doing prime brokerage. This is a service that helps hedge funds and other institutional clients with financing, storage, clearing, and advice.
Since then, rivals have been fighting over its 1,800 clients, even though the Swiss bank had a deal to send them to BNP Paribas (OTC:BNPQY) SA, according to executives at four prime brokers.
“The competition for hedge funds has never been tougher because the industry isn’t growing,” said George Evans, president of Convergence Inc., a company that provides data.
Goldman Sachs Group Inc. (NYSE: GS), Morgan Stanley (NYSE: MS), and JPMorgan Chase & Co. (NYSE: JPM), the world’s three largest banks, extended their lead in the first half of this year, according to Convergence data https://www.datawrapper.de/bwS8d based on regulatory filings from hedge funds.
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Data and interviews show that European banks Barclays (LON:BARC) Plc and BNP are working hard to gain market share below the top tier. The league table, which had never been shown before, put prime brokers in order by how many clients they had.
Since Credit Suisse had only lost about a fifth of its clients at that point, the data for the first half of the year didn’t show the full extent of its departure. But rankings based on revenue from data provider Coalition Greenwich and what prime brokers thought showed the same thing.
Data from Convergence showed that Goldman Sachs, which had the most clients, grew by almost 9% in this way from June 2017 to June 2018. Morgan Stanley and JPMorgan, which were ranked second and third, were not far behind.
Cyril Goddeeris, global head of prime services at Goldman Sachs, said, “We lost some competitors, and that gave Goldman a chance to grow.” A source who knows about the situation says that Goldman’s share went up 11% from March 2020 to March 2022.
JPMorgan and Morgan Stanley both said they had nothing to say.
Coalition data showed that the prime brokerage business has made more than $15 billion a year in the last few years. Bankers say that prime services are also important from a strategic point of view because they lead clients to wealth management, investment banking, and other services.
But prime brokerage is dangerous and needs a lot of money.
Stock pickers are about to have their worst year in ten years. https://graphics.reuters.com/GLOBAL-HEDGEFUNDS/movanemwmpa/chart.png
Credit Suisse, which had the fifth-most clients and made the most money in Europe, decided to leave the business in November 2021 after losing $5.5 billion because Archegos Capital Management went bankrupt. Credit Suisse lost big clients like Blackstone (NYSE:BX), BlackRock (NYSE:BLK), Bridgewater Associates, and Millennium.
A LOT OF COMPETITION
After the top three, there is more competition in the next group.
Mike Webb, the global head of prime equities at Barclays, said that the UK bank has focused on getting the biggest funds as clients by offering services across asset classes and regions.
Nicolas Marque, head of global equities at BNP Paribas, said, “We want to be the European leader in the equities space, and to do that, we need to grow globally, especially in the U.S..”
Coalition data showed that Barclays jumped ahead of competitors to take the fifth spot last year, up from the ninth spot in 2016.
Related: Credit Suisse is considering cutting about 5,000 jobs.
Large funds often have more than one relationship with a prime broker. Barclays’ Webb said that when Credit Suisse said it was leaving the business, some funds sent their business to companies they already worked with.
“Now that the dust has settled, we’re seeing a second wave of flows as companies re-evaluate their distribution among providers,” Webb said.
Convergence data showed that Barclays’ number of fund clients grew by 10.8% in the year leading up to June. It also recently hired 20 people from the prime brokerage at Credit Suisse.
Since 2019, when BNP bought the prime business of Deutsche Bank AG (NYSE:DB), it has gone from being No. 9 to No. 6 in terms of cash prime brokerage revenue. It took about 4.5 percentage points more of the market.
A source familiar with the situation said that BNP also hired 20 people from Credit Suisse’s prime brokerage and took over research house Exane earlier this year.
But the bank lost some clients and fell from No. 7 to No. 8 based on this measure. Its assets under management, on the other hand, stayed the same, and a source with knowledge of the situation said that prime brokers sometimes drop clients to focus on more important ones.