UPDATE: Credit Suisse, Deutsche Bank, Top Prime Broker Survey
July 01 2009 - 12:24PM
Dow Jones News
Credit Suisse and Deutsche Bank ranked as the best prime
brokerages of 2008 in a closely followed survey due out this week,
a copy of which was reviewed by Dow Jones Newswires.
The annual survey of hedge funds, conducted by Global Custodian
magazine, had about 25% fewer respondents than last year - not
surprising considering the global economic meltdown and shrinking
of the hedge-fund industry.
Credit Suisse narrowly outscored Deutsche Bank - last year's
winner - although Deutsche Bank got more "best in class"
awards.
Last year, Credit Suisse ranked seventh, and part of its move up
can be attributed to the collapse of some banks and mergers between
others.
Prime brokerage businesses of Bear Stearns and Lehman Bros. are
now run by JPMorgan Chase & Co. (JPM) and Barclays PLC (BCS),
respectively, and Bank of America Corp. (BAC) and Merrill Lynch
have merged.
Philip Vasan, head of Credit Suisse Prime Services, said another
reason for finishing first is that since he's taken over in 2003,
the company has been very selective in which hedge fund clients
it's dealt with.
"Credit Suisse was routinely selecting less than half the hedge
funds that it might have all these years," Vasan said.
Global Custodian's rankings are based on a weighted average of
prime brokerages' performance in such categories as financing,
client services, technology and margining. Results from the survey,
the most closely watched in the hedge-fund industry, are presented
in a format similar to the popular Zagat restaurant guides, with
direct quotes from participants making up a bulk of the commentary
on each company.
Citigroup Inc.'s (C) prime brokerage came in third, followed by
JPMorgan, Barclays, and the combined Bank of America/Merrill Lynch.
Goldman Sachs Group Inc. (GS) finished seventh. UBS AG (UBS),
Newedge and RBC Capital Markets rounded out the list. Goldman and
Deutsche Bank are believed to be the two largest prime brokerages
in terms of market share, which isn't considered in the
rankings.
Barry Bausano, who along with Jonathan Hitchon serves as co-head
of Deutsche's global prime finance business, said hedge fund
managers' increasing tendency to use multiple prime brokerages and
shy away from risk have been major factors in both the market share
gain, and positive survey results.
"Deutsche Bank was perceived as having successfully navigated
the subprime crisis, and that halo effect benefited the prime
brokerage," Bausano said.
Before the high-profile collapses of Lehman and Bear Stearns,
many hedge-fund managers weren't terribly concerned with
counterparty risks involved with their prime brokerages. But after
reality set in that these could lead to margin calls and losses,
more managers spread money across multiple prime brokers,
especially less risky ones.
While counterparty risk isn't one of the categories measured in
Global Custodian's rankings, concerns about risk are a big reason
for the shift by many hedge funds to multiple prime brokers.
-By Joseph Checkler; Dow Jones Newswires; 201-938-4297;
joseph.checkler@dowjones.com