Credit Suisse agrees to direct its hedge fund clients to BNP

[LONDON] Credit Suisse Group and BNP Paribas have reached an agreement under which the Swiss firm will recommend that its hedge fund clients move to the French bank because it has decided to exit the business.

The Swiss lender said it signed a referral agreement to "support its Prime Services and Derivatives Clearing customers in their selection of alternative providers for such services", it said in a statement on Monday. It did not elaborate.

Credit Suisse is exiting the prime brokerage unit that lost billions in the collapse of Archegos Capital Management as it moves more capital into its steadier wealth-management business. That was the centrepiece of a new strategic plan announced by the bank last week, as its chairman Antonio Horta-Osorio seeks to move the bank past one of the most turbulent periods in its recent history.

BNP is already in the process of taking on Deutsche Bank's prime brokerage business as part of the German bank's 2019 exit from equities trading. That deal was more involved, as it included the transfer of assets and employees rather than just encouraging clients to make the move themselves. The transfers are scheduled to complete this year.

Prime-brokerage divisions are vaunted within investment banks, both for generating profits and cultivating relationships with wealthy hedge-fund managers. They typically produce about a third of equities-trading revenue across Wall Street and generated about US$15 billion last year, said research firm Coalition Greenwich.

Still, the businesses require significant capital as a buffer against potential lending losses and investments in technology. The agreement shows the delicate dance Credit Suisse will attempt to pull off as it encourages clients to rely on rivals for borrowing money and securities, while trying to remain a player in the buying and selling of stocks and derivatives.

Many customers have already had to find new providers as Credit Suisse cut the size of its prime brokerage balance sheet roughly in half over the past six months, Bloomberg has reported.

BNP generated 2.29 billion euros (S$3.57 billion) from its equities trading and prime unit in the first nine months of this year. That puts it near the top of the ranks of European banks, but nowhere near the US$8 billion-plus produced by each of the three giants of stock trading - Goldman Sachs Group Inc, JPMorgan Chase & Co and Morgan Stanley.

BNP has a long history of trying to seize on crisis. The lender bought Bank of America Corp's prime-brokerage business in June 2008 as the credit crunch raged, acquiring more than 500 clients and 300 employees.

BLOOMBERG