Credit Suisse agrees to refer prime services clients to BNP

London

CREDIT Suisse Group and BNP Paribas reached an agreement in which the Swiss firm will recommend that its hedge fund clients move to the French bank after it 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", according to a statement on Monday (Nov 8). It did not provide further details.

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 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 middle 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 move themselves. The transfers are scheduled to be completed 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 one-third of equities-trading revenue across Wall Street and generated about US$15 billion last year, according to data from 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$3.58 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, JPMorgan Chase and Morgan Stanley. BLOOMBERG