Prime brokers have seen a flight to quality by hedge fund clients, who have transferred up to $50 billion (37 billion) of assets from higher-risk banks to the prime brokerage operations of commercial banks with bigger balance sheets and better credit ratings, Financial News reports.
The transfer of business in the past two weeks, which according to prime brokers and hedge funds has hit Bear Stearns and Lehman Brothers, marks the start of a shake-out in the lucrative and competitive prime broking industry.
This is dominated globally by Morgan Stanley, Goldman Sachs and Bear Stearns and accounts for an estimated 15 percent to 20 percent of revenues for investment banks, according to a survey by Dresdner Kleinwort.
Given the market environment there are a lot of flows both ways,” says a spokesman for Bear Stearns. “We are also getting new business and balances are up year on year.”