European banks aim at growing their prime brokerage business in Asia in competition with the U.S. Prime brokerage consists of risk on providing a suite of services to hedge funds. It ranges from margin lending to derivatives trading. Credit Suisse for instance has shut down most of its prime brokerage business. Nomura, too, discontinues its cash prime brokerage outside asia. Archegos Capital Management collapse also led to more losses to banks that served it.
It sounds discouraging but other banks such as Barclays, BNP Paribas, and HSBC seizes growth opportunities in Asia. They claimed that they will make a lot of money by looking for other alternatives to the U.S. banks that dominate the market, such as Goldman Sachs, JP Morgan, and Morgan Stanley. Following last year’s dislocation, more investors found other liquidity providers to diversify their risks and competitors.
Asia becomes the best alternative because bankers, investors and analysts see a safe strategy. Prime services is one of the areas of equities that makes market volumes grow consistently. During the U.S.-China tensions, hedge funds suggest to European firms to act the same with hedge funds. Hedge funds have multiple banks to have prime brokerage accounts. According to them, it is helpful to diversify risk.
Asia’s prime brokerage showed significant raise last year. Asia is a potential place for a lucrative source of revenue compared to other regions. Asia’s derivatives make up the biggest share, while margin tends to be lower. It has made big hires. James Scully who worked for Credit Suisse before is one of the candidates. Head of APAC (Asia Pacific) institutional sales, Brain McCappin said that the bank is hiring aggressively.
