The Premier League of Prime Broking under seige

Morgan Stanley's office on Times SquareImage via Wikipedia I recently commented about how unwise it was to only have one prime broker and separately about how concerns were starting to focus on Morgan Stanley and Goldman, something that would have until this weekend seemed laughable.

Well, it appears that prime brokerage clients of Morgan Stanley and Goldman have started getting jitters, to the delight of other prime brokers with banking parentage. With Lehman Administrators confirming that there would be no early return of Prime Broking client assets, hedge funds are starting to look at migrating some of their business.

Until now, Goldman and Morgan Stanley were the prime brokers firms wanted to be with. They dominated the prime broking market and had their choice of which clients to accept. For most firms, an account with GS or MS was a seal of approval that they could show to investors, since those brokers didn't accept "dodgy" accounts.

Whilst I don't have the stats, I suspect many hedge funds were too nervous to ask for anything other than sole mandate agreements with them, just in case this meant they would be rejected. As a consequence, such firms will be racing to put in place additional arrangements just in case.

"Duller" prime broking firms who had consistently failed to break into the market shares of GS & MS, are now getting phone calls from firms "exploring possibilities" that they had previously shunned. Safe havens and asset dispersal are the new imperatives. Prime brokers backed by big commercial bank balance sheets are likely winners from the current climate of fear e.g. JP Morgan, Deutsche, Citi, UBS and Credit Suisse. Oh to be a Prime Brokerage salesman at these house right now.
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