Future of Prime Brokerage | Shifts in Power

Prime Brokerage Future

Future of Prime Brokerage | Shifts in Power

The last 3 months of market activity have led to a mass re-distribution of power within the prime brokerage industry. Here is a quote from John Mack last week of Morgan Stanley speaking to this effect and of markets in 2009:

Yet as Morgan Stanley and other companies move to reduce leverage, profit and revenues have plunged, forcing banks to cut back.

"Any time you take a business running at 30 times (leverage) and take it down to 16 to 17, that changes the nature of your business," he said. "We have to look at that and resize it."

As many as 30 percent of hedge funds are expected to go out of business in the next year due to market losses and redemptions, Mack said. As a result, revenues flowing through Morgan's prime brokerage business will decline.

Morgan Stanley shares some of the blame for being overleveraged, he said, and has been shedding assets and raising capital to reduce its leverage ratio. Morgan Stanley now has less than $20 of assets for every dollar of equity, down from more than $30. Source

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