Hedge Fnds Pulled Back From Lehman Prime Bkg Before Bankruptcy |
Date: Tuesday, September 16, 2008
Author: CNN Money.com
But in certain areas, like the statistical arbitrage and repurchase, or repo markets, Lehman was and still is a top player. What happens to the prime brokerage is a complicated question, because most of that business is located in the U.K. While Lehman included its prime brokerage as part of its bankruptcy, it is not thought to be subject to the laws of Chapter 11 since the business is in the U.K.
Lehman's prime brokerage, which like others lends money and securities to hedge funds as well as provides administrative services from back-office help to processing trades, was a key revenue-earner for the bank as recently as earlier this year. In its first-quarter earnings report in March, Lehman had reported a 38% year-over-year revenue increase in its securities service unit, which includes prime brokerage. At that time, it said it had
But as the investment bank started stumbling more and more the past few months - along with the rest of the financial services industry - Lehman started losing all or part of the business of hedge fund customers afraid of the counterparty risk attached with dealing with Lehman.
In a note to investors reviewed by Dow Jones Newswires, one hedge fund admitted it used Lehman's prime brokerage services as recently as last week, but minimally. At that time, it moved its money from Lehman to the prime brokerages of UBS AG (UBS) and
The same hedge fund promised investors it would continue to form prime brokerage relationships with other banks to diversify counterparty risk.
The large question is what happens to Lehman's existing prime brokerage business, or what's left of it.
"There are certain niches they have pretty good market share in," said
Lehman's prime brokerage is headed by
When Bear Stearns Cos. collapsed earlier this year and was snatched by
-By
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http:// www.djnewsplus.com/al?rnd=aprnwPJ%2Bteb%2FqWP%2B8tohNQ%3D%3D. You can use this link on the day this article is published and the following day.
Reproduction in whole or in part without permission is prohibited.