HSBC Seeks to Fill Lehman Void as Hedge Fund Broker

Date: Friday, September 4, 2009
Author: Kevin Crowley and Tom Cahill, Bloomberg

HSBC Holdings Plc, Europe’s biggest bank, is seeking to expand its role as a broker to hedge funds after last year’s collapse of Lehman Brothers Holdings Inc.

“It’s a significant opportunity for a new revenue stream,” said Stuart Gulliver, HSBC’s investment banking chief, at a Nomura Holdings Inc. conference in London today. “We’ve seen a number of hedge funds moving their accounts to HSBC because their main concern is getting their money back.”

About 700 clients of Lehman’s European division, including MKM Longboat Capital Advisors LLP and GLG Partners Inc., lost control of their assets when the parent company filed for bankruptcy. PricewaterhouseCoopers LLP, Lehman’s U.K. administrator, said last month it may be a decade before creditors receive all of the $9 billion they are owed.

“Post Lehman, the issue of counterparty risk became uppermost in the minds of fund managers and they were under pressure to move their money to where it is safest,” said Neil Wilson, editorial director of HedgeFund Intelligence, publisher of EuroHedge and other hedge fund publications. “The panic has subsided a bit, but there’s still a business opportunity.”

Lehman was the world’s ninth-largest prime broker in 2007, Sanford C. Bernstein & Co. analyst Brad Hintz estimated.

Goldman Sachs Group Inc. and Credit Suisse Group AG are Europe’s biggest prime brokers, according to April rankings by EuroHedge. HSBC didn’t rank in the top 11 firms, according to the survey. Prime brokers provide trading clearing, lending and other services to hedge fund clients.

“We can give people leverage in a segregated account, so they don’t have the operational risk that came out when Lehman Brothers failed,” Gulliver said.

To contact the reporter on this story: Kevin Crowley in London at kcrowley1@bloomberg.net