Deutsche Bank will transfer prime broking and electronic equities to BNP Paribas

September 24, 2019 | Hedge Funds

Deutsche Bank has agreed to migrate key clients, human resources, and technology in prime broking and electronic equities to BNP Paribas.

However, Deutsche Bank prime brokerage clients, primarily hedge funds, are unlikely to see any disruption from this arrangement. That’s because the two banks have agreed to provide “continuity of service” to these clients.

Deutsche Bank’s restructuring

In a massive restructuring, Deutsche Bank has cut 18,000 jobs and is divesting assets worth € 74 billion. The arrangement with BNP Paribas is part of Deutsche Bank’s overhaul of its investment banking business.

According to an FT report, BNP Paribas may pay a token cash amount for these businesses to Deutsche Bank. But the latter will benefit by not having to pay redundancy to staff moving to BNP Paribas. The number of such people switching over could be as high as 800.

The agreement provides a “clear path for clients and staff,” said Frank Kuhnke, chief operating officer at Deutsche Bank.

Deutsche Bank prime brokerage gains for BNP Paribas

BNP Paribas will gain scale in the lucrative prime broking business which involves financing hedge funds and managing their trading.

However, according to one media report, about $ 200 billion worth of Deutsche Bank’s prime brokerage business had already shifted to JPMorgan. This chunk included marquee names such as DE Shaw and Renaissance Technologies.

Prime broking is becoming highly competitive. JPMorgan announced it had surpassed $ 500 billion in prime broking balances, having increased 25% year-on-year.

Additionally, it said prime brokerage balances were nearing record levels at both its cash and synthetics businesses. The latter accounted for nearly half of its global prime finance revenue in 2018.

In an internal memo, Jonathan Cossey and Charles Chiang, co-heads of prime finance, cited JPMorgan’s prime brokerage highlights.

  • Highly diversified book
  • Gaining market share with existing clients
  • New managers coming on board
  • Entry in start-up space
  • Strong pipeline of new business (“next stop $ 1 trillion”)

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