By John Revill
ZURICH -Credit Suisse said on Monday it had struck a deal to refer hedge fund clients to rival BNP Paribas following the Swiss lender’s decision to exit prime broking and some derivatives businesses in the wake of the Archegos scandal.
The news comes after Switzerland’s second-biggest bank said last week it would all but stop funding hedge funds by shutting most of its prime brokerage business, a division blamed for racking up $5.5 billion in losses when investment fund Archegos Capital Investment defaulted in March.
The collapse of Archegos as its highly leveraged stock bets went sour triggered a damning independent report that slammed the bank’s risk management and raised questions about its ability in the longer term to compete with rivals.
On Monday, Credit Suisse said it had enlisted BNP Paribas to help its prime services and derivatives clearing customers find new providers, a move industry watchers said might hobble the Swiss bank as its prime services unit has been a key generator of revenues.
“Credit Suisse will support affected customers as they select alternative Prime Services providers of their choice,” the bank said.
“Should customers seek to benefit from the referral agreement between Credit Suisse and BNP Paribas, there will be a streamlined process in place to facilitate them obtaining Prime Services from BNP Paribas, under its terms.”
Credit Suisse last week said it was quitting prime services, a business which provides financing, custody, clearing and advisory services to hedge funds and institutional clients, as it moves to focus on less risky wealth management.
For BNP, the agreement will build on its continued expansion in equities.
Jerome Legras, head of research at Axiom Alternative Investments, which invests in bank equity and debt, said BNP Paribas was gaining market share in this business via several bolt-on acquisitions.
“It’s a business where scale matters,” Legras said. “Now in the euro zone it’s BNP Paribas against the Americans really.”
Data from Coalition Greenwich showed prime broking has been a growth engine for revenues from banks’ investment banking businesses in recent years.
Global revenues from banks’ prime broking businesses hit $15 billion in 2020, up by half from a decade ago, the data showed.
In 2019, BNP took on Deutsche Bank’s prime brokerage and electronic trading units when the German lender announced its exit from equities trading.
In March it said it was to take full control of equity brokerage unit Exane, stating it planned to be one of the top equity houses in Europe.
BNP said last month its revenue from equity and prime services was up 79% in the third quarter from a year earlier at 835 million euros ($965 million).
The bank’s stock has gained 38% this year, while a European banking stock index is up 36%.
In contrast, Credit Suisse shares have fallen nearly 20% this year. Last week, the bank posted a 21% fall in third quarter profit and said it expected a loss in the final three months of 2021 as it writes off some 1.6 billion francs ($1.8 billion) of goodwill related to the investment bank.
During a torrid year, Credit Suisse has also been fined for arranging a fraudulent loan to Mozambique, tarnished by its involvement with defunct financier Greensill Capital, and rebuked by regulators for spying on its executives.
($1 = 0.8655 euros)
(Reporting by John Revill and Julien Ponthus; Additional reporting by Rachel Armstrong and Saikat Chatterjee; Editing by Silke Koltrowitz and Mark Potter)
