By Anirban Sen
NEW YORK (Reuters) -Wall Street’s multibillion-dollar prime brokerage machinery is firing on all cylinders.
In the latest quarter, the largest U.S. banks led by JPMorgan Chase, Goldman Sachs, and Bank of America flagged big profits from the booming business of prime brokerage, which involves lending cash and securities to hedge funds to help execute large trades.
The prime brokerage business on Wall Street has benefited this year from surging valuations of companies across sectors, with some banks warning that asset prices may be unsustainably high.
For now, however, top U.S. lenders are scrambling to grab more market share against each other and European rivals, as trading activity has surged this year due to global market volatility triggered by the Trump administration’s tariff policies.
The number of new hedge funds and the size of existing funds has grown exponentially in recent years, with fund leverage ratios hitting a five-year high earlier this year, Reuters previously reported.
The current push into the business of prime lending comes about three years after Credit Suisse was forced to wind down its brokerage lending operations as the collapse of Archegos Capital Management left the bank nursing billions of dollars of losses.
For the quarter ended September 30, JPMorgan’s equity markets unit reported a 33% surge in revenue to $3.3 billion, with strength across products, particularly in prime lending.
Morgan Stanley’s equities revenue surged 35% to $4.12 billion, driven by record results in prime brokerage, while fixed income revenue rose 8%.
“Prime brokerage revenues drove results as average client balances and financing revenues reached new records,” Morgan Stanley Chief Financial Officer Sharon Yeshaya told analysts on Wednesday.
On a post-earnings conference call with analysts, Bank of America Chief Financial Officer Alastair Borthwick said the second-largest U.S. lender saw strength in its prime brokerage financing business, as revenue increased year-over-year.
On Tuesday, Goldman Sachs posted a 7% rise in revenue from its equities business to $3.74 billion, driven primarily by higher net fees generated from equities financing, which includes its prime lending business.
“Balances are very correlated with overall levels in the markets, which is an attractive feature of the (prime services and financing) business,” said Goldman CFO Denis Coleman on a call with analysts.
“It has been, together with FICC financing (fixed income, currencies, and commodities), a good source of stable revenues for us across the franchise,” he said, adding that the bank was seeing robust demand from hedge fund clients on prime brokerage services.
(Reporting by Lananh Nguyen, Saeed Azhar, Tatiana Bautzer and Anirban Sen in New York and Manya Saini in Bengaluru; Editing by Bill Berkrot)
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