Prime Brokerage - History - Financial Crisis of 2007-09

Financial Crisis of 2007-09

The financial crisis of 2007-09 brought substantial change to the marketplace for prime brokerage services, as numerous brokers and banks restructured, and customers, worried about their credit risk to their prime brokers, sought to diversify their counterparty exposure away from many of their historic sole or dual prime broker relationships.

Restructuring transactions in 2008 included the absorption of Bear Stearns into JP Morgan, the acquisition of the assets of Lehman Brothers in the US by Barclays, the acquisition of Merrill Lynch by Bank of America, and the acquisition of certain Lehman Brothers assets in Europe and Asia by Nomura. Counterparty diversification saw the largest flows of client assets out of Morgan Stanley and Goldman Sachs (the two firms who had historically had the largest share of the business, and therefore had the most exposure to the diversification process), and into firms which were perceived, at the time, to be the most creditworthy. The banks which captured these flows to the greatest degree were Credit Suisse, JP Morgan, and Deutsche Bank. During these market changes, HSBC launched a prime brokerage business in 2009 called "HSBC Prime Services", which built its prime brokerage platform out of its custody business.

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