Credit Suisse reaches agreement to refer hedge fund clients to BNP Paribas


The logo of Swiss bank Credit Suisse is seen at a branch in Zurich, Switzerland, November 3, 2021. REUTERS/Arnd WIegmann

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  • CS had said it would close most prime brokerage businesses
  • Clients benefit from a simplified process when switching to BNP
  • Move builds on BNP’s expansion into equities

ZURICH, Nov 8 (Reuters) – Credit Suisse (CSGN.S) said on Monday it had reached an agreement to refer hedge fund clients to rival BNP Paribas (BNPP.PA) following the Swiss lender’s decision to exit prime brokerage and certain derivatives activities following the Archegos scandal.

The news comes after Switzerland’s second-biggest bank said last week it would stop funding hedge funds by closing most of its prime brokerage business, a division accused of hoarding 5.5 billion dollars of losses when the investment fund Archegos Capital Investment defaulted in March. Read more

The collapse of Archegos as its bets on highly leveraged stocks deteriorated sparked a damning independent report that criticized the bank’s risk management and raised questions about its long-term ability to compete with his rivals.

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On Monday, Credit Suisse said it had tapped BNP Paribas to help its major derivatives clearing services and clients find new providers, a move industry observers said could hamper the bank. Switzerland, as its core services unit has been a key revenue generator.

“Credit Suisse will support affected clients when selecting other Prime service providers of their choice,” the bank said.

“If clients seek to benefit from the Referral Agreement between Credit Suisse and BNP Paribas, a streamlined process will be put in place to make it easier for them to obtain Prime Services from BNP Paribas, in accordance with its terms.”

Credit Suisse announced last week that it was leaving Prime Services, a business that provides funding, custody, clearing and advisory services to hedge funds and institutional clients, as it focuses on less risky wealth management.

For BNP, the deal will build on its continued equity expansion.

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 through several add-on acquisitions.

“This is a business where scale matters,” Legras said. “Now in the Eurozone it’s really BNP Paribas against the Americans.”

Data from Coalition Greenwich showed that prime brokerage has been a growth driver for banks’ investment banking revenue in recent years.

Global revenue from banks’ core brokerage businesses hit $15 billion in 2020, up by half from a decade ago, the data shows.

In 2019, BNP took over the prime brokerage and electronic trading units of Deutsche Bank (DBKGn.DE) when the German lender announced its exit from equity trading.

In March, he announced he would take full control of the Exane equity brokerage unit, saying he planned to be one of the leading equity houses in Europe.

BNP said last month that its revenue from equity and prime services rose 79% in the third quarter from a year earlier, to 835 million euros ($965 million).

The bank’s stock has gained 38% this year, while a European banking stock index (.SX7P) is up 36%.

In contrast, shares of Credit Suisse have fallen almost 20% this year. Last week, the bank posted a 21% drop in third-quarter profits and said it expected a loss in the last three months of 2021 by writing off some 1.6 billion francs (1 $.8 billion) of goodwill related to investment banking.

In a torrid year, Credit Suisse was also fined for arranging a fraudulent loan in Mozambique, tarnished by its involvement with defunct financier Greensill Capital, and reprimanded by regulators for spying on its executives.

($1 = 0.8655 euros)

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Reporting by John Revill and Julien Ponthus; Additional reporting by Rachel Armstrong and Saikat Chatterjee; Editing by Silke Koltrowitz and Mark Potter

Our standards: The Thomson Reuters Trust Principles.


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