BNP Could Rise as Top Prime Broker in Asia on Deutsche Bank Deal
Even after a tough few years for Deutsche Bank, 14% of funds in Asia still use it as either a prime broker or trade through it
(Bloomberg) -- As Deutsche Bank AG and BNP Paribas SA sort out a deal on servicing the German lender’s hedge-fund clients, one of the prizes at stake is the Asian business.
Even after a tough few years for Deutsche Bank, 14% of funds in the region still use it as either a prime broker or trade through it, according to Eurekahedge analyst Mohammad Hassan. That gives BNP the opportunity to break into the top 10, he said. Eurekahedge’s rankings reflect its estimates of both client balances and number of fund mandates.
Still, BNP would need to halt client exits and contend with a unit that has taken on a multitude of smaller funds as bigger ones reduced their business or defected. This at a time when many banks are gravitating toward larger, more profitable clients in a business that ties up capital.
The German bank’s regional hedge-fund clients have slipped by almost one-quarter to 132 since 2010, a survey by trade journal AsiaHedge showed in May. It ranked as the fifth-largest prime broker in Asia.
Deutsche Bank was known to be more welcoming to smaller outfits in the region. About 56% of smaller funds used it as either a prime broker or to execute trades, according to Eurekahedge, which estimates that two-thirds of Asia-focused hedge funds oversee less than $100 million.
The German bank and Credit Suisse Group AG had previously benefited in the region as hedge funds added European banks as prime brokers to avoid being caught up in another U.S. bank failure after the collapse of Lehman Brothers Holdings Inc. Globally, Deutsche Bank didn’t rank among the top seven prime brokers in 2018, according to data from Coalition Development Ltd.
Prime-brokerage divisions cater specifically to hedge funds, lending them cash and securities and clearing their trades.
Deutsche Bank’s high-profile clients in Asia have included Carl Huttenlocher’s Myriad Asset Management Ltd. and Kontiki Capital Management (HK) Ltd., led by ex-Ziff Brothers Investments LLC Asia head Gregard Heje.
BNP spokesman Andrew Achimu and Deutsche Bank spokeswoman Karene Dufour declined to comment.
Its global business has enabled Deutsche Bank to trade fixed-income and currencies, on top of equities, a rarity among peers in Asia. It can also source harder-to-find securities for funds to borrow for bearish bets, even in Southeast Asia, said two fund executives who still list Deutsche Bank as their prime brokers. It’s also got an efficient electronic trading system and can supply financing at reasonable prices, they said, asking not to be identified as they aren’t authorized to speak publicly.
Smaller Firms
The bank has also courted China-focused managers. It counts Tairen Capital Ltd. as a client and has won over Chinese quantitative asset management firms expanding offshore after a regulatory crackdown on stock futures trading domestically.
Servicing smaller outfits can earn goodwill, and a chunk of business, as a client thrives. But it can also make business more costly and less profitable, at least in the short term, because not every small manager will succeed.
Deutsche Bank’s exit would hit such funds hardest. The AsiaHedge survey estimated there were about 30 regional funds that used the German bank as their sole prime broker.
BNP, meanwhile, is largely a niche bank, strong in certain areas but lacking Deutsche Bank’s breadth and depth. While a deal could jump-start its Asia business, it will have to invest heavily and its success will also hinge on what technology, staff and clients are eventually transferred across.
To contact the reporter on this story: Bei Hu in Hong Kong at bhu5@bloomberg.net
To contact the editors responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net, Candice Zachariahs, Christian Baumgaertel
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