26/07/2011 Author: Elana Margulies

‘Mini primes’ hit as PB space is forced to adapt

The current struggle for new prime brokerage business has caused many of the space's smaller firms to close. A number of the so-called independent ‘mini primes’ have been forced to either shut doors, seek buyers, or retreat back to their original trading only, administration or middle-office business, while even larger firms are reacting to a recent summer slowdown by trimming staff.

According to a research document seen by HFMWeek, of the approximately 20 ‘mini primes’ that existed in the first quarter of 2010, half are no longer in business, while others have reduced the scale of their services.

Those to have folded include Lighthouse Prime Services, Meridian Equity Partners, Saratoga Prime Services and PCS Dunbar Securities, which was acquired by Cantor Prime Services in the first quarter. The apparent demise of this sector has been accelerated by the major clearing firms terminating introducing broker relationships with small prime services firms due to risk, low capitalisation and lack of reward.

Larger prime brokers are also re-evaluating their businesses ahead of the final half of 2011, as they decide where to cut costs.

According to sources, many firms fattened up their staff numbers in late-2010 and early-2011 and increased base salaries following inflows into the hedge fund industry. Now those prime brokerage units that have failed to generate the revenue they anticipated in the first half of 2011 have been laying off employees, concentrating on those who have failed to generate new revenue.

According to the prime brokerage document, of the six ‘big primes’ that exist, more than half have experienced personnel transformations. HFMWeek previously reported that BNP Paribas, Citigroup and UBS were among those to see redundancies and departures.

Meanwhile, among the five ‘major primes’ detailed in the document, HFMWeek formerly detailed some minor cuts at Credit Suisse. No firm was spared, with Bank of America Merrill Lych and others recently trimming their rosters to reduce expenditure and remove low revenue producers.