The annual Global Custodian annual survey of prime brokers is out, offering a qualitative, as well as quantitative, assessment of the world’s foremost prime brokerage firms.
The grip of the old order - the Goldman/Morgan “duopoly” - has, it seems, significantly loosened.
While Goldman more or less held its ground in the rankings, moving slightly up from 6th place to 5th, Morgan Stanley slipped rather badly. From a first place ranking in the 2008 survey, the venerable house fell to eighth this year.
More telling than the rankings though, are the harder numbers:
Among hedge fund clients of the bank responding to the survey, 43.6% said they had reduced their balances with Goldman Sachs. The only firm to see a bigger reduction of balances among their survey respondents was Morgan Stanley, with an enormous 70.2% saying they had cut their balances with the firm. The survey average was just 25.4%.
As recently as last year, Morgan Stanley and Goldman Sachs accounted for some of the highest number of responses, with Morgan Stanley collecting more than any other prime broker. In 2008 the two firms accounted for nearly 23% of responses. This year, they accounted between them for less than 18%.
However, clients have been generally unimpressed with their brokers, and across the board. Here’s a few of the respondents’ complaints (emphasis ours):
Comments by respondents offer a glimpse at what this actually meant in the second half of September 2008. “Instability during times of stress, no uniform message, randomness in financing and margin, lack of partnership during times of stress, distant management, inability to focus on solutions,” is the litany of complaints about one prime broker.
One respondent claimed their prime broker “misled us when we inquired about rumors of impending changes to leverage/margin, [then] made dramatic changes without notification, which subsequently led to margin calls.” Another respondent complained that his prime broker “changed financing terms with zero notice,” and another of “lack of notice when changing margin rules.”
A survey respondent says the behavior of his prime broker “during the liquidity crisis was completely unacceptable. They deliberately delayed transfers of cash as well as unencumbered securities out of the account.” Another respondent describes a “refusal to deliver cash and shares, [and] an attitude which has not been to work with the clients, but rather protecting [the prime broker] in the very short term.” Another says it “always seems to be about [them] not the customer.”The Global Custodian survey is compiled from thousands of prime brokerage clients and covers a whole range of different metrics, including quality of service, financing, margining, securities lending, technology, cap intro.
Rankings below (outliers removed):
And for comparison, here are the rankings from the 2008 survey:
1. Morgan Stanley - 5.73
2. Lehman Brothers - 5.72
3. UBS - 5.69
4. Deutsche Bank - 5.68
5. Credit Suisse Prime Services - 5.65
6. Goldman Sachs - 5.62
7. Citi =5.60
7.Merrill Lynch =5.60
8. Bear Stearns - 5.58
9. Barclays - 5.42
For Citi, Credit Suisse and Deutsche (and to a lesser extent, Barclays), in spite of absolute declines in scoring, the past twelve months have - relatively speaking - been really rather good.
