Finance

Barclays nabs $20 billion in hedge fund business from beleaguered Deutsche Bank

Key Points
  • Barclays has persuaded hedge fund clients with $20 billion in balances at Deutsche Bank to come aboard, according to people with knowledge of the situation.
  • Rivals including Goldman Sachs and J.P. Morgan Chase have been seeking to poach clients from Deutsche Bank after it announced its exit from the equities trading business.
  • The moves complicate Deutsche's deal to transfer the prime brokerage business to French bank BNP Paribas.
Jes Staley, CEO of Barclays
Justin Solomon | CNBC

Barclays is proving to be one of the early winners from the woes of German rival Deutsche Bank.

The British bank, run by ex-J.P. Morgan executive Jes Staley, has persuaded hedge fund clients with $20 billion in balances at Deutsche Bank to move to Barclays, according to people with knowledge of the situation. Half of that amount is from a single client, the people said.

It's the largest such defection set off by Deutsche Bank's announcement this month that it was retreating from the equities trading business, the people said. The news sent shock waves around the world and set off a feeding frenzy in Wall Street's hypercompetitive equities industry as it's a rare opportunity to poach coveted hedge fund clients.

Prime brokerage clients are typically loyal to their banks because they rely on them to execute trades, extend leverage for wagers and custody assets. Hedge funds' trading systems are deeply enmeshed with their brokers, and switching providers can be an onerous process.

But rivals have been going after Deutsche's clients since it announced July 7 that it agreed to transfer the prime brokerage business to French bank BNP Paribas. Staley had reportedly told staff at Barclays that it could take advantage of Deutsche's issues, according to The Telegraph.

"It is not unexpected and perfectly natural that some clients may wish to move balances to other providers as a temporary measure while our discussions with BNP Paribas are ongoing," a Deutsche Bank spokesman said in a statement. "Our discussions with BNP Paribas are progressing well and we are confident that balances will move back once the deal has been completed."

Barclays declined to comment on this report. Reuters said that the bank had been seeking to take a portion of Deutsche Bank's prime brokerage business.

Amid the transition, firms including Goldman Sachs and J.P. Morgan Chase have been seeking to poach the German bank's clients, arguing that since the hedge funds have to transfer their portfolios to another bank, they may as well consider alternatives, according to other people with knowledge of the situation.

Deutsche is under pressure to close its deal with BNP Paribas because clients have been pulling roughly $1 billion in balances a day, Bloomberg reported last week. The overall size of the business is 150 billion euros ($167 billion), according to the report.

Catering to hedge funds has been a priority for investment banks as it's become the single-biggest source of equities revenue. The world's 12 largest investment banks produced $18.3 billion in prime services revenue last year, 8.3% more than 2017, according to industry data provider Coalition.