BrokerDealer.com blog update courtesy of extract from Finalternatives.com
New U.S. banking regulations are putting the squeeze on prime brokerage units, and none are feeling it more than clients of brokerdealer Goldman Sachs.
The Wall Street giant has cut ties with some unprofitable clients and begun to impose new fees on others, as it seeks to cut its assets to increase its leverage ratio, which must rise from 4.5% to at least 5% by 2018. “It’s a total redefinition of what’s a good customer,” S3 Partners’ Robert Sloan told The Wall Street Journal.
In order to reduce its balance sheet, Goldman has asked clients to withdraw cash held in their prime-brokerage accounts. It is also charging more to finance trades and has added fees for untapped credit lines, according to the Journal.
Whereas Goldman and other prime brokerages have previously evaluated their business based on revenue, Goldman is now telling clients it is judging theirs on return on assets. The result has been that some hedge funds that produce little or no return for the bank have been asked to take their business elsewhere.
For the full coverage from Finalternatives.com, please click here.