Goldman Cuts Prime Brokerage Clients, Boosts Fees

Aug 5 2014 | 6:33am ET

New U.S. banking regulations are putting the squeeze on prime brokerage units, and none are feeling it more than clients of 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.

“Everything is being rendered explicit,” Hudson Bay Capital Management chief operating officer Charles Winkler told the Journal. “It the old days, it was much more squishy.”


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