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Prime brokerage: still meaty?

All else may be going to rot, but is prime brokerage still a prime cut?

Last week’s announcement by Credit Suisse suggests it just might be.

Reuters reports that the Swiss bank plans to lop 150 people from its global securities division, whilst adding headcount in areas like … prime services.

Recruiters confirm prime brokerage (PB) hiring is bearing up, although it can’t quite be described as racing ahead. “There will be small net hiring this year, but no huge uplift. It’s going to be more of a drive to quality,” says one. “Where there are net headcount increases, you’ll probably be looking at teams of eight adding one or two.”

Which banks will be queuing up alongside Credit Suisse for a spot of selective headcount growth? Prime broking headhunters point to the likes of Barclays Capital, Merrill Lynch (which increased staffing 22% last year according to Financial News), Goldman, Deutsche and Lehman Brothers. UBS is also understood to adding as many as 40 people to its prime brokerage business this year.

Hedge funds are at the root of prime broking’s enduring appeal. According to the Financial Times’ Alphaville blog, prime brokerage generates $2bn a year in revenues for market leaders Goldman Sachs and Morgan Stanley, and other banks want a piece of the action.

Jesper Bang, head of prime brokerage at Dresdner Kleinwort, says prime brokerage should be immune to major redundancies: “The hedge funds sector is still growing and prime brokerage is an area that’s highly profitable for investment banks. Revenues are accrued steadily and are less volatile than in areas like prop trading.”

PB bonuses

As befits an area with growth potential, bonuses in prime brokerage appear to have been generally ok, although subject to wide variations.

“As expected there’s been an even bigger difference between high, average and poor performers this year so far,” says James Bridgman at search firm Principal Search. “But if you’re flat to 10% up most people should be happy.”

“I’ve seen a huge spread,” says another consultant. “Top performers are 30% up, weak performers are 50% down, and lots of people are flat.”

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