BNP Paribas SA's prime brokerage referral agreement with Credit Suisse Group AG marks another step toward the French banking group's goal of becoming Europe's top provider in the segment.
Credit Suisse clients will be able to shift their business to BNP Paribas via a streamlined process as part of an agreement announced Nov. 8 by the banks. It follows a deal BNP struck in 2019 to acquire the prime brokerage operations of German peer Deutsche Bank AG. The transfer of clients is ongoing and expected to complete by 2021-end.
Prime broking came into the spotlight following the collapse of Archegos Capital but has been a strong revenue driver for BNP Paribas — now Europe's biggest lender by assets and the seventh-largest lender globally, according to S&P Global Market Intelligence data.
The French lender's equity and prime services revenues reached €835 million in the third quarter of 2021, up 79.3% from €466 million a year before. For the first nine months of the year, the business made up about 20.9% of revenue in the corporate and institutional banking division, which was also the best-performing unit within the group in the most recent quarter.
In July, BNP Paribas named Ashley Wilson global head of prime services, Financial News reported. Wilson was previously a managing director in Deutsche Bank's prime finance unit. The French bank will eventually take on about 800 staff as part of its agreement with Deutsche Bank, the report noted.
Prime services revenues of the largest global banks have grown significantly over the past decade, although there was a slight drop in 2020 to $15.0 billion from $16.5 billion in 2019, according to Coalition Greenwich.
Exit, stage left
Credit Suisse's decision to fully exit prime broking as part of its new three-year strategy was "a little more radical" than expected, Berenberg analyst Eoin Mullany said in a Nov. 9 note, with the bank expecting to lose $600 million of revenues partially offset by $400 million of cost savings. This amounts to about 4% of consensus 2023 earnings, Mullany said.
Berenberg expects Credit Suisse's EPS to fall 16% in 2022, mainly as a result of restructuring charges, its decision to exit prime broking and slightly higher cost estimates. However, it said the third-quarter results show the bank's franchise is intact, despite it reporting losses related to dealings with Archegos Capital and being embroiled in the collapse of Greensill Capital (UK) Ltd.
Coalition Greenwich is a business division of CRISIL. CRISIL and S&P Global Market Intelligence are owned by S&P Global Inc.