Big Banks Act Tough With Hedge Fund Clients

Major banks face growing pressure to extract more money from, or even sever ties with, unprofitable hedge fund clients as they cut costs in the face of tough trading conditions and try to refocus on the biggest managers.

Reuters reports that industry insiders say prime brokers - which provide services such as stock lending and financing for hedge funds - are sifting through their client lists, in some cases demanding higher fees on trading or a greater share of a fund's business, and sometimes telling funds to look elsewhere.

The moves come as banks, faced with a tough economic environment, higher regulatory costs and looming Basel III capital standards that are set to reduce returns on equity, look to cut costs across the board and focus on more profitable activities.

Small funds, most of which have found it a struggle to attract client cash since the credit crisis, or funds with little leverage or trading activity look less attractive to many banks, although in the secretive $2.1 trillion industry few executives are keen to reveal who has lost out.

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Big Banks Act Tough With Hedge Fund Clients