Deutsche Bank’s /zigman2/quotes/207242873/delayed XE:DBK -1.40% planned sale of its prime brokerage unit to BNP Paribas /zigman2/quotes/203020019/delayed XE:BNP -2.29% is not yet a done deal as both sides of the proposed transaction keep a close eye on hedge fund withdrawals, two people with knowledge of the situation told MarketWatch.
The German lender said its prime brokerage unit was on the block earlier this month when it announced its largest restructuring in decades, including cutting 18,000 jobs, exiting stock sales and trading, and bundling $83 billion of assets into a separate unit for disposal.
Since then, hedge funds clients have pulled about $1 billion in assets per day from the platform since its July 7 restructuring announcement, according to one of the people. Bloomberg earlier this week reported on the large transfers of assets by skittish hedge funds .
Prime brokers conduct trades for hedge funds and provide them with loans to trade securities. They also help them raise capital and even provide staffing services.
Deutsche Bank’s unit has ranked in the top 10 largest prime brokers globally in the past five years, according to research firm Preqin.
But over the course of a couple turbulent years at Deutsche Bank, its roster of known hedge fund clients has fallen to 973 from a peak of 1,129 in 2016.
The following chart shows the drop in hedge funds clients at Deutsche Bank’s prime brokerage in the past two years.
Five of those hedge funds left Deutsche’s prime broker since the end of June, according to Preqin.
BNP, in a statement, said the bank has a preliminary agreement with Deutsche Bank to ensure continuity of service to Deutsche Bank’s prime finance and electronic equities clients, adding that it plans to strengthen these areas globally.
“As usual this agreement remains subject to various conditions and approvals,” the French bank said.
Deutsche Bank was one of several banks that benefitted when hedge funds fled Bear Stearns’ prime brokerage at the onset of the 2007-2008 global financial crisis.
But more recently, the German lender has been plagued by several regulatory scandals, including one that resulted in the bank paying a $7.2 billion fine for mortgage bonds it sold in the run-up to the crisis and another $425 million for its role in a $10 billion Russian money-laundering scheme .
Meanwhile, any transfer of Deutsche’s prime brokerage unit to BNP was anticipated to take two or three months of due diligence, a second person familiar with the matter said, adding that talks were proceeding as expected.
As part of its restructuring, Deutsche’s prime brokerage business is being housed in the so-called “bad-bank” along with the other $84 billion assets slated for wind-down or disposal, the person said.