John Revill

ZURICH (Reuters). Credit Suisse announced Monday that it has reached a deal with BNP Paribas to refer clients of its hedge funds to the rival. This was in response to the Archegos scandal, which saw the Swiss lender exit some derivatives and prime broking businesses.

This news follows the announcement by Switzerland’s 2nd-largest bank that it will stop funding hedge funds. It also plans to close most of its prime brokerage division. The latter was blamed for $5.5 billion worth losses after Archegos Capital Investment went under in March.

Archegos collapsed as its high-leverage stock bets turned sour, prompting an indicting report from independent experts that criticised the bank’s risk management. It also raised concerns about whether it could compete effectively with other banks.

This Monday Credit Suisse (SIX) The bank announced that it has enlisted BNP paribas in order to assist its prime service and derivatives clearing customers locate new providers. This move, industry observers said could hurt the Swiss bank, which is a major generator of revenue.

Credit Suisse stated that it will assist customers affected by the selection of alternative Prime Services providers.

Customers who wish to take advantage of the Credit Suisse-BNP Paribas referral agreement will have a simplified process to obtain Prime Services from BNP Paribas under its terms.

Credit Suisse announced last week that it would be quitting prime services. This business provides advisory, financing, clearing, and custody services for institutional clients and hedge funds. Credit Suisse is now focusing on riskier wealth management.

The agreement is a continuation of BNP’s expansion in equity.

Jerome Legras is the head of research for Axiom Alternative Investments which invests in debt and equity banks. He stated that BNP Paribas had been gaining market share through several acquisitions.

Legras explained that it’s a business where size matters. “Now it is BNP Paribas and the Americans in the euro area.”

Coalition Greenwich data showed that prime broking was a major growth driver for bank’s investment banking business in the recent years.

The data revealed that global revenues from prime brokerage businesses of banks reached $15 billion in 2020. This is half the amount it was a decade earlier.

BNP began 2019 with Deutsche Bank (DE:). The German lender had announced the end of equities trading and closed down its prime brokerage and electronic trading unit.

It stated that Exane was one of Europe’s top equity brokers in March.

BNP announced last month that it had reported an increase of 79% in its third quarter revenue from prime and equity services, which was 835 millions euros ($965 million) compared to a year ago.

This year’s bank stock gain has been 38%, and the European banking stock index has risen 36%.

Credit Suisse shares, however, have dropped nearly 20% this year. Credit Suisse shares fell nearly 20% last year, despite a 21% decline in third quarter profit. The bank also said that it anticipates losing the remaining three months of 2021 due to its write-off of 1.6 billion Swiss Francs (1.8 billion dollars) in goodwill.

Credit Suisse was also fined during a difficult year for setting up a fraudulent Mozambique loan. This fraud was made possible by Credit Suisse’s involvement in Greensill Capital. Credit Suisse executives were then rebuked for their spying.

($1 = 0.8655 euros)