Key Takeaways
- • Barclays moved balance sheet capacity out of its macro rates trading business via an internal auction to expand prime financing for Asian hedge fund clients, after hitting its maximum financing limits over the summer, according to Bloomberg.
- • Barclays' equities division is expected to report third-quarter revenue of about £865 million, or $1.2 billion, which could be its strongest third quarter since at least 2009, per Bloomberg estimates.
- • Goldman Sachs, Morgan Stanley and JPMorgan captured nearly 80% of equity trading revenue among the top five banks so far this year, a combined $52 billion, according to CNBC.
- • Banks are rationing financing capacity toward the most profitable clients and strategies, and Barclays has encouraged some clients to add short positions to reduce net financing needs.
- • Funds with concentrated long books in Asian technology may find access to bank financing depends as much on their short exposure as on relationship size.
Summary
Barclays has reallocated balance sheet capacity from its macro rates trading business to its prime financing business to meet rising demand from leveraged hedge funds seeking exposure to Asian technology shares, Bloomberg reported. The bank used an internal auction to shift capital, after reaching its maximum financing limits for Asian hedge fund clients over the summer during a surge in artificial intelligence stocks. Executives in Barclays' global markets division, led by Adeel Khan, prioritized capital for higher-returning activities.
To manage its net financing exposure, Barclays has encouraged some clients to add short positions, an approach Goldman Sachs has also used, according to people familiar with the matter cited by Bloomberg. The move underscores how central prime brokerage has become to bank equities revenue. Analysts expect Barclays' equities division to report third-quarter revenue of about £865 million, or $1.2 billion, according to estimates compiled by Bloomberg, which could be the strongest third quarter for the division since at least 2009.
CNBC reported that Goldman Sachs, Morgan Stanley and JPMorgan captured nearly 80% of equity trading revenue among the top five banks so far this year, a combined $52 billion, driven by hedge fund borrowing for leveraged bets on AI hardware and Asian semiconductor supply chains. Goldman said earlier this month that demand for equities financing continued to outstrip industry supply, supporting pricing and allowing it to be selective, and UBS has said it is allocating its equities balance sheet more selectively to support prime brokerage.
The concentration of risk is a factor in these decisions. Several hedge funds took significant losses when AI-related stocks fell in July, and Bloomberg reported that Barclays had previously declined to onboard one AI-focused fund over concentration concerns. For managers, financing capacity and its price are being rationed toward the clients and strategies banks view as most profitable. Funds running concentrated long books in Asian technology may find that access depends as much on the level of their short exposure as on the size of their banking relationship.
To manage its net financing exposure, Barclays has encouraged some clients to add short positions, an approach Goldman Sachs has also used, according to people familiar with the matter cited by Bloomberg. The move underscores how central prime brokerage has become to bank equities revenue. Analysts expect Barclays' equities division to report third-quarter revenue of about £865 million, or $1.2 billion, according to estimates compiled by Bloomberg, which could be the strongest third quarter for the division since at least 2009.
CNBC reported that Goldman Sachs, Morgan Stanley and JPMorgan captured nearly 80% of equity trading revenue among the top five banks so far this year, a combined $52 billion, driven by hedge fund borrowing for leveraged bets on AI hardware and Asian semiconductor supply chains. Goldman said earlier this month that demand for equities financing continued to outstrip industry supply, supporting pricing and allowing it to be selective, and UBS has said it is allocating its equities balance sheet more selectively to support prime brokerage.
The concentration of risk is a factor in these decisions. Several hedge funds took significant losses when AI-related stocks fell in July, and Bloomberg reported that Barclays had previously declined to onboard one AI-focused fund over concentration concerns. For managers, financing capacity and its price are being rationed toward the clients and strategies banks view as most profitable. Funds running concentrated long books in Asian technology may find that access depends as much on the level of their short exposure as on the size of their banking relationship.
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