Key Takeaways
- • DBS Group is weighing a move into prime brokerage for hedge funds and other institutional investors, CEO Tan Su Shan said at a third-quarter results briefing.
- • Markets trading income fell 65% year on year to S$152 million from S$439 million, which DBS attributed to unfavorable equity market conditions and softer Asian asset markets.
- • Net profit fell 5% to S$2.81 billion in the three months to September 30, below the S$2.95 billion average forecast in a Bloomberg analyst survey.
- • Prime brokerage is concentrated among Goldman Sachs, JPMorgan and Morgan Stanley, with Goldman's equities financing line alone contributing $3.37 billion, or 52% of its equities revenue.
- • Singapore is competing with Hong Kong to host Asia's hedge fund managers, offering a variable capital company structure and predictable regulation.
Summary
DBS Group is weighing a move into prime brokerage for hedge funds and other institutional investors, chief executive Tan Su Shan said on Thursday during a briefing on third-quarter results. A prime broker finances funds' positions, lends them securities, and handles custody and clearing. DBS does not operate a traditional prime brokerage today, but Tan said the bank already has stock custody, market access and trading capabilities, and is still considering its options. She described the idea as assembling businesses DBS already runs for institutional clients, saying that "in Asia we have all the building blocks and we may put it together," according to The Business Times.
The move would enter a business concentrated among Goldman Sachs, JPMorgan and Morgan Stanley, which earned more than half of their equities revenue from prime services and futures in 2023 as multi-strategy hedge funds grew. Goldman reported a 72% year-on-year rise in third-quarter equities revenue to $6.44 billion, driven mainly by prime and portfolio financing, per its quarterly filing. Standard Chartered has also started in digital assets, acting as credit intermediary on its first prime brokerage trades in spot bitcoin and ether through LMAX Digital in July.
The third-quarter results were weighed down by the trading line. Markets trading income fell 65% to S$152 million from S$439 million, which DBS attributed to unfavorable equity market conditions, softer Asian asset markets and a sharp rise in interest rates late in the quarter. Trading accounts for about 6% of total income, Tan said. Net profit fell 5% to S$2.81 billion, below the S$2.95 billion average forecast in a Bloomberg survey of eight analysts. By contrast, treasury customer income rose 21% year on year to a record S$2.62 billion in the first nine months, and nine-month net profit reached a record S$8.82 billion, up 2%.
Net interest income rose 4% to S$3.71 billion, although the net interest margin narrowed to 1.87% from 1.96%. Tan said net interest income had passed its trough. DBS expects total income to grow by a mid-single-digit percentage in 2027. Tan linked the prime brokerage idea to growth in the bank's foreign institutional investor and financial institutions franchises and to the financialization of Asian markets. Singapore is positioned to attract potential clients as it competes with Hong Kong to host Asia's hedge fund managers. Separately, chairman Peter Seah will retire after 16 years, and board member Anthony Lim will succeed him on January 1.
The move would enter a business concentrated among Goldman Sachs, JPMorgan and Morgan Stanley, which earned more than half of their equities revenue from prime services and futures in 2023 as multi-strategy hedge funds grew. Goldman reported a 72% year-on-year rise in third-quarter equities revenue to $6.44 billion, driven mainly by prime and portfolio financing, per its quarterly filing. Standard Chartered has also started in digital assets, acting as credit intermediary on its first prime brokerage trades in spot bitcoin and ether through LMAX Digital in July.
The third-quarter results were weighed down by the trading line. Markets trading income fell 65% to S$152 million from S$439 million, which DBS attributed to unfavorable equity market conditions, softer Asian asset markets and a sharp rise in interest rates late in the quarter. Trading accounts for about 6% of total income, Tan said. Net profit fell 5% to S$2.81 billion, below the S$2.95 billion average forecast in a Bloomberg survey of eight analysts. By contrast, treasury customer income rose 21% year on year to a record S$2.62 billion in the first nine months, and nine-month net profit reached a record S$8.82 billion, up 2%.
Net interest income rose 4% to S$3.71 billion, although the net interest margin narrowed to 1.87% from 1.96%. Tan said net interest income had passed its trough. DBS expects total income to grow by a mid-single-digit percentage in 2027. Tan linked the prime brokerage idea to growth in the bank's foreign institutional investor and financial institutions franchises and to the financialization of Asian markets. Singapore is positioned to attract potential clients as it competes with Hong Kong to host Asia's hedge fund managers. Separately, chairman Peter Seah will retire after 16 years, and board member Anthony Lim will succeed him on January 1.
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