New JPM Unit Evolved from Bear Deal
JPMorgan Chase & Co. is using the prime brokerage services that it obtained in the Bear Stearns Cos. purchase to develop an integrated prime brokerage and custody platform.
JPMorgan Chase launched the Prime-Custody Solutions Group this week.
The group delivers prime brokerage and custody services to hedge fund managers and asset management customers. The custody services came from JPMorgan Chase's treasury and securities services unit, which had $13.7 trillion of assets under custody on June 30.
Bear Stearns, which JPMorgan Chase bought last year, had offered custody services to hedge funds since 1997.
At the time of the acquisition, James Dimon, JPMorgan Chase's chief executive oficer, said that the prime brokerage business was one of Bear Stearns' biggest attractions.
Devon George-Eghdami, the managing director and head of the new unit, said in an interview that JPMorgan Chase had offered prime brokerage services previously, but it was limited to fixed income and foreign exchange trading.
"One of the major catalysts of the acquisition was Bear's equity prime brokerage offering," she said.
JPMorgan Chase did not know that it would create this platform when it bought Bear Stearns, George-Eghdami said. "It was an evolution," she said.
"When we bought Bear Stearns in the spring, it took us some time to digest this purchase. By the fall, there was a real focus developing on segregating custody accounts. That was when it became important to hedge funds to have specific, segregated custody accounts associated with a strong custody bank."
George-Eghdami said that JPMorgan Chase hopes the services will generate additional customers and enable it to cross-sell services to existing customers. She said the company would not pinpoint how many assets it hopes to generate from the new product.
"We are hoping to take all of our hedge fund clients and offer them additional custody services and all of our custody services customers and offer them prime brokerage services," she said. "We want to provide an integrated product to all of these customers."
George-Eghdami will report to Michael Minikes, the chief executive of J.P. Morgan Clearing Corp. within prime services, and Sandie O'Connor, the global head of financing and markets products within the treasury and securities services unit.
"Traditional asset managers like mutual funds are launching long/short funds while alternative asset managers like hedge funds are pursuing some long-only strategies," O'Connor said. "With the combination of Bear Stearns' equity prime brokerage business and JPMorgan's existing securities servicing business, we believe that we can offer an unrivaled ability to address clients' needs."
George-Eghdami, who had run the hybrid capital trading desk in JPMorgan Chase's investment bank, said the group is designed to help hedge fund managers that are introducing long-only funds and are interested in structures that allow them to house certain assets with custodians, while traditional asset managers are executing long and short strategies that require financing through a prime broker.
The goal is to streamline client services, improve execution and collateral management, reduce financing costs and consolidate reporting. Prime brokerage services include lending, clearing trades and record keeping,
Analysts said JPMorgan Chase's effort comes at a time when many asset managers want to work with a custodian that insulates their assets from bankruptcies like Lehman Brothers' last year.
Burton Greenwald, an analyst with BJ Greenwald Associates, said that other large custodians like Bank of New York Mellon Corp. and State Street Corp. are offering similar services, but not through an integrated platform.
George-Eghdami agreed that "as a result of Lehman's bankruptcy, specialized custody services have become big business for large banking companies."
"The financial crisis showed us last year the importance of being flexible for our customers," she said. "Customers want to have a platform that offers them the ability to move in different directions. It is critical to have a wide breadth and depth of services."
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