The Financial Times had an interesting special report yesterday on the prime brokerage industry.  These brokerages have traditionally made the bulk of their revenues from two sources: ”borrow fees” associated lending stocks to short-sellers (see related posting) and interest charges on the leverage used by hedge funds.  But as we’ve discussed on these pages before, the famously opaque stock-lending business is quickly being brought out into the daylight (see related posting).  The danger, of course, is that the lucrative fees earned by the prime brokerages will come under pressure at some point.

Rather than sitting around and waiting for the day when there is a fully transparent market for short-selling, it seems many of the world’s prime brokerages are expanding into new revenue streams now.  This isn’t entirely new, of course.  Prime brokerages have long nurtured start-up hedge funds in an effort to bring into being their future clients (see related postings).  But this time, things are different.

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