By Anirban Sen and Saeed Azhar
NEW YORK, Jan 14 (Reuters) - Wall Street's largest banks witnessed healthy growth last year from their prime brokerage units, as they earned handsome fees from lending to the world's largest multi-strategy hedge funds which navigated volatility in financial markets to produce robust returns.
Earlier on Wednesday, Bank of America reported a 23% jump in revenues during the fourth quarter from its equities business, which houses the lender's prime brokerage unit, while Citigroup's
revenue from equities markets came in at $1.1 billion, with prime balances up more than 50% for the bank. Prime balances refer to the assets that banks typically manage for their fund clients.
"We continue growing in prime, where you've seen very high growth from us - the second leg to our derivative capability, as well as high return opportunities and financing and securitization that's now over 70% of our spread product business," Citi Chief Executive Jane Fraser said on a post-earnings conference call with analysts.
On Tuesday, JPMorgan Chase reported a 40% surge in revenues to $2.9 billion from its equity markets business, driven by a strong performance from its prime brokerage unit. In an interview, JPMorgan's head of global equities trading Rachid Alaoui said that the bank's prime lending unit had been one of the key drivers of its equities markets business.
"We had a favorable trading environment, with a lot of rotation and trading activity but without extreme volatility. That allowed clients to add some leverage in prime without any credit or counterparty issues, which can sometimes lead to a scaling back of trading strategies," said Alaoui.
MARKET SHARE BATTLE
Over the past few years since the collapse of Credit Suisse, the largest U.S. banks have been scrambling to take advantage of the demise of the Swiss lender and gain market share at each other's expense. Credit Suisse was forced to wind down its brokerage lending operations as the collapse of Archegos Capital Management left the bank nursing billions of dollars of losses.
With global macro hedge funds using near-record levels of leverage to trade equities and betting on debt-backed strategies in efforts to juice returns, Wall Street's largest lenders have been the biggest winners as they race to service existing and new money managers. Recent data compiled by Goldman Sachs, JPMorgan, and Morgan Stanley shows that leverage used to bolster returns for traditional hedge funds that go long or short on stocks is close to an all-time high and continues to rise.
Large multi-manager funds, including D.E. Shaw, Balyasny Asset Management, Bridgewater Associates and Point72 Asset Management, generated mostly double-digit gains in 2025, reflecting an upbeat year for the hedge fund industry that was buoyed by an AI-powered stock market rally.
According to a note from Goldman Sachs' prime brokerage unit earlier in January, stock-picking funds posted returns of 16.24% last year, roughly in line with the benchmark S&P 500 index, which finished the year up about 16.4%.
Fund managers have also benefited from U.S. President Donald Trump's trade wars that triggered volatility in bond and currency markets. Global macro hedge funds typically invest in stocks, bonds, currencies and commodities.
"Our markets business obviously supports the very largest investors and asset managers in the world, and they've seen very good growth over the course of the past year, and I think we're very well positioned to take advantage of that market," said Alastair Borthwick, chief financial officer at Bank of America, on a conference call with analysts on Wednesday.
Goldman Sachs and Morgan Stanley, which house two of the world's biggest prime brokerage units, are expected to report earnings on Thursday.
(Reporting by Anirban Sen and Saeed Azhar in New YorkEditing by Nick Zieminski)
