Bank of America cut ties with about 150 hedge funds last year in its prime brokerage group because new regulatory requirements designed to make the financial system safer are forcing lenders to reduce costs.
Bloomberg News reports that the bank made the decisions based on which relationships were profitable enough to keep amid new capital and liquidity rules, according to two people familiar with the bank’s strategy, who asked not to be named because details are private.
The cuts included the majority of its quantitative hedge fund customers, or those that use computer programs to trade, one of the people said.
Prime brokerage, or the business of lending to and servicing hedge funds, has become less profitable as measured by return on equity under new rules known as Basel III, which are being put in place to prevent a repeat of the 2008 financial crisis. The regulations have prompted the biggest banks to trim relationships or increase fees for clients that don’t meet profitability targets.
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