Hedge fund leverage lifts Wall Street prime brokerage revenue

Wall Street’s largest investment banks reported higher prime brokerage revenue in the second quarter as hedge funds increased leverage and client demand for financing rose. Goldman Sachs, JPMorgan Chase, Morgan Stanley and Citi posted gains tied to larger client balances and increased trading and financing activity.

Goldman Sachs reported a record quarter for its prime brokerage franchise. Equity financing revenue rose 91% year‑on‑year, and total financing revenue across fixed income, currencies, commodities and equities increased 62% to $4.5 billion, representing more than one‑third of revenue in those trading divisions. Average prime brokerage balances reached a new high. Goldman CEO David Solomon noted that client activity was particularly strong in Asia, where artificial intelligence investment and capital raising lifted financing demand. CFO Denis Coleman added that the bank’s earlier expansion in Asia had started to deliver results and that client demand for financing continued to outpace the bank’s willingness to deploy balance sheet capacity.

JPMorgan reported markets revenue up 35% in the quarter, with its equities unit, which includes prime brokerage services, generating $6 billion in revenue, an 86% increase from a year earlier. The bank attributed the gains to heavy client trading in both derivatives and cash equities and to higher prime brokerage balances as hedge fund clients remained active.

Morgan Stanley cited growth in its prime brokerage business driven by higher average client balances and an expanding presence in Asia. The bank also recorded financing activity tied to large capital markets transactions, including a recent secondary share sale that attracted demand from institutional investors and hedge funds.

At Citi, markets revenue rose 17% and equities revenue climbed about 45% in the quarter. The bank reported prime brokerage balances were up nearly 60% as it drew new and existing hedge fund clients amid higher market valuations.

Prime brokerage units provide clearing, custody, securities financing and lending services to hedge funds and other institutional clients. Revenues in the business come mainly from financing spreads, securities lending fees and trade execution. Bank executives reported that they were managing balance‑sheet capacity and monitoring credit risk while client demand for financing increased.