BNP Paribas is actively working to sign a referral agreement for the prime brokerage and electronic execution platform of Deutsche Bank in September, according to BNPP’s COO Philippe Bordenave, speaking to Euromoney as the bank announced strong second-quarter results.
The technological complexity of the acquisition, however, means that full implementation may not be until the end of 2020.
Philippe Bordenave, BNP Paribas
“We want to further develop our strategic relationship with fund managers – this is absolutely key for us,” says Bordenave, explaining the attraction of the Deutsche Bank deal in spite of the fact that prime brokerage revenues at BNPP and competitors have generally fallen in the most recent quarter.
The French bank attributed a 14% year-on-year revenue decline in its equity and prime services unit to a strong prior-year quarter and lower volumes in prime in particular.
The performance did not make the bank an outlier: equities fell by double-digit percentages at Bank of America Merrill Lynch, JPMorgan and Morgan Stanley in the second quarter, and was down by 9% at Citi and UBS, with many firms citing weaker prime revenues as one cause.
However, BNPP, which Bordenave says ranks about ninth in prime brokerage globally, is betting on its acquisition of Deutsche’s business to catapult it into the big league of prime brokers, on the basis that recent weakness in the industry is not structural, but rather down to depressed volatility levels that have seen clients reduce their positioning.
Deutsche has been one of the market leaders in prime brokerage in the past, but it is a business that is highly sensitive to a firm’s cost of funding and the market’s perception of its financial strength – aspects where BNPP would expect to have a considerable edge over the Deutsche Bank of 2019.
How much of Deutsche’s business ends up with BNPP depends in large part on how many of the German banks’ clients choose to transfer.
BNPP has one recent benchmark for the integration of a competitor business – it was selected as the referral bank when Royal Bank of Scotland closed down its international cash management and trade finance business. That deal eventually saw BNPP retain about half of RBS’s clients, which was considered a good result.
For BNPP, though, the Deutsche deal is about more than any clients it might acquire. A key attraction for the French bank is the prime broking IT platform that Deutsche has.
Before Deutsche put its business on the block as part of a sweeping reorganization it announced on July 7, BNPP was already working to upgrade its own prime brokerage systems, and the prospect of being able to import an existing upgrade could save it precious time and expense.