03/19/2014

BofA Insider In the Lead for Brokerage Post

A wave of high-level departures from Bank of America’s prime-brokerage unit has industry players watching for the bank’s next move.

On one side are those who see the exits of global prime-brokerage chief Stu Hendel, capital-introduction head Rob Sachs and a top technology specialist, Basant Nanda, as indicative of plans by BofA to assign a lower priority to the business. But others say the bank is acting quickly to replace the New York-based Hendel — suggesting that it plans to keep pouring resources into the operation.

The leading candidate to step in for Hendel appears to be Martina Slowey, who heads BofA’s prime-brokerage activities in Europe, the Middle East and Africa from London. A possible sticking point, a source said, is that the bank wants her to relocate to New York. In any case, BofA has made no decisions, and has dismissed rumors about a few specific outsiders who were said to be in the running for the job.

So what of the chatter of a possible deemphasizing of BofA’s prime-brokerage business? Industry participants point to what they see as a pattern of the bank devoting full resources to the operation only intermittently. For example, BofA sold its prime-brokerage unit to BNP Paribas in 2008, and got back in only when it inherited another team as part of its purchase of Merrill Lynch at the start of the following year.

Hendel arrived in 2011 from the lead post in UBS’ prime-brokerage division, with Slowey arriving two years later from the same bank. Given Hendel’s role, and his earlier job as head of Morgan Stanley’s prime-brokerage team, sources said the message was clear at the time that BofA believed in the future of the business.

Now, they say the outlook is dimming as several trends create a drag on industry-wide profits. For example, per-client revenues are dropping as fund managers increasingly spread out their business in a bid to reduce counterparty risk. Low interest rates also are keeping down the amounts that banks can charge for leverage — while the Dodd-Frank Act and other banking rules impose costly new controls.

But BofA insists the proximity of the staff departures is a coincidence and that it has no plans to place a reduced emphasis on the operation. “Over the past year, we have increased market share and clients, and our strategy remains unchanged,” spokesman John Yiannacopoulos said.

What’s more, a few hedge fund managers that work with BofA said they don’t see the exits having any impact on their relationships.

According to Hedge Fund Alert’s Manager Database, which tracks only hedge fund managers large enough to require SEC registration, BofA ranked eighth among prime brokers with 354 clients during the first quarter of 2013. That worked out to a 4% market share, unchanged from a year earlier, when the bank claimed 336 funds.

Hendel will leave in May, according to Dow Jones, which first reported his planned exit.

Sachs, meanwhile, apparently is headed to a fund operation that former Conatus Capital manager Sean Grogan is forming. Nanda was let go a month or two ago. Another senior executive in BofA’s prime-brokerage group is rumored to be on the chopping block as well.

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