Senior Deutsche bank employees Simon Kempton and Daniel Caplan have been hired by Citigroup to work with hedge funds and monitor how European rivals will be affected by new regulations on capital requirements.
According to the Financial Times, Kempton was formerly Deutsche Bank’s head of international prime brokerage and will now act as head of prime finance in Europe for Citi. Caplan is now the EMEA head of investor services sales and was the head of global prime finance in his previous position.
The prime brokerage industry is in the process of development because of constraints put on balance sheets that affect the banking sector as a whole, according to the FT.
Adam Herrmann, previous employee of Citi who also moved to Deutsche Bank this year, believes that European banks will find it difficult to operate in comparison to US banks. “With continued changes in the regulatory landscape it is clear European banks are going to struggle in regard to increasing the amount of leverage and balance sheet they will be able to give their hedge fund clients. I envisage US banks will have the competitive advantage going forward as a result,” Herriman said.
The FT also commented on how rules that the capital banks have to comply with has made it harder to provide large amounts of leverage to hedge funds which means that some banks are stepping back from prime brokerage.
As Herrmann mentioned, European lenders will suffer compared to US rivals because of different business models, which in turn will make it difficult for banks to finance hedge funds under the Basel III which is expected to be adopted by January 2019.
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