The end of prime brokerage as we know it?

Hedge fund geek check: Do you know what rehypothecation means? The Financial Times explains it this way: "Some assets used to back loans from prime brokers can usually be "rehypothecated" into the prime broker's name, so the broker can use them to raise cash. This cash is then used to fund lending to funds for leveraged purchases, and to support the borrowing of stock the prime broker can lend to funds wanting to go short." The problems with this have become evident. Lehman Brothers' hedge funds clients can attest to that. The latest worries have cropped up over Morgan Stanley, one of the big two prime brokers. The bank lost close to a third of prime brokerage assets in one week, as nervous funds fled. This is stunning. The London operation was said to have lost up to 50 percent. You have to wonder how funds view Goldman Sachs right now.

For more:
- here's the FT article about Morgan Stanley

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