Goldman Sachs cuts back in prime brokerage

The prime brokerage business is morphing as we speak. The free flow of leverage has been drastically reduced and that is leading Goldman Sachs--a premier prime broker along with Morgan Stanley--to rationalize its hedge fund client list. The Financial Times reports that Goldman will likely cut a lot of clients loose, especially those that specialize in illiquid securities and statistical arbitrage funds.

Of course, if you're racking up big losses, you're vulnerable no matter what kind of fund you are. You would have to think that other prime brokers are thinking along similar lines. Some note that Goldman took the opportunity to expand its client list when Bear Stearns ran into trouble. But it is a changed world, and a fourth quarter loss seems likely for Goldman now.

For more:
- here's the Financial Times article

Related Articles:
The future of prime brokerage
The end of prime brokerage as we know it?
Goldman, Morgan causing the contraction in hedge funds?