So we’ve just published our Q3 edition of Profit & Loss magazine, which includes our prime services special report, and I wanted to share some thoughts about one segment of it.
When I first started the report I was very negative on the prospects for FX prime brokers, over the eighteen months or so I’d heard so many complaints about credit constraints, about offboarding – I don’t think that was even a phrase that I’d heard prior to SNB – and the general retrenchment of FXPBs.
Now obviously SNB was a catalyst for a lot of these issues, but really it just exacerbated a trend that already existed and this was caused by the introduction of new regulations that made it more expensive for banks to offer FXPB services to a lot of clients.
It felt like the economics of FXPB business had been fundamentally skewed to the negative, and right at a time when banks are still trying to cut costs across the board. It seemed logical to me that a businesses like FXPB, which is balance sheet intensive and not necessarily very high margin, would suffer in such an environment.
And yet, after writing the prime services special report, I’m feeling much more optimistic about the future of FXPB…….