Singapore Bank DBS Weighs Hedge Fund Prime Brokerage as Trading Income Plunges 65%

DBS Group's chief executive, Tan Su Shan, announced the bank is weighing a move into prime brokerage for hedge funds and other institutional investors during a briefing on third-quarter results. This comes as the Singapore bank's markets trading income fell 65% from a year earlier to S$152 million, attributed to unfavorable equity market conditions, softer Asian asset markets, and a sharp rise in interest rates late in the quarter.

The bank's net profit for the quarter decreased 5% to S$2.81 billion, falling short of the S$2.95 billion average forecast in a Bloomberg survey of eight analysts. Despite this setback, DBS's nine-month net profit reached a record S$8.82 billion, up 2%, with the bank expecting total income to grow by a mid-single-digit percentage in 2027.

Prime Brokerage Opportunity

Prime brokerage services—which include financing funds' positions, lending securities, and handling custody and clearing—are concentrated among a few major US banks. Goldman Sachs reported a 72% year-on-year rise in equities revenue to $6.44 billion in the same quarter, driven mainly by prime and portfolio financing. Its equities financing line alone brought in $3.37 billion, accounting for 52% of its equities revenue.

Tan described the potential prime brokerage venture as assembling businesses DBS already operates for institutional clients. The bank already has stock custody, market access, and trading capabilities, along with surveillance software acquired from Nasdaq in 2022 to monitor trading in equities, derivatives, and over-the-counter currencies.

Competitive Landscape

The prime brokerage business is dominated by Goldman Sachs, JPMorgan, and Morgan Stanley, which collectively earn more than half of their equities revenue from prime services and futures. Outside this group, Standard Chartered has begun offering digital asset prime brokerage services through LMAX Digital, acting as a credit intermediary on spot bitcoin and ether trades in July.

DBS sees an opportunity in Asia's growing hedge fund industry, with Singapore competing with Hong Kong to host regional managers. The city-state offers its variable capital company structure and predictable regulation to funds that use prime brokers, positioning itself as an attractive base for potential clients.

Mixed Financial Performance

While trading income fell sharply, DBS's treasury customer income rose 21% year-on-year to a record S$2.62 billion in the first nine months. This line includes equity capital markets, the DBS Vickers brokerage arm, and the DBS Digital Exchange, where bitcoin trading volume rose 80% in 2022.

Net interest income increased 4% to S$3.71 billion, though the net interest margin narrowed to 1.87% from 1.96%. Tan noted that net interest income had passed its trough, despite analysts expecting margins at Singapore banks to stabilize this year.

In leadership changes, Chairman Peter Seah will retire after 16 years in the role, with board member Anthony Lim set to succeed him on January 1. DBS continues to navigate market challenges while exploring new revenue streams to diversify its business.