Hedge funds pulled back from Lehman before bankruptcy

Hedge funds were leaving the prime brokerage business of Lehman Bros. long before Lehman filed for Chapter 11 bankruptcy, and now according to CNN Money, business there has all but stopped.

In certain areas, however, like the statistical arbitrage and repurchase, or repo markets, Lehman was and still is a top player. What happens to the prime brokerage is a complicated question, because most of that business is located in the U.K. While Lehman included its prime brokerage as part of its bankruptcy, it is not thought to be subject to US bankruptcy laws since the business is in the U.K.

Lehman's prime brokerage, which like others lends money and securities to hedge funds as well as provides administrative services from back-office help to processing trades, was a key revenue-earner for the bank as recently as earlier this year. In its first-quarter earnings report in March, Lehman had reported a 38% year-over-year revenue increase in its securities service unit, which includes prime brokerage. At that time, it said it had $194 billion in hedge fund balances.

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