Bear rivals say courting prime broker clients

By Dan Wilchins and Dane Hamilton

NEW YORK, Aug 24 (Reuters) - Bear Stearns Cos Inc's BSC.N rivals are aggressively courting the investment bank's prime brokerage customers, telling them it's too risky to stay while the firm deals with fallout from the subprime mortgage crisis.

Senior prime brokerage officials with four major Bear rivals told Reuters they have been winning over business from Bear Stearns, but several hedge fund managers said they are giving just as much business to Bear as before, and one said he has moved more toward Bear in recent weeks.

Bear Stearns spokesman Russell Sherman says the firm continues to win business and its client balances are up from a year ago. Bear is traditionally one of the top three prime brokerages, which together control about two-thirds of the market.

The stakes are high, with the business generating at least $11 billion in revenue for banks in 2006, according to Boston Consulting Group.

Prime brokers perform services for hedge funds such as clearing trades, financing positions and lending securities. They have scaled back credit to many hedge funds as the subprime meltdown has wreaked havoc in stock and bond markets.

Not all brokers have been cutting credit equally. The prime brokers that have scaled back the least -- often broadly diversified "universal" banks rather than stand-alone investment banks -- are winning more business now.

"Institutions like Citigroup (C.N: Quote, Profile, Research, Stock Buzz) are now reaping the benefits of a large balance sheet and staying power," said Alice Hackett, co-head of prime finance at the world's largest bank. Hackett declined to comment on Bear Stearns.