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Volatility in the equity markets, credit market dislocations and continued concerns about market liquidity are prompting hedge funds to seek out prime brokerage and custodial relationships with investment banks of sound financial health.JP Morgan's acquisition of Bear Stearns has given hedge fund mangers pause to think about the financial health and balance sheet condition of their principal counterparties. The potential insolvency of first tier investment banks was once unimaginable. But the near bankruptcy of Bear Stearns due to losses in mortgage derivative and financing businesses, the persistent rumors concerning Lehman Brothers financial condition and the continued quest of Merrill Lynch, Citibank, UBS, AIG and Morgan Stanley to seek funding from Sovereign Wealth Funds to bolster capital adequacy is driving hedge funds to secure relationships with bank's that have healthy balance sheets.
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