NEW YORK: Wall Street’s prime brokerage engine is humming and delivering handsome gains for the largest US banks.

As the largest US banks reported blockbuster profits this week, financiers earned bumper fees from lending to the world’s most prominent multi-strategy hedge funds that rode on market volatility to produce big returns during the first half of the year.

Wall Street powerhouse Goldman Sachs witnessed a record quarter for its Prime business.

Equity financing revenue skyrocketed 91% from a year earlier, driven by strong growth in Asia, resulting in record average Prime balances for the bank.

Across its fixed income, currencies, and commodities (FICC) and equities businesses, financing revenues jumped 62% to US$4.5bil, accounting for about 37% of total FICC and equity revenues for the bank.

“Client activity was particularly strong in Asia, driven in part by robust artificial intelligence (AI) capital formation and investment.

“This strength also extended into financing where we generated another quarter of record revenues as we deployed our balance sheet to support clients with average prime balances rising to another record,” said chief executive officer (CEO) of Goldman, David Solomon.

Its chief financial officer (CFO), Denis Coleman, said the bank identified Asia as a strategic growth area for its prime business.

“We made the decision to start ramping that up in the first quarter, which gave rise to questions as to (whether) we could sustain that investment,” Coleman told analysts on Tuesday.

“We have revenues that are resulting from those investments that we made, and we’re entering the second half with a capital cushion that’s even larger.”

“In the case of Prime ... there continues to be far more demand across the client segment than we’re willing to engage when we sort of balance our objectives of serving our clients, driving market share but also being balanced, diversified and focusing on risk management,” Coleman added.

At JPMorgan Chase, revenue from its markets business surged 35% during the June quarter, driven primarily by the equity markets unit – which houses the Prime brokerage business – that raked in US$6bil, up 86% from the same period last year.

“Flows were strong and trading was favourable in both derivatives and cash –and Prime benefited from higher client activity and balances,” said Jeremy Barnum, CFO at JPMorgan, on a post-earnings conference call with analysts.

Over the past few quarters, Wall Street’s biggest prime brokerages have been buoyed by surging valuations, tailwinds from AI demand, growth in regions like Asia, and a spate of record-breaking equity issuances.

For instance, SpaceX’s recent US$86bil share sale triggered big demand from large institutional investors and hedge funds that scrambled to lock in sizeable allocations.

Morgan Stanley, which alongside Goldman led the SpaceX offering, also raked in big gains from its Prime brokerage unit, driven by higher average customer balances and robust growth in Asia, the bank said on Wednesday.

“I can tell you there is a lot of demand for that capital inside the four walls of our global firm,” said Morgan Stanley CEO Ted Pick. “In macro, it’s certainly coming from our equities client base in Prime brokerage and in derivatives.” — Bloomberg