Bear's Pain Was Goldman's Gain

Bear also had a strong prime brokerage business, which was one of the plum assets JPMorgan sought in its deal. But will those clients that left in March and during the transition come back?

A source inside JPMorgan said that the prime broker pipeline is full and clients are returning after the merger. The source also said that JPMorgan is signing up new large funds over $3 billion to $5 billion and planning to build out the international business.

A June 4 letter obtained by TheStreet.com from Lou Lebedin, head of JPM Prime Brokerage, and Mike Minekes, CEO of Bear Stearns Securities Corp., sought to assure prime brokerage clients.

"Bringing two companies together is never easy -- even under the best of circumstances -- but, our progress over the past 11 weeks has been remarkable." The letter went on to explain that everything had been rebranded from Bear to JPMorgan but that nothing else had changed.

Prime brokerages provide clients, typically hedge funds, with order management systems, trading networks, securities lending and cash lending, in addition to traditional trade clearing and settlement. It is a highly prized piece of business: Typical prime brokerage profit margins are 15% to 25% and hedge fund assets are expected to increase from the $1 trillion mark in 2004 to $2.1 trillion in 2009, according to Celent.

Hedge funds of more than $100 million generally work with at least three prime brokers, according to Celent. The funds shift their assets around as they search for the best execution, the best cost and the latest technology. Start-up funds generally require basic needs, but as they grow, they begin to demand more sophisticated portfolio systems and the ability to deal in exotic instruments.

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