Mergers are the lifeblood of the securities financing and hedge fund business. When merger activity is scarce, as it was last year, times are invariably tough. Borrowers do not want to borrow, lenders cannot give away their stock and depression sets in.

However, two takeovers within the securities financing industry have been the defining events of the past 12 months and the industry welcomed 2004 with surprising optimism. State Street's integration of Deutsche Bank's securities lending business and UBS's purchase of ABN Amro's prime brokerage arm emphasised that fortune favours the big in securities financing.