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Bulge bracket

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All of the Bulge Bracket banks maintain central offices in New York City, considered the financial capital of the world.[1][2]
Every Bulge Bracket bank has corporate hubs in London, widely considered the financial capital of Europe.[3][4]

The Bulge Bracket (BB)[nb 1] comprises the world's most systemically important and most profitable multinational investment banks and their parent financial institutions.[nb 2][5][6] The Bulge Bracket almost always facilitates the most global capital movement and underwrites most financial contracts for large corporations, institutions, and governments. Member banks have substantial sales and trading (S&T), mergers and acquisitions (M&A), asset management (AM), wealth management (WM), and investment research departments. There is no definitive list of banks within the Bulge Bracket and the number of banks within the bracket has variably ranged from four to ten. In spite of no complete listing, there is a wide-spread consensus among economists, financial analysts, and academics that nine investment banks compose the modern Bulge Bracket. The nine banks are–historically and in modern usage–listed in alphabetical order as: Bank of America (Merrill Lynch), Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and UBS.[nb 3] These banks typically dominate league table rankings,[11][12] global investment banking activity,[13][14] and command the greatest regional deal flow.[15][16]

The name "Bulge Bracket" originally came from the 1960s, when the financial transactions of the largest investment banks were printed in larger fonts on tombstone positions. With their trade names "bulging" out from others, they were often bracketed together for financial comparison. The four founding members of the bracket were Morgan Stanley, First Boston, Kuhn, Loeb, and Dillon, Read. The relegation of the latter three, the vitality of Morgan Stanley, and the succeeding additions of the remaining eight firms have largely made up the modern-day bracket. In addition to their home markets, member banks engage in international competition for business in one another's domestic markets. Employment with the member banks implies social prestige[16][17] and high levels of compensation,[18][19] while economic association implies large capital movement and market importance. The name has been used to describe other financial services, management consulting firms and law practices to highlight a perceived size or profitability.[20][21]

History

The story of tombstone positions and the term "Bulge Bracket" is told in the "Tombstones" chapter of The House of Morgan by Ron Chernow:

Tombstone positions were a life-and-death matter for Wall Street firms. Those in higher layers, or brackets, received larger share allotments, while smaller firms struggled their way upwards. Within brackets, firms were listed alphabetically. During the Great Alphabet War of 1976, Halsey, Stuart adopted its parent's name, Bache, just to bootstrap up a few lines in tombstones.[22]

According to Chernow, "[i]n the late 1960s and early 1970s, the top tier – called the Bulge Bracket – consisted of Morgan Stanley; First Boston; Kuhn, Loeb; and Dillon, Read."[22] Morgan Stanley appeared above the other members of the Bulge Bracket by demanding and receiving the role of syndicate manager.[22] However, Morgan Stanley "queasily noted the rise of Salomon Brothers and Goldman Sachs, which were using their trading skills to chip away at the four dominant firms."[22] In 1975, to more reflect economic reality, Morgan Stanley "kicked out the fading Kuhn, Loeb and Dillon, Read from the Bulge Bracket and brought in Merrill Lynch, Salomon Brothers and Goldman Sachs."[22] Morgan Stanley held onto its policy of appearing first by demanding the role of syndicate manager.[22] Nevertheless, "[b]y the late 1970s, Morgan Stanley's sole-manager policy was a gilded anachronism."[22]

For Morgan Stanley, the doomsday trumpet sounded in 1979. That year, IBM asked the firm to accept Salomon Brothers as co-manager on a $1-billion debt issue needed for a new generation of computers...After much resounding talk, nearly everybody [at Morgan Stanley] voted to defy IBM and demand sole management. Morgan Stanley was shocked when word came back that IBM hadn't budged in its demand: Salomon Brothers would head the issue, as planned. It was a landmark in Wall Street history: the golden chains [of Morgan dominance] were smashed.[22]

Name

The name comes from the way investment banks are listed on the "tombstone", or public notification of a financial transaction.[23] The bank responsible for control of allocation of securities to investors, known as the bookrunning manager is listed above the others and on the cover of the prospectus.[23] The font size of the name of this bank, or banks if there are co-bookrunning managers, is larger and it may "bulge" out.[23] Moreover, the name "Bulge Bracket" also comes from the aforementioned bank's financial transactions, when recorded statistically, to bulge out from other banks.[23] In other words, if one were to graph the value of the financial activity of these companies, their combined values would look similar to a bell curve.[23][12]

Modern usage

Bulge Bracket banks usually provide both advisory and financing banking services, as well as the sales, market making, and research on a broad array of financial products including equities, credit, interest rates, commodities, and their derivatives.[24] They are also heavily involved in the invention of new financial products, such as mortgage-backed securities in the 1980s, credit default swaps in the 1990s, mortgage-backed securities (MBS) and collateralized debt obligations (CDO) in the 2000s and today, carbon emission trading and insurance-linked products.[25][24] Bulge Bracket firms are usually primary dealers in U.S. treasury securities. Bulge Bracket banks are also global in the sense that they have a strong presence in all three of the world's major regions: The Americas, EMEA, and Asia-Pacific.[15][24] Almost all Bulge Bracket banks have reached domestic and international systemic importance.[12]

Membership

There is no complete and definitive listing of the investment banks in the Bulge Bracket.[26] Since its inception in the 1960s, there has been a range of four to ten member banks in the bracket.[27][24] There is however wide-spread consensus among research institutions, economists, financial news outlets, regulatory publications, and academic studies that the bracket comprises nine investment banks.[28][29][12] Although the original criteria for inclusion into the bracket was based on the size of financial activity, more modern criteria tends to encapsulate capital strength, market influence, and presence in the world's major financial centers.[14][30][12] Membership in the Bulge Bracket implies social prestige and market dominance.[26] By most standard accounts, the nine investment banks–in alphabetical order–are as follows:[nb 4]

Known for its banking secrecy, Switzerland houses the second largest number of Bulge Bracket banks after the United States.
The Bulge Bracket
Name % M&A % Equities % Bonds % Loans % MKT Share Stock Ticker
 Bank of America (Merrill Lynch)
20
19
34
27
5.7
 NYSE: BAC
 Barclays
26
14
38
23
4.3
 LSE: BARC
 Citigroup
27
22
33
19
5.5
 NYSE: C
  Credit Suisse
32
24
28
16
4.5
 SIX: CSGN
 Deutsche Bank
18
22
35
25
3.4
 FWB: DBK
 Goldman Sachs
26
27
22
11
5.7
 NYSE: GS
 JPMorgan Chase
29
22
29
19
8.7
 NYSE: JPM
 Morgan Stanley
38
32
21
10
6.6
 NYSE: MS
  UBS
28
26
29
17
2.3
 SIX: UBSG
Legend
Largest national financial institution[nb 5][13]

Emerging members

Further information: List of investment banks § Largest full-service investment banks

As no definitive listing exists outside of the nine main Bulge Bracket members, a variety of large banking institutions have been identified as emerging members of the Bulge Bracket or potential contenders.[14][30][28] Emerging members have been identified as increasing market capitalization, expanding balance sheets, and undercutting competition for market share and deal flow.[12][41] Despite increases in revenue and market share, emerging members seek to establish systemic importance on not only a domestic level, but also on an international level.[5][6] These emerging banks are not to be confused with boutique investment banks who seek middle market banking activity. Emerging members of the Bulge Bracket are sometimes referred to as "in-between-banks".[42][better source needed] A non-definitive alphabetical listing of emerging Bulge Bracket banks follows:

A variety of French investment banks have accumulated increased global M&A market share and deploy large amounts of capital to sales and trading.[43]

Relegated members

Further information: List of investment banks § Notable former investment banks and brokerages

Certain banking institutions either as a result of a merger or acquisition deal or rapid deterioration have been relegated–on a temporary or permanent basis–from the Bulge Bracket, often losing deal flow,[16] social prestige,[17] and market share.[12] A non-definitive alphabetical listing of relegated Bulge Bracket banks follows:[66]

Investment banks who temporarily fall from the bracket as a consequence of deterioration via economic downturn or poor performance are usually considered "emerging members" or "in-between-banks".[42][better source needed]

See also

Notes

  1. ^ The phrase "Bulge Bracket" has been denoted in lowercase as "bulge bracket" and hyphenated as "bulge-bracket". It has likewise been noted as simply BB (as in Bulge Bracket). Its originating source, tombstone positions, have it noted as "Bulge Bracket".
  2. ^ Although originally meant to denote only the traditional investment banking practice of mergers and acquisitions (M&A) of large banks, the term has been refined to encapsulate a broader set of financial services. After investment banking expanded into secondary businesses (such as sales and trading), the term went on to represent a firm's total financial service and product suite. Just as Barclay's corporate financing arm might be considered among the Bulge Bracket, so too are its asset management (AM), wealth management (WM), and sales and trading (S&T) departments. League tables that represent investment banks often incorporate all of the member's financial services on specialty rankings.
  3. ^ As financial strength and market position changes, they are usually grouped in alphabetical order.[7][8] While the nine banks are commonly referred to as the "Bulge Bracket" banks,[9] select economists refer to the largest banks in the world, on a general level, to be "Bulge Bracket".[10]
  4. ^ There are nine major banks considered to constitute the Bulge Bracket: Bank of America (Merrill Lynch), Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Morgan Stanley and UBS.[31][32][33][34][35][36][37][38][39][40]
  5. ^ Measured by the size of the investment bank in headquartering country, i.e. 'largest financial services company in Switzerland, Germany, United States' etc...

References

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