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]

The Bulge Bracket comprises the world's largest multinational investment banking firms, many of whom are considered global systemically important banks (SIB), whose clients are usually large corporations, institutions, and governments.[2] These banking institutions typically facilitate the most global capital movement and underwrite most financial contracts. Although there is often debate among financial reporters and economists as to which investment bank belongs in the bulge bracket, nine specific banks are typically regarded to be members. 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 1]

The name "bulge bracket" comes from the tendency of the aforementioned banks' financial transactions, when recorded statistically, to "bulge out" from other banks. 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. During the 19th century, the largest of these banks were printed in financial reports with larger fonts in effect creating a "bulge" effect. Apart from its usage with investment banks, the name has been used to describe other financial services and management consulting companies as well as various law practices to highlight a perceived size or profitability.

History[edit]

The biggest banks were measured by the value of their financial transactions during the 19th century. The largest banks' value, when graphed, produced statistical "bulge" from the others.

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.[7]

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." Morgan Stanley appeared above the other members of the bulge bracket by demanding and receiving the role of syndicate manager.[8] 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."[9] 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."[10] Morgan Stanley held onto its policy of appearing first by demanding the role of syndicate manager. Nevertheless, "[b]y the late 1970s, Morgan Stanley's sole-manager policy was a gilded anachronism."[11]

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.[12]

Name[edit]

The name comes from the way investment banks are listed on the "tombstone", or public notification of a financial transaction.[13] 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. The font size of the name of this bank, or banks if there are co-bookrunning managers, is larger and it may "bulge" out.[14] Moreover, the name "bulge bracket" also comes from the aforementioned bank's financial transactions, when recorded statistically, to "bulge out" from other banks. 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.[15]

Modern usage[edit]

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.[16] 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.[17][18] 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.[19][20]

Membership[edit]

There is often debate over which banks are considered to belong to the bulge bracket. Membership implies prestige, but there are no precise criteria for inclusion, and financial power is transient. Various rankings are often cited, such as Thomson Reuters League Tables, Bloomberg 20, or other league tables.[21][22] By most standard accounts, the nine investment banks comprising the bulge bracket are, in alphabetical order:[nb 2]

Known for its banking secrecy, Switzerland houses the second largest number of bulge bracket banks after the United States.
The Bulge Bracket
Name Country Stock Ticker
Bank of America (Merrill Lynch)  United States NYSE: BAC
Barclays  United Kingdom LSE: BARC
Citigroup  United States NYSE: C
Credit Suisse   Switzerland SIX: CSGN
Deutsche Bank  Germany FWB: DBK
Goldman Sachs  United States NYSE: GS
JPMorgan Chase  United States NYSE: JPM
Morgan Stanley  United States NYSE: MS
UBS   Switzerland SIX: UBSG
Legend
Largest national financial institution[nb 3]

The stand-alone companies of Merrill Lynch, Salomon Brothers, and First Boston were acquired by Bank of America, Citi Group, and Credit Suisse, respectively, during the 2008 financial crisis.[29]

Other usage[edit]

By extension, the international business world refers to service providers as "bulge bracket" such as "bulge bracket law firms" when they are capable of servicing global clients thanks to their global presence.[30] Just like bulge bracket banks, bulge bracket service providers have a strong presence in all three of the world's major regions: The Americas, EMEA, and Asia-Pacific. Typical bulge bracket law firms are firms such as Dechert, Orrick, Allen & Overy, Baker & McKenzie, Fidal, DLA Piper, Clifford Chance, White & Case, Holland & Knight, and Hogan Lovells. Typical bulge bracket management consulting firms are McKinsey & Company, Boston Consulting Group, and Bain & Company.[31]

See also[edit]

Notes[edit]

  1. ^ As financial strength and market position changes, they are usually grouped in alphabetical order.[3][4] While the nine banks are commonly referred to as the "Bulge Bracket" banks,[5] select economists refer to the largest banks in the world, on a general level, to be "bulge bracket".[6]
  2. ^ There are nine major banks considered to comprise the 'bulge bracket'.[23][24][25][26][27][28]
  3. ^ Measured by the size of the investment bank in headquartering country, i.e. 'largest financial services company in Switzerland, Germany, etc.'.

References[edit]

  1. ^ "Top 8 Cities by GDP: China vs. The U.S." Business Insider, Inc. Retrieved May 21, 2018. For instance, Shanghai, the largest Chinese city with the highest economic production, and a fast-growing global financial hub, is far from matching or surpassing New York, the largest city in the U.S. and the economic and financial super center of the world. 
    "New York City: The Financial Capital of the World". Pando Logic. Retrieved May 21, 2018. 
  2. ^ Mergermarket. "Battling The Bulge: Boutique Banks Gaining Ground". Forbes. Retrieved 2018-03-29. 
  3. ^ Staff, Investopedia (25 November 2003). "Bulge Bracket". Investopedia. Retrieved 2018-03-29. 
  4. ^ "Bulge Bracket Investment Banks - List of Top Global Banks". Corporate Finance Institute. Retrieved 2018-03-29. 
  5. ^ "Definition of "Bulge bracket" - NASDAQ Financial Glossary". NASDAQ.com. Retrieved 2018-03-29. 
  6. ^ "bulge-bracket Definition in the Cambridge English Dictionary". dictionary.cambridge.org. Retrieved 2018-03-29. 
  7. ^ Chernow, Ron (19 January 2010). The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance. Grove/Atlantic, Inc. ISBN 9780802198136. 
  8. ^ Chernow, Ron (19 January 2010). The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance. Grove/Atlantic, Inc. ISBN 9780802198136. 
  9. ^ Chernow, Ron (19 January 2010). The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance. Grove/Atlantic, Inc. ISBN 9780802198136. 
  10. ^ Chernow, Ron (19 January 2010). The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance. Grove/Atlantic, Inc. ISBN 9780802198136. 
  11. ^ Chernow, Ron (19 January 2010). The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance. Grove/Atlantic, Inc. ISBN 9780802198136. 
  12. ^ Chernow, Ron (19 January 2010). The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance. Grove/Atlantic, Inc. ISBN 9780802198136. 
  13. ^ Staff, Investopedia (25 November 2003). "Bulge Bracket". Investopedia. Retrieved 2017-02-05. 
  14. ^ "What is a Bulge Bracket Bank (BB)?". Wall Street Oasis. Retrieved 2017-02-05. 
  15. ^ Chernow, Ron (19 January 2010). The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance. Grove/Atlantic, Inc. ISBN 9780802198136. 
  16. ^ "Wall Street's Bulge Bracket May Shrink to 5 Firms, McKinsey Says". Bloomberg.com. 23 January 2013. Retrieved 2018-03-29. 
  17. ^ "Definition of "Bulge bracket" - NASDAQ Financial Glossary". NASDAQ.com. Retrieved 2018-03-29. 
  18. ^ "Wall Street's Bulge Bracket May Shrink to 5 Firms, McKinsey Says". Bloomberg.com. 23 January 2013. Retrieved 2018-03-29. 
  19. ^ "Definition of "Bulge bracket" - NASDAQ Financial Glossary". NASDAQ.com. Retrieved 2018-03-29. 
  20. ^ "Wall Street's Bulge Bracket May Shrink to 5 Firms, McKinsey Says". Bloomberg.com. 23 January 2013. Retrieved 2018-03-29. 
  21. ^ "League Tables". Thomson Reuters. Archived from the original on 13 November 2008. 
  22. ^ Bloomberg 20
  23. ^ "(Elite) Boutique vs. Middle-Market vs. Bulge-Bracket Banks". www.mergersandinquisitions.com. Retrieved 2018-03-29. 
  24. ^ Staff, Investopedia (25 November 2003). "Bulge Bracket". Investopedia. Retrieved 2018-03-29. 
  25. ^ "What is Bulge Bracket Investment Bank? - Definition from Divestopedia". Divestopedia.com. Retrieved 2018-03-29. 
  26. ^ Mergermarket. "Battling The Bulge: Boutique Banks Gaining Ground". Forbes. Retrieved 2018-03-29. 
  27. ^ "JPMorgan Chase Competitive Strategy Teardown: How The Bank Stacks Up On Fintech & Innovation". CB Insights Research. 11 January 2018. Retrieved 2018-03-29. 
  28. ^ "John Harvard's Journal - The Undergraduate: The Mating Game". harvardmagazine.com. Retrieved 2018-03-29. 
  29. ^ Angelides, Phil (2011). Financial Crisis Inquiry Report. DIANE Publishing. ISBN 9781437980721. 
  30. ^ "John Harvard's Journal - The Undergraduate: The Mating Game". harvardmagazine.com. Retrieved 2018-03-29. 
  31. ^ Zoia, Adam; Finkel, Aaron (2 May 2008). Getting a Job in Hedge Funds: An Inside Look at How Funds Hire. John Wiley & Sons. ISBN 9780470278505.