Bulge Bracket

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 most systemically important multinational investment banks and their parent financial institutions.[nb 1][2][3] The Bulge Bracket typically facilitates most global capital movement and underwrites most financial contracts for large corporations, institutions, and governments. Although the size of these banks fluctuates, the capital strength and market influence of nine banks typically comprise the bracket, in spite of no definitive listing. 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 2]

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. Additionally, during the 1800s, the largest of these banks were printed in financial reports with larger fonts in effect creating a "bulge" effect. Employment with the member banks implies social prestige[8][9] and high levels of compensation,[10][11] 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.[12][13]

History

The biggest banks were measured by the value of their financial transactions during the 19th century. The largest banks' value, when graphed, produced a statistical "bulge" distinguishing it 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.[14]

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."[14] Morgan Stanley appeared above the other members of the Bulge Bracket by demanding and receiving the role of syndicate manager.[14] 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."[14] 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."[14] Morgan Stanley held onto its policy of appearing first by demanding the role of syndicate manager.[14] Nevertheless, "[b]y the late 1970s, Morgan Stanley's sole-manager policy was a gilded anachronism."[14]

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.[14]

Name

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

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

The exact membership within the Bulge Bracket is often complied by various financial news reports, economic research, or government publications. Membership in the Bulge Bracket implies social prestige and market dominance.[21] 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.[22][23] By most standard accounts, the nine banking institutions[24] comprising the Bulge Bracket are, in alphabetical order:[nb 3]

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 4]

See also

Notes

  1. ↑ For example, although Goldman Sachs is an investment bank that offers diversified financial services (including traditional investment banking), all rendered services are considered to be within the Bulge Bracket (e.g. wealth management, asset management, prime brokerage).
  2. ↑ As financial strength and market position changes, they are usually grouped in alphabetical order.[4][5] While the nine banks are commonly referred to as the "Bulge Bracket" banks,[6] select economists refer to the largest banks in the world, on a general level, to be "bulge bracket".[7]
  3. ↑ There are nine major banks considered to comprise the 'bulge bracket': Bank of America (Merrill Lynch), Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Morgan Stanley and UBS.[25][26][27][28][29][30]
  4. ↑ Measured by the size of the investment bank in headquartering country, i.e. 'largest financial services company in Switzerland, Germany, United States' etc...

References

  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. ↑ Star, Marlene (March 29, 2017). "Battling The Bulge: Boutique Banks Gaining Ground". Forbes. Retrieved May 3, 2018.
  3. ↑ Podolny, Joel M. (December 16, 2012). Status Signals: A Sociological Study of Market Competition. Princeton University Press. ISBN 1400837871.
  4. ↑ Staff, Investopedia (November 25, 2003). "Bulge Bracket". Investopedia. Retrieved August 10, 2018.
  5. ↑ "Bulge Bracket Investment Banks - List of Top Global Banks". Corporate Finance Institute. Retrieved August 10, 2018.
  6. ↑ "Definition of "Bulge bracket" - NASDAQ Financial Glossary". NASDAQ.com. Retrieved August 10, 2018.
  7. ↑ "bulge-bracket Definition in the Cambridge English Dictionary". dictionary.cambridge.org. Retrieved August 10, 2018.
  8. ↑ Reynolds, John N.; Newell, Edmund (January 9, 2011). Ethics in Investment Banking. Springer. ISBN 9780230348851.
  9. ↑ Krantz, Matt; Johnson, Robert R. (May 2, 2010). Investment Banking For Dummies. John Wiley & Sons. ISBN 9781118615775.
  10. ↑ Rolfe, John (November 29, 2011). Monkey Business: Swinging Through the Wall Street Jungle. Grand Central Publishing. ISBN 9780759523203.
  11. ↑ Labor, U. S. Department of (2012). Occupational Outlook Handbook 2009. Skyhorse Publishing Inc. ISBN 9781602393202.
  12. ↑ Dalton, Brian (2007). Vault Guide to the Top New York Law Firms. Vault Inc. ISBN 9781581315004.
  13. ↑ Lee, Jennifer. "John Harvard's Journal - The Undergraduate: The Mating Game". harvardmagazine.com. Retrieved August 11, 2018.
  14. 1 2 3 4 5 6 7 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.
  15. 1 2 3 4 5 Staff, Investopedia (25 November 2003). "Bulge Bracket". Investopedia. Retrieved 2017-02-05.
  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. ↑ Schuler, Ute Kristin (2004). A Risk-Information Perspective on the Marketing of M&A Advisory. Peter Lang. ISBN 9783039104345.
  22. ↑ Krantz, Matt; Johnson, Robert R. (2014-02-06). Investment Banking For Dummies. John Wiley & Sons. ISBN 9781118615881.
  23. ↑ Economist, The; Karaian, Jason (2014-04-08). The Chief Financial Officer: What CFOs Do, the Influence they Have, and Why it Matters. PublicAffairs. ISBN 9781610393867.
  24. ↑ "Bulge Bracket List". www.streetofwalls.com. July 11, 2018. Retrieved August 11, 2018. While the definition of which banks are included in the “Bulge Bracket” list can vary, the following [nine] names usually appear:
  25. ↑ "(Elite) Boutique vs. Middle-Market vs. Bulge-Bracket Banks". www.mergersandinquisitions.com. Retrieved August 10, 2018.
  26. ↑ Staff, Investopedia (25 November 2003). "Bulge Bracket". Investopedia. Retrieved August 10, 2018.
  27. ↑ "What is Bulge Bracket Investment Bank? - Definition from Divestopedia". Divestopedia.com. Retrieved August 10, 2018.
  28. ↑ Star, Marlene (Mar 29, 2017). "Battling The Bulge: Boutique Banks Gaining Ground". Forbes. Retrieved August 10, 2018.
  29. ↑ "JPMorgan Chase Competitive Strategy Teardown: How The Bank Stacks Up On Fintech & Innovation". CB Insights Research. January 11, 2018. Retrieved August 10, 2018.
  30. ↑ Lee, Jennifer. "John Harvard's Journal - The Undergraduate: The Mating Game". harvardmagazine.com. Retrieved August 10, 2018.
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