Bulge bracket
Encyclopedia
The bulge bracket comprises the "big banks," the world's largest and most profitable multi-national investment banks.
" (financial industry advertisement) notifying the public of a financial transaction or deal. In a public securities offering, within the underwriting
syndicate
, the bookrunning manager (the bank responsible for maintaining the order book when marketing the offering and therefore in control of allocation of securities to investors) appears above the others in the tombstone 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.
, and research on a broad array of financial products including equities, credit, rates, commodities, and their derivatives. 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, and today, carbon emission trading
and insurance
-linked products. Bulge bracket firms are usually primary dealers
in US 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
. There is often debate over which banks are considered to belong to the bulge bracket, because membership implies prestige, because there are no precise criteria for inclusion, and because financial power is transient. Various rankings are often cited, such as Thomson Reuters League Tables, Bloomberg 20, or other league table
s.
prior to late 2007 were, alphabetically: Bear Stearns
, Citigroup
, Credit Suisse
, Deutsche Bank
, Goldman Sachs
, J.P. Morgan Chase, Lehman Brothers
, Merrill Lynch
, Morgan Stanley
, and UBS.
This list has changed as a result of the 2008 subprime mortgage crisis
, with Lehman Brothers
having filed for bankruptcy (later having their core US investment bank acquired by Barclays), Bear Stearns
collapsed and sold to J.P. Morgan Chase at $10 per share, Merrill Lynch
being purchased by Bank of America
. Bank of America Merrill Lynch
gained Bulge Bracket status after its acquisition.
.
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.
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." 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." However, 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."
Technical meaning
The term 'bulge bracket' refers to the first group of investment banks listed on the "tombstoneTombstone (financial industry)
Tombstone are advertisements that are most often used in the financial industry, where a particular transaction, such as an offering or placement of stock of a company, is formally announced...
" (financial industry advertisement) notifying the public of a financial transaction or deal. In a public securities offering, within the underwriting
Underwriting
Underwriting refers to the process that a large financial service provider uses to assess the eligibility of a customer to receive their products . The name derives from the Lloyd's of London insurance market...
syndicate
Syndicate
A syndicate is a self-organizing group of individuals, companies or entities formed to transact some specific business, or to promote a common interest or in the case of criminals, to engage in organized crime...
, the bookrunning manager (the bank responsible for maintaining the order book when marketing the offering and therefore in control of allocation of securities to investors) appears above the others in the tombstone 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.
In common phraseology
The term 'bulge bracket' frequently refers to the group of investment banks considered to be the largest and most profitable in the world; their investment banking clients are usually large corporations, institutions, and governments. They usually provide both advisory and financing banking services, as well as the sales, market makingMarket maker
A market maker is a company, or an individual, that quotes both a buy and a sell price in a financial instrument or commodity held in inventory, hoping to make a profit on the bid-offer spread, or turn. From a market microstructure theory standpoint, market makers are net sellers of an option to be...
, and research on a broad array of financial products including equities, credit, rates, commodities, and their derivatives. 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, and today, carbon emission trading
Carbon emission trading
Carbon emissions trading is a form of emissions trading that specifically targets carbon dioxide and it currently constitutes the bulk of emissions trading....
and insurance
Insurance
In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...
-linked products. Bulge bracket firms are usually primary dealers
Primary dealers
Primary dealer is a formal designation of a firm as a market maker of government securities. Primary dealer systems are present in many countries including Canada, France, Italy, Spain, the United Kingdom, and the United States...
in US 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
Americas
The Americas, or America , are lands in the Western hemisphere, also known as the New World. In English, the plural form the Americas is often used to refer to the landmasses of North America and South America with their associated islands and regions, while the singular form America is primarily...
, EMEA
Europe, the Middle East and Africa
Europe, the Middle East and Africa, usually abbreviated to EMEA, is a regional designation used for government, marketing and business purposes...
, and Asia-Pacific
Asia-Pacific
Asia-Pacific or Asia Pacific is the part of the world in or near the Western Pacific Ocean...
. There is often debate over which banks are considered to belong to the bulge bracket, because membership implies prestige, because there are no precise criteria for inclusion, and because financial power is transient. Various rankings are often cited, such as Thomson Reuters League Tables, Bloomberg 20, or other league table
League table
A league table, standings, ranking chart, or ladder is a chart or list which compares sports teams, institutions, nations or companies by ranking them in order of ability or achievement. A league table may list several related statistics, but they are generally sorted by the primary one that...
s.
Prior to the 2007–8 subprime mortgage crisis
The Bulge Bracket firms on Wall StreetWall Street
Wall Street refers to the financial district of New York City, named after and centered on the eight-block-long street running from Broadway to South Street on the East River in Lower Manhattan. Over time, the term has become a metonym for the financial markets of the United States as a whole, or...
prior to late 2007 were, alphabetically: Bear Stearns
Bear Stearns
The Bear Stearns Companies, Inc. based in New York City, was a global investment bank and securities trading and brokerage, until its sale to JPMorgan Chase in 2008 during the global financial crisis and recession...
, Citigroup
Citigroup
Citigroup Inc. or Citi is an American multinational financial services corporation headquartered in Manhattan, New York City, New York, United States. Citigroup was formed from one of the world's largest mergers in history by combining the banking giant Citicorp and financial conglomerate...
, Credit Suisse
Credit Suisse
The Credit Suisse Group AG is a Swiss multinational financial services company headquartered in Zurich, with more than 250 branches in Switzerland and operations in more than 50 countries.-History:...
, Deutsche Bank
Deutsche Bank
Deutsche Bank AG is a global financial service company with its headquarters in Frankfurt, Germany. It employs more than 100,000 people in over 70 countries, and has a large presence in Europe, the Americas, Asia Pacific and the emerging markets...
, Goldman Sachs
Goldman Sachs
The Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...
, J.P. Morgan Chase, Lehman Brothers
Lehman Brothers
Lehman Brothers Holdings Inc. was a global financial services firm. Before declaring bankruptcy in 2008, Lehman was the fourth largest investment bank in the USA , doing business in investment banking, equity and fixed-income sales and trading Lehman Brothers Holdings Inc. (former NYSE ticker...
, Merrill Lynch
Merrill Lynch
Merrill Lynch is the wealth management division of Bank of America. With over 15,000 financial advisors and $2.2 trillion in client assets it is the world's largest brokerage. Formerly known as Merrill Lynch & Co., Inc., prior to 2009 the firm was publicly owned and traded on the New York...
, Morgan Stanley
Morgan Stanley
Morgan Stanley is a global financial services firm headquartered in New York City serving a diversified group of corporations, governments, financial institutions, and individuals. Morgan Stanley also operates in 36 countries around the world, with over 600 offices and a workforce of over 60,000....
, and UBS.
This list has changed as a result of the 2008 subprime mortgage crisis
Subprime mortgage crisis
The U.S. subprime mortgage crisis was one of the first indicators of the late-2000s financial crisis, characterized by a rise in subprime mortgage delinquencies and foreclosures, and the resulting decline of securities backed by said mortgages....
, with Lehman Brothers
Lehman Brothers
Lehman Brothers Holdings Inc. was a global financial services firm. Before declaring bankruptcy in 2008, Lehman was the fourth largest investment bank in the USA , doing business in investment banking, equity and fixed-income sales and trading Lehman Brothers Holdings Inc. (former NYSE ticker...
having filed for bankruptcy (later having their core US investment bank acquired by Barclays), Bear Stearns
Bear Stearns
The Bear Stearns Companies, Inc. based in New York City, was a global investment bank and securities trading and brokerage, until its sale to JPMorgan Chase in 2008 during the global financial crisis and recession...
collapsed and sold to J.P. Morgan Chase at $10 per share, Merrill Lynch
Merrill Lynch
Merrill Lynch is the wealth management division of Bank of America. With over 15,000 financial advisors and $2.2 trillion in client assets it is the world's largest brokerage. Formerly known as Merrill Lynch & Co., Inc., prior to 2009 the firm was publicly owned and traded on the New York...
being purchased by Bank of America
Bank of America
Bank of America Corporation, an American multinational banking and financial services corporation, is the second largest bank holding company in the United States by assets, and the fourth largest bank in the U.S. by market capitalization. The bank is headquartered in Charlotte, North Carolina...
. Bank of America Merrill Lynch
Bank of America Merrill Lynch
Bank of America Merrill Lynch is the corporate and investment banking division of Bank of America. It provides services in mergers and acquisitions, equity and debt capital markets, lending, trading, risk management, research, and liquidity and payments management...
gained Bulge Bracket status after its acquisition.
Banks formerly part of the bulge bracket
- Dillon, Read & Co.Dillon, Read & Co.Dillon, Read & Co. was a prominent American investment bank from the 1920s into the 1960s.-Origins:Dillon Read traces its roots to 1832 with the founding of the Wall Street brokerage firm Carpenter & Vermilye. This firm was succeeded by Read & Company in which chief principal was William A. Read. ...
, acquired by Swiss Bank CorporationSwiss Bank CorporationSwiss Bank Corporation was a large integrated financial services company located in Switzerland...
(eventually UBS) in 1997. - First BostonFirst BostonFirst Boston Corporation was a New York-based, bulge bracket, investment bank, founded in 1932 and acquired by Credit Suisse in 1990. Together with its sister investment banks, it was referred to as CS First Boston after 1993 and part of Credit Suisse First Boston after 1996, the First Boston part...
, acquired by Credit SuisseCredit SuisseThe Credit Suisse Group AG is a Swiss multinational financial services company headquartered in Zurich, with more than 250 branches in Switzerland and operations in more than 50 countries.-History:...
in 1988 and branded Credit Suisse First BostonCredit Suisse First BostonCredit Suisse First Boston was the former name of the banking firm Credit Suisse.-History:In 1978, Credit Suisse and First Boston Corporation formed a London-based 50-50 investment banking joint venture called the Financière Crédit Suisse-First Boston...
, later renamed to Credit Suisse. - Kuhn, Loeb & Co.Kuhn, Loeb & Co.Kuhn, Loeb & Co. was a bulge bracket, investment bank founded in 1867 by Abraham Kuhn and Solomon Loeb. Under the leadership of Jacob H. Schiff, it grew to be one of the most influential investment banks in the late 19th and early 20th centuries, financing America's expanding railways and growth...
, merged with Lehman BrothersLehman BrothersLehman Brothers Holdings Inc. was a global financial services firm. Before declaring bankruptcy in 2008, Lehman was the fourth largest investment bank in the USA , doing business in investment banking, equity and fixed-income sales and trading Lehman Brothers Holdings Inc. (former NYSE ticker...
in 1977, forming Lehman Brothers, Kuhn, Loeb Inc. - Lehman BrothersLehman BrothersLehman Brothers Holdings Inc. was a global financial services firm. Before declaring bankruptcy in 2008, Lehman was the fourth largest investment bank in the USA , doing business in investment banking, equity and fixed-income sales and trading Lehman Brothers Holdings Inc. (former NYSE ticker...
, declared bankruptBankruptcyBankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor....
in September 2008. The Asian and European operations were bought by NomuraNomura GroupThe formerly Nomura zaibatsu is a company headquartered in Chuo, Tokyo.Nomura is one of the major industrial and financial conglomerate groupings of Japan. Osaka Nomura bank was founded by Tokushichi Nomura II in 1919 after many successful business ventures; it was established on the Mitsui...
. Barclays acquired the North American Lehman operations. - Merrill LynchMerrill LynchMerrill Lynch is the wealth management division of Bank of America. With over 15,000 financial advisors and $2.2 trillion in client assets it is the world's largest brokerage. Formerly known as Merrill Lynch & Co., Inc., prior to 2009 the firm was publicly owned and traded on the New York...
, acquired by Bank of AmericaBank of AmericaBank of America Corporation, an American multinational banking and financial services corporation, is the second largest bank holding company in the United States by assets, and the fourth largest bank in the U.S. by market capitalization. The bank is headquartered in Charlotte, North Carolina...
in September 2008. - Salomon BrothersSalomon BrothersSalomon Brothers was a bulge bracket, Wall Street investment bank. Founded in 1910 by three brothers along with a clerk named Ben Levy, it remained a partnership until the early 1980s, when it was acquired by the commodity trading firm Phibro Corporation and then became Salomon Inc. Eventually...
, acquired by Travelers Group (eventually CitigroupCitigroupCitigroup Inc. or Citi is an American multinational financial services corporation headquartered in Manhattan, New York City, New York, United States. Citigroup was formed from one of the world's largest mergers in history by combining the banking giant Citicorp and financial conglomerate...
) in 1998.
Banks currently part of the bulge bracket
According to Thomson Reuters League Tables, the following banks are part of the bulge bracket:- Bank of America Merrill LynchBank of America Merrill LynchBank of America Merrill Lynch is the corporate and investment banking division of Bank of America. It provides services in mergers and acquisitions, equity and debt capital markets, lending, trading, risk management, research, and liquidity and payments management...
- Barclays CapitalBarclays CapitalBarclays Capital is a global British investment bank. It is the investment banking division of Barclays plc which has a balance sheet of over £1.2 trillion . Barclays Capital provides financing and risk management services to large companies, institutions and government clients. It is a primary...
- CitigroupCitigroupCitigroup Inc. or Citi is an American multinational financial services corporation headquartered in Manhattan, New York City, New York, United States. Citigroup was formed from one of the world's largest mergers in history by combining the banking giant Citicorp and financial conglomerate...
- Credit SuisseCredit SuisseThe Credit Suisse Group AG is a Swiss multinational financial services company headquartered in Zurich, with more than 250 branches in Switzerland and operations in more than 50 countries.-History:...
- Deutsche BankDeutsche BankDeutsche Bank AG is a global financial service company with its headquarters in Frankfurt, Germany. It employs more than 100,000 people in over 70 countries, and has a large presence in Europe, the Americas, Asia Pacific and the emerging markets...
- Goldman SachsGoldman SachsThe Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...
- JPMorgan Chase
- Morgan StanleyMorgan StanleyMorgan Stanley is a global financial services firm headquartered in New York City serving a diversified group of corporations, governments, financial institutions, and individuals. Morgan Stanley also operates in 36 countries around the world, with over 600 offices and a workforce of over 60,000....
- UBS
History
The story of tombstone positions and the term "bulge bracket" is told in the "Tombstones" chapter of The House of Morgan by Ron ChernowRon Chernow
Ronald Chernow is an American biographer. He is the author of Washington: A Life, Alexander Hamilton, The House of Morgan, and Titan: The Life of John D. Rockefeller, Sr., among other works...
.
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, StuartHalsey, Stuart & Co.Halsey, Stuart was a Chicago-based investment bank founded in 1911.In 1952, the firm made headlines when its managing partner, Harold L. Stuart, testified before the U.S. Supreme Court for the government's antitrust case against Morgan Stanley and 16 other major investment banks...
adopted its parent's name, Bache, just to bootstrap up a few lines in tombstones.
According to Chernow, "[i]n the late 1960s and early 1970s, the top tier – called the bulge bracket – consisted of Morgan Stanley
Morgan Stanley
Morgan Stanley is a global financial services firm headquartered in New York City serving a diversified group of corporations, governments, financial institutions, and individuals. Morgan Stanley also operates in 36 countries around the world, with over 600 offices and a workforce of over 60,000....
; First Boston
First Boston
First Boston Corporation was a New York-based, bulge bracket, investment bank, founded in 1932 and acquired by Credit Suisse in 1990. Together with its sister investment banks, it was referred to as CS First Boston after 1993 and part of Credit Suisse First Boston after 1996, the First Boston part...
; Kuhn, Loeb
Kuhn, Loeb & Co.
Kuhn, Loeb & Co. was a bulge bracket, investment bank founded in 1867 by Abraham Kuhn and Solomon Loeb. Under the leadership of Jacob H. Schiff, it grew to be one of the most influential investment banks in the late 19th and early 20th centuries, financing America's expanding railways and growth...
; and Dillon, Read." Morgan Stanley appeared above the other members of the bulge bracket by demanding and receiving the role of syndicate manager.
However, Morgan Stanley "queasily noted the rise of Salomon Brothers
Salomon Brothers
Salomon Brothers was a bulge bracket, Wall Street investment bank. Founded in 1910 by three brothers along with a clerk named Ben Levy, it remained a partnership until the early 1980s, when it was acquired by the commodity trading firm Phibro Corporation and then became Salomon Inc. Eventually...
and Goldman Sachs
Goldman Sachs
The Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...
, which were using their trading skills to chip away at the four dominant firms." 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." However, 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."
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.