What Is The Bulge Bracket?
The Bulge Bracket is a term in the financial world for some of the world’s largest and most profitable investment banks. The clients of these banks are usually high-profile organisations including governments, large institutions and corporations.
Banks in the Bulge Bracket category all provide financing and advisory services, and they specialise in market making, sales and research for products such as commodities, credit, rates and equities. These banks are also actively involved in the development of new financial products such as credit default swaps, mortgage-backed securities and collaterised debt obligations (CDOs).
The History of the Bulge Bracket
The term Bulge Bracket is derived from the way in which an investment bank was listed. Investment firms were ranked in ‘tombstones’ or brackets of influence; the ‘bulge bracket’ was the top bracket.
As such, the Bulge Bracket has usually included the most prestigious and dominant banks in the industry. Belonging to the Bulge Bracket is a symbol of prestige and dominance, and in the early days it was market share that often determined who made it onto the list. Banks such as First Boston, Salomon Brothers and Drexel Burnham - none in existence any longer - have previously been members of the Bracket.
The term is not used as much today as it once was. This is largely because of significant growth in the number of banks in the commercial sector, and the volatility of the industry at the present time.
The Bulge Bracket comprises the world's most influential investment banks.
Which Banks Comprise The Bulge Bracket?
There is now much argument about which banks comprise the Bulge Bracket, as there isn't a specific set of criteria, and the rules surrounding who should be included or excluded are not clear.
The Bulge Bracket has featured some of the most well-known banks over the years, including Credit Suisse, Goldman Sachs, Citi, Morgan Stanley, J.P. Morgan and UBS. Banks in the Bulge Bracket are huge, multinational corporations, as are many of their clients.
The current Bulge Bracket consists of 9 banks:
- Bank of America Merrill Lynch
- Credit Suisse
- Deutsche Bank
- Goldman Sachs
- J.P. Morgan
- Morgan Stanley
Which Banks Used to be Part of the Bulge Bracket?
Over the years many banks have come and gone from the Bulge Bracket, including:
- In 1977, Kuhn Loeb and Co merged with Lehman Brothers, creating the firm Lehman Brothers, Kuhn, Loeb Inc.
- First Boston, which was purchased by Credit Suisse in 1988 and then rebranded to Credit Suisse First Boston
- In 1990 the UK bank Morgan, Grenfell and Co was acquired by Deutsche Bank
- Dillon, Read and Co, which was acquired by The Swiss Bank Corporation in 1997
- Salomon Brothers, which was purchased by the Travellers Group in 1998 and eventually rebranded to Citigroup
- Bear Stearns, which was acquired by J.P. Morgan in 2008
- In 2008, Lehman Brothers was declared bankrupt, after which Barclays purchased the Lehman operations in North America
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Is the Bulge Bracket Still Relevant as a Term Today?
Since the financial crisis in 2008, banks are often referred to as belonging to either Tier One, Tier Two or Tier Three. Tier One (J.P. Morgan, Bank of America Merrill Lynch, Goldman Sachs, Citi and Morgan Stanley) and Tier Two ( Deutsche Bank, Credit Suisse, Barclays and UBS) are the equivalent of the Bulge Bracket. In the third tier are banks including BNP Paribas, SocGen and HSBC.
These tiers are likely to be in a constant state of movement, and in the future banks may find themselves switching between tiers or dropping out completely.
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