Bulge Bracket

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The majority of the "Bulge Bracket" banks maintain central offices in New York City, considered the financial capital of the world. ChryslerBuildingMidtownManhattanNewYorkCity.jpg
The majority of the "Bulge Bracket" banks maintain central offices in New York City, considered the financial capital of the world.

The group of Bulge Bracket banks comprises the world's largest multi-national investment banks [2] whose investment banking clients are usually large corporations, institutions, and governments. There is no definitive list of Bulge Bracket banks.

Corporation Separate legal entity that has been incorporated through a legislative or registration process established through legislation

A corporation is an organization, usually a group of people or a company, authorized to act as a single entity and recognized as such in law. Early incorporated entities were established by charter. Most jurisdictions now allow the creation of new corporations through registration.

Institution structure or mechanism of social order and cooperation governing the behaviour of a set of individuals within a given community

Institutions, according to Samuel P. Huntington, are "stable, valued, recurring patterns of behavior". Further, institutions can refer to mechanisms of social order, which govern the behaviour of a set of individuals within a given community. Moreover, institutions are identified with a social purpose, transcending individuals and intentions by mediating the rules that govern living behavior.. According to Geoffery M. Hodgson, it is misleading to say that an institution is a form of behavior. Instead, Hodgson states that institution are “integrated systems of rules that structure social interactions”.

A government is the system or group of people governing an organized community, often a state.

Contents

Overview

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, 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, mortgage-backed securities (MBS) and collateralized debt obligations (CDO) in the 2000s and today, carbon emission trading and insurance-linked products.

Market maker financial markets term

A market maker or liquidity provider 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. The U.S. Securities and Exchange Commission defines a "market maker" as a firm that stands ready to buy and sell stock on a regular and continuous basis at a publicly quoted price.

Mortgage-backed security security

A mortgage-backed security (MBS) is a type of asset-backed security which is secured by a mortgage or collection of mortgages. The mortgages are sold to a group of individuals that securitizes, or packages, the loans together into a security that investors can buy. The mortgages of a MBS may be residential or commercial, depending on whether it is an Agency MBS or a Non-Agency MBS; in the United States they may be issued by structures set up by government-sponsored enterprises like Fannie Mae or Freddie Mac, or they can be "private-label", issued by structures set up by investment banks. The structure of the MBS may be known as "pass-through", where the interest and principal payments from the borrower or homebuyer pass through it to the MBS holder, or it may be more complex, made up of a pool of other MBSs. Other types of MBS include collateralized mortgage obligations and collateralized debt obligations (CDOs).

Credit default swap financial swap agreement in case of default

A credit default swap (CDS) is a financial swap agreement that the seller of the CDS will compensate the buyer in the event of a debt default or other credit event. That is, the seller of the CDS insures the buyer against some reference asset defaulting. The buyer of the CDS makes a series of payments to the seller and, in exchange, may expect to receive a payoff if the asset defaults.

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, Europe, the Middle East and Africa (EMEA), and Asia-Pacific (APAC).

A primary dealer is a firm that buys government securities directly from a government, with the intention of reselling them to others, thus acting as a market maker of government securities. The government may regulate the behavior and number of its primary dealers and impose conditions of entry. Some governments sell their securities only to primary dealers; some sell them to others as well. Governments that use primary dealers include Australia, Belgium, Brazil, Canada, China, France, Hong Kong, India, Italy, Japan, Singapore, Spain, the United Kingdom, and the United States.

Americas Landmass comprising North America, Central America and South America

The Americas comprise the totality of the continents of North and South America. Together, they make up most of the land in Earth's western hemisphere and comprise the New World.

Europe, the Middle East and Africa

EMEA is a shorthand designation meaning Europe, the Middle East and Africa. It is used by institutions and governments, as well as in marketing and business. It is particularly common among North American companies.

The name comes from the way investment banks are listed on the "tombstone", or public notification of a financial transaction. [3] 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.[ citation needed ]

Tombstone (financial industry) print notice used in the financial industry to formally announce a transaction

A tombstone is a type of print notice that is most often used in the financial industry to formally announce a particular transaction, such as an initial public offering or placement of stock of a company.

History

According to biographer Ron Chernow's 1990 book The House of Morgan , "in 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. While order within brackets was otherwise determined alphabetically, Chernow describes this positioning as being of "life-and-death" importance to the firms. Chernow says that Bache Halsey Stuart Shields Incorporated's name was chosen based on a desire to be placed as high as possible within its bracket.

Ronald Chernow is an American writer, journalist, historian, and biographer. He has written bestselling and award-winning biographies of historical figures from the world of business, finance, and American politics.

<i>The House of Morgan</i> book by Ron Chernow

The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance is a non-fiction book by Ron Chernow, published in 1990. It traces the history of four generations of the J.P. Morgan financial empire, on both sides of the Atlantic, from its obscure beginnings in Victorian London to the crash of 1987.

Morgan Stanley U.S investment bank

Morgan Stanley is an American multinational investment bank and financial services company headquartered at 1585 Broadway in the Morgan Stanley Building, Midtown Manhattan, New York City. With offices in more than 42 countries and more than 55,000 employees, the firm's clients include corporations, governments, institutions and individuals. Morgan Stanley ranked No. 67 in the 2018 Fortune 500 list of the largest United States corporations by total revenue.

According to Chernow, 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 removed Kuhn, Loeb and Dillon, Read, and replaced them with Merrill Lynch, Salomon Brothers, and Goldman Sachs. Chernow describes' Morgan Stanley's place at the top of the bracket as a "gilded anachronism" by the late 1970s. [4]

Salomon Brothers was an American investment bank founded in 1910 by Arthur, Herbert and Percy Salomon and a clerk named Ben Levy, remaining a partnership until the early 1980s. It was acquired by the commodity trading firm Phibro Corporation and became Salomon Inc. Eventually, Salomon (NYSE:SB) was acquired by Travelers Group in 1998; and, following the latter's merger with Citicorp that same year, Salomon became part of Citigroup. Although the Salomon name carried on as Salomon Smith Barney, which were the investment banking operations of Citigroup, the name was abandoned in October 2003 after a series of financial scandals that tarnished the bank's reputation.

Goldman Sachs U.S. investment bank

The Goldman Sachs Group, Inc., is an American multinational investment bank and financial services company headquartered in New York City. It offers services in investment management, securities, asset management, prime brokerage, and securities underwriting.

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. [4]

Other

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. 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.

See also

Related Research Articles

An investment bank is a financial services company or corporate division that engages in advisory-based financial transactions on behalf of individuals, corporations, and governments. Traditionally associated with corporate finance, such a bank might assist in raising financial capital by underwriting or acting as the client's agent in the issuance of securities. An investment bank may also assist companies involved in mergers and acquisitions (M&A) and provide ancillary services such as market making, trading of derivatives and equity securities, and FICC services. Most investment banks maintain prime brokerage and asset management departments in conjunction with their investment research businesses. As an industry, it is broken up into the Bulge Bracket, Middle Market, and boutique market.

Lehman Brothers Holdings Inc. was a global financial services firm. Before filing for bankruptcy in 2008, Lehman was the fourth-largest investment bank in the United States, doing business in investment banking, equity and fixed-income sales and trading, research, investment management, private equity, and private banking. Lehman was operational for 158 years from its founding in 1850 until 2008.

Kuhn, Loeb & Co. was an American multinational investment bank founded in 1867 by Abraham Kuhn and his brother-in-law Solomon Loeb. Under the leadership of Jacob H. Schiff, Loeb's son-in-law, 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 companies, including Western Union and Westinghouse, and thereby becoming the principal rival of J.P. Morgan & Co.

Prime brokerage is the generic name for a bundled package of services offered by investment banks, wealth management firms, and securities dealers to hedge funds which need the ability to borrow securities and cash in order to be able to invest on a netted basis and achieve an absolute return. The prime broker provides a centralized securities clearing facility for the hedge fund so the hedge fund's collateral requirements are netted across all deals handled by the prime broker. These two features are advantageous to their clients.

J.P. Morgan & Co. is a commercial and investment banking institution founded by J. P. Morgan in 1871. The company was a predecessor of three of the largest banking institutions in the world, JPMorgan Chase & Morgan Stanley, and was involved in the formation of Drexel Burnham Lambert. The company is sometimes referred to as the "House of Morgan" or simply "Morgan".

First Boston

The 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 of the name was phased out by 2006.

Goldman Sachs Capital Partners private equity firm

Goldman Sachs Capital Partners is the private equity arm of Goldman Sachs, focused on leveraged buyout and growth capital investments globally.

C.E. Unterberg, Towbin, was a United States investment bank. Founded as C.E. Unterberg & Co. in 1932 by Clarence E. Unterberg, the firm changed its name to C.E Unterberg, Towbin & Co., in 1953.

A universal bank participates in many kinds of banking activities and is both a commercial bank and an investment bank as well as providing other financial services such as insurance. These are also called full-service financial firms, although there can also be full-service investment banks which provide wealth and asset management, trading, underwriting, researching as well as financial advisory.

China International Capital Corporation

China International Capital Corporation Limited is one of China's leading investment banking firms that engages in investment banking, securities, investment management, and other financial services primarily with institutional clients.

TD Securities is a Canadian investment bank and financial services provider that offers advisory and capital market services to corporate, government, and institutional clients worldwide. The firm provides services in corporate and investment banking, capital markets, and global transaction services. It is the investment bank of Toronto-Dominion Bank Group, and has offices in 18 cities worldwide with over 3,000 employees.

A boutique investment bank is a non-full service investment bank that specializes in at least one aspect of investment banking, generally corporate finance, although some banks are retail in nature, such as Charles Schwab or Allen & Co. Of those involved in corporate finance, capital raising, mergers and acquisitions and restructuring and reorganizations are their primary activities. Due to their smaller size, capital raising engagements are usually done on a best-efforts basis.

UBS Swiss bank

UBS Group AG is a Swiss multinational investment bank and financial services company founded and based in Switzerland. Co-headquartered in the cities of Zürich and Basel, it maintains a presence in all major financial centers as the largest Swiss banking institution in the world. UBS client services are known for their strict bank–client confidentiality and culture of banking secrecy. The bank's large positions in the Americas, EMEA, and Asia Pacific markets make it a global systemically important financial institution.

John P. Costas is an American businessman, banker and trader. He is the former Chairman and CEO of UBS Investment Bank where he oversaw the growth of the Swiss bank's investment banking franchise globally from 2000 to 2005. From 2005 through 2007, Costas was the Chairman and CEO of Dillon Read Capital Management, a UBS proprietary trading unit and alternatives management company.

<i>United States v. Morgan</i> (1953)

United States v. Morgan, 118 F. Supp. 621, more commonly referred to as the Investment Bankers Case was a multi-year antitrust case brought by the United States Justice Department against seventeen of the most prominent Wall Street investment banking firms, known as the Wall Street Seventeen.

Philadelphia financier Jay Cooke established the first modern American investment bank during the Civil War era. However, private banks had been providing investment banking functions since the beginning of the 19th century and many of these evolved into investment banks in the post-bellum era. However, the evolution of firms into investment banks did not follow a single trajectory. For example, some currency brokers such as Prime, Ward and King and John E. Thayer and Brother moved from foreign exchange operations to become private banks, taking on some investment bank functions. Other investment banks evolved from mercantile firms such as Thomas Biddle and Co. and Alexander Brothers.

An independent advisory firm is an investment bank that provides strategic and financial advice to clients primarily including corporations, financial sponsors, and governments. Revenues are typically generated by providing deal-specific advice related to mergers and acquisitions and financing. The WSJ noted in January 2016 that "boutique is a fuzzy label, defined as much by what these firms do as what they don’t do ."

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.[ better source needed ]
  2. "Archived copy". Archived from the original on 2009-02-03. Retrieved 2009-03-06.CS1 maint: Archived copy as title (link)
  3. Staff, Investopedia (2003-11-25). "Bulge Bracket". Investopedia. Retrieved 2017-02-05.
  4. 1 2 Chernow, Ron (2010). "Chapter Thirty-One: Tombstones". The House of Morgan (Twentieth anniversary ed.). Grove/Atlantic, Inc. ISBN   9780802198136 . Retrieved 3 February 2019.