- Bulge bracket
Bulge bracket is a phrase associated with
finance, in particular the investment banking industry. It has both a common meaning and a more technical meaning. Historically, the two meanings were more closely linked than they are today.
In common phraseology
In common use, the term 'bulge bracket' refers loosely (in the US) to the group of
investment banks considered to be the largest and most profitable in the world, as measured by various league tablestandings. Since the criteria for this judgment are unclear, there is often debate over which banks form part of the bulge bracket.
Ultimately it is a subjective term, sometimes based on Thomson Reuters League Tables [cite web |title=League Tables |publisher=Thomson Reuters |url=http://www.thomsonreuters.com/business_units/financial/league_tables/] or other deal and market share rankings. It is also a reference to the most prestigious institutions.
Firms considered part of the Bulge Bracket
Commonly, banks below are considered the undisputed examples:
The largest bulge bracket firms on
Wall Street, by market capitalization, included Goldman Sachs, Morgan Stanleyand Merrill Lynch. This list is now set to shrink to none in 2008 as a result of the subprime mortgage crisis, with Bear Stearnsbeing purchased by JPMorgan Chase, Lehman Brothershaving filed for bankruptcy, Merrill Lynchbeing purchased by Bank of America, and Goldman Sachsand Morgan Stanleymoving to become bank holding companies.
Other preeminent regional firms include:
Barclays Capital; UK
Macquarie Group; Australia
Nomura Group; Japan
Banks formerly part of the Bulge Bracket
Kuhn, Loeb & Co.merged with Lehman Brothersin 1977, forming Lehman Brothers, Kuhn, Loeb Inc.
Dillon, Read & Co.acquired by Swiss Bank Corporationin 1997.
Salomon Brothersacquired by Travelers (eventually Citigroup) in 1998.
First Bostonacquired by Credit Suissein 1988 and branded Credit Suisse First Boston, later renamed to Credit Suisse.
Bear Stearnsacquired by JPMorgan Chasein March 2008.
Lehman Brothersdeclared bankruptcyin September 2008. The Asian and European operations are bought by Nomura. Barclays is in a deal to buy part of U.S. Lehman operations.
Merrill Lynchacquired by Bank of Americain September 2008.
The term 'bulge bracket' also refers to the first group of investment banks listed on the "tombstone" (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.
The story of tombstone positions and the term "bulge bracket" is told in the "Tombstones" chapter of "The House of Morgan" by
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.
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 Brothersand 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."
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.
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