What are Bulge Bracket Banks?
Bulge bracket banks are the largest and most profitable financial institutions around the globe that offer investment banking and advisory services to their institutional clients.
The “bulge bracket” consists of the world’s largest global investment banks, premier banking institutions that serve clients that consist of governments, large corporations, and institutions. They provide both advisory and underwriting services, as well as equity research, sales & trading services, and asset management. Bulge bracket investment banks are often primary dealers of US Treasuries and are known to design some of the most innovative, ground-breaking financial products through continuous research.
What Does Bulge Bracket Banks Mean?
Bulge bracket banks are huge, multinational corporations whose clients are the government, other large corporations, and institutions that seek financing and advisory services.
BB banks offer a wide range of financial products, including equities, derivatives, credit line, and commodities, but also alternative investment vehicles such as credit default swaps, asset-backed securities (ABS), collateralized debt obligations (CDOs), and various insurance products. The term corresponds to the way that these investment banks are presented on the tombstone, i.e. the advertisement of a new issue.
A bulge bracket bank is an investment institution that issues the largest amount of securities in a securities issuance. This bank is typically the first name listed on a securities issuance tombstone, which is the advertisement announcing the sale of securities. The names at the top of the list may be stated in a larger font, which appears to make these names bulge out from the page (hence the name). This designation is considered prestigious, and may be used by a bank to market itself to prospective clients.
When an entity issues securities, it may do so through a syndicate of investment banks; the syndicate is formed to share the risk of issuing the securities to investors. Whichever investment bank in this group is issuing the most securities is considered the bulge bracket bank. This bank manages the issuance of securities on behalf of the syndicate.
The term can also refer to that investment bank which underwrites the largest amount of securities in an industry. The term is usually restricted to just a small number of banks. There is no clear threshold for what constitutes such a bank, since it is more a matter of opinion than an awarded rank. Some banks may claim the status based on the number of deals closed, dollar volume of securities sold, industry surveys of relative bank size, and so forth.
Why are They Called Bulge Bracket (BB)?
The term “bulge bracket” originates from the order of banks listed on the “tombstone” or prospectus of a deal. The banks are listed in sequential order based on the role they play in the deal, from most important to least important. The font size of the banks at the top are larger and bolder – they “bulge” out.
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.
List of Bulge Bracket Investment Banks
Here’s a list of bulge bracket investment banks (in alphabetical order):
- Bank of America Merrill Lynch
- Barclays Capital
- Credit Suisse
- Deutsche Bank
- Goldman Sachs
- Morgan Stanley