What Is Bulge Bracket?
"Bulge bracket" is a slang term that describes the company or companies in an underwriting syndicate that issued the largest number of securities on a new issue. The bulge bracket is usually the first group listed on the tombstone—a print advertisement of a new issue.
Bulge bracket is also a catchall term for the most profitable multi-national investment banks in the world, whose banking clients are normally large institutions, corporations, and governments. Then there are boutique banks—smaller, younger banks that specialize in certain areas of investment banking and handle smaller deals.
- Bulge bracket is the major company (or companies) involved in an underwriting syndicate for a new issue of securities.
- The bulge bracket is usually the first name (or group of names) on the print advertisement of the new issue and may also be the manager of the underwriter syndicate.
- The term can also refer to the top investment banks in the industry, such as JPMorgan Chase and Goldman Sachs.
Understanding Bulge Bracket
As the largest firm in an underwriting syndicate, a bulge bracket may also act as the manager or co-manager of the underwriter syndicate. In the investment banking industry, syndicates are formed so that underwriting companies can share the risks and profits associated with a new security issue with other firms. The larger the new issue, the more firms are likely to take part in the new issue through syndication.
The term bulge bracket as a catchall for investment banks is less used since the financial crisis, being replaced with the terms tier one, tier two, or tier three.
Being in the Bulge Bracket
Beyond firms being involved in underwriting syndicates, bulge bracket may also refer to major investment banks. Bulge bracket investment banks usually provide both financing and advisory banking services, in addition to market making, sales, and research for various financial products. The bulge bracket is usually the book-running manager or the bank that controls the allocation of securities to investors. It is listed in the larger print above all others and on the prospectus cover.
As a catchall term for this class of large global investment bank, "bulge bracket" commonly refers to Bank of America Merrill Lynch, Goldman Sachs, Barclays Capital, Credit Suisse, Deutsche Bank, JPMorgan Chase, Citigroup, Morgan Stanley, and UBS. As massive multinational banks, these investment banks offer all kinds of services to clients and many also run retail banking operations.
Since the global financial crisis of 2008, "bulge bracket" as a catchall term has been somewhat outmoded by the practice of referring to investment banks as "tier one," "tier two," or "tier three" investment banks. The only tier one investment bank might be JPMorgan Chase because it ranks first or second globally across most product areas. Tier two would be Goldman Sachs, Barclays Capital, Credit Suisse, Deutsche Bank, and Citigroup. Examples of tier three would be UBS, BNP Paribas, and SocGen.
Being a bulge bracket bank does not necessarily mean it is rock solid. Bear Stearns and Lehman Brothers were once bulge bracket banks, which famously went under during the 2008-09 financial crisis.
How Many Bulge Bracket Banks Are There?
There are around a dozen bulge bracket banks today, including:
- Bank of America Merrill Lynch
- Credit Suisse
- Deutsche Bank
- Goldman Sachs
- J.P. Morgan Chase
- Morgan Stanley
Which Is the Biggest Bulge Bracket Bank?
The largest bulge bracket investment bank, by market capitalization, is J.P. Morgan Chase (JPM), with a market value of around $400 billion as of November 2022. Bank of America (BAC) comes in second at around a $300 billion market cap.
Which Is the Oldest Bulge Bracket Bank?
J.P. Morgan Chase is the oldest investment bank still in operation, founded in New York City in 1799 by John Pierpont Morgan.
The Bottom Line
In summary, bulge bracket firms are the major underwriters (or bankers) of a securities issue and the managers of the underwriter syndicate. These include the biggest and most well-known companies in the investment banking world. While there is increasing competition from smaller, boutique investment banks, the bulge bracket remains the dominant force in helping companies issue new securities.