Bulge Bracket Investment Banking Primer
There are two major categories of investment banks: bulge brackets and elite boutiques. Each of the top investment banking firms in the world fall into one of these two categories. We’ve outlined the nature and business model of elite boutiques in a prior post. So, in this post, we’ll focus on bulge brackets, how they operate, and the pros and cons of working for them.
Below is a list of the top investment banks, ranked by M&A deal volume in 2019. Of this top 10, Goldman Sachs, J.P. Morgan, Morgan Stanley, Citi, BofA Securities (Bank of America), Credit Suisse, and Barclays are definitively bulge brackets.
I would still consider RBC Capital Markets to be more of a challenger bank or middle market firm and not a global bulge bracket. On this list, Evercore, Centerview, and Lazard are decisively “elite boutiques”.
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What is a Bulge Bracket?
Bulge brackets refer to the largest global, diversified investment banks in the world.
These bulge brackets are diversified firms, offering a wide variety of banking products to their clients. Bulge brackets tend to have a meaningful presence in multiple geographies and are not as domestically focused as some smaller investment banks.
Bulge brackets offer a range of services and can provide a client with a full suite of banking solutions, which elite boutiques cannot do.
Bulge brackets can advise a company on an M&A transaction, but they can also provide the debt financing for the deal. Their equity research team can help issue reports on your stock for the public markets and their sales and trading team can help you place your large buy orders of public stock. Many of these bulge bracket firms also have some consumer facing arm and many will also deal with deposits and credit cards (e.g., Goldman Sachs, J.P. Morgan, Citi, Bank of America, etc.)
Here are some of the key front office banking functions a bulge bracket has:
Investment Banking Advisory (e.g., advising Salesforce on an acquisition of Tableau Software)
Investment Banking Financing (e.g., helping Apple issue bonds in the debt capital markets by lending the company money, finding other buyers, and pricing the transaction)
Equity Research (e.g., agreeing to write an extensive public markets report on a newly IPO’d company like Roblox)
Sales and Trading (e.g., helping a hedge fund efficiently buy and sell shares in a company)
Wealth Management (e.g., helping rich clients invest and manage their money)
For example, here are the different business divisions that Goldman Sachs has:
In contrast, an elite boutique typically would only offer Investment Banking Advisory services. Some elite boutiques also have equity research arms (like Evercore and Guggenheim), but the business focus of elite boutiques is still going to be M&A advisory.
Elite boutiques are more like specialists, they focus on giving independent strategic advice, while bulge brackets offer a full suite of products.
From a client’s perspective, there are pros and cons of using either kind of firm.
Who are the Bulge Brackets?
It might seem like there is a concrete list of bulge bracket investment banks, but bulge bracket membership is often debated.
There isn’t some regulatory body that explicitly knights different investment banks as bulge brackets, it’s more based on prevailing opinion and gets socialized by vocal members of the media. It’s kind of like how sports pundits will argue over which players are worthy of the hall of fame.
In the 1990 book The House of Morgan, the author dubs the top tier of investment banks as “bulge brackets”. These banks were the titans of their industry and represented the very pinnacle of investment banking. The author named the following banks: Morgan Stanley, First Boston (which merged with Credit Suisse), Kuhn Loeb (merged with Lehman Brothers), and Dillon Read (which turned into UBS).
The point being that empires rise and fall and banks’ relative positioning change all the time. Many of the world’s best investment banks a few decades ago have since been acquired or have gone bankrupt. Goldman Sachs might be the paragon of prestige now, but a few decades ago, they weren’t necessarily recognized as such.
Nevertheless, if it’s a ranking you want, it’s a ranking you will get.
In order to assess who is a bulge bracket, I’m going to rank the different investment banks across a number of factors. I also am going to err on the side of caution and lean on the side of dubbing fewer bulge brackets as opposed to more. I don’t think the list of bulge brackets should change on a yearly basis, so we should try to pick firms that have great staying power.
Global M&A Deal Value
Represents the total value of all M&A deals that the investment bank worked on. This will give priority to firms that work on the world's largest M&A transactions.
It might seem biased to focus on M&A as opposed to financing, but I believe that industry people view rankings more in accordance with this definition. Financing is an important part of the business, but becomes more of a balance sheet war as opposed to a depiction of which investment banks are coveted and desirable to work at. Focusing on financing would bring in names like BNP Paribas and HSBC to this list, which are still great places to work at, but don’t carry the same level of traditional cachet.
Global Investment Banking Revenue
Represents the total revenue generated by a company’s investment banking division (M&A, IPOs, financing, etc.).
Total revenue generated across all business divisions (inclusive of consumer lending, sales and trading, equity research, etc.).
This statistic is a lot less important due to the size of some companies' consumer arms.
Prestige / Industry Perception
"Prestige" ranking, per Vault (which is based on surveys). This might seem a bit cheesy or stale, but I think the Vault ranking is remarkably accurate to what I would choose if I had equivalent job offers from each firm.
Bulge brackets are diversified, so elite boutiques like Evercore and Lazard would be exempt from this status regardless of their revenue.
Based on these screens, I would say the global bulge brackets are currently:
Bank of America
I would personally not consider UBS, Deutsche Bank, or Jefferies to be bulge bracket banks. They are meaningfully smaller than the others, they don’t work on the largest transactions, and they generally aren’t as coveted places to work. UBS and Deutsche Bank have had their share of scandals over the years and Deutsche Bank leadership has de-emphasized investment banking as a priority.
Tiers within the Bulge Brackets
And as you can probably see, there’s also a very clear divide in tiers even with this category of “bulge brackets”.
If I had to be snooty about it, I think I would only comfortably predict that four firms would still be cemented as bulge brackets a decade from now: Goldman Sachs, Morgan Stanley, J.P. Morgan and Bank of America.
The investment banking divisions of Citi, Credit Suisse and Barclays are nearly half the size of the other bulge brackets.
And each of these firms have also faced their share of business challenges in investment banking. Citi’s global M&A investment banking revenue has declined year over year. Credit Suisse’s leadership has been urged to close their investment banking division and faced a huge multi-billion-dollar collapse from its dealings with Archegos Capital.
Barclays is a well-run bank, but they are less geographically dominant than the other bulge brackets and don’t have nearly the same scale as the tier with Goldman Sachs or Morgan Stanley. Several years ago, Barclays became focused on trimming its investment banking operations, and completely pulled out of APAC and Russia, choosing to shed large amounts of investment banking jobs.
I would say this representation of tiers is reflective of how the firms are viewed at least within the investment banking industry. Goldman Sachs and Morgan Stanley tend to be more coveted roles as opposed to Citi and Credit Suisse. That’s not to say this should be treated as a de facto list on which to base your career decisions… but it’s what I would do.
Check out this post if you're wondering which schools place the best into investment banking.
The Defining Characteristics of a Bulge Bracket
Let's now explicitly articulate the defining characteristics of bulge bracket firms:
Bulge Brackets Have Many, Diversified Business Divisions
As previously mentioned, bulge brackets are often characterized by their diversified business models. Bulge brackets don’t just do investment banking M&A, they also do financing deals, IPOs, and have other divisions such as equity research, sales and trading, and even consumer divisions.
Bulge Brackets Have Balance Sheets
The clearest divide between bulge brackets and elite boutiques / independent advisors is the presence of a balance sheet. No matter how good Evercore or Centerview become at M&A, they’ll never have the means to truly lead a debt financing because they don’t have a balance sheet. You need a corporate balance sheet in order to lend money.
Bulge Brackets Have Global Presences and Multiple Offices
All of the tier 1 bulge brackets have truly global presences and multiple offices. They do deals in every geography in the world.
Bulge Brackets Tend to Work on the Largest Transactions
As a result of their scale, suite of offerings, and geographic diversification, bulge brackets are often the banks hired for the very largest transactions in the world. The largest transactions commonly involve some element of financing, which is why it’s sometimes difficult for elite boutiques to lead those transactions.
This is certainly not always true and one could argue that the tide is changing towards the side of elite boutiques, but it’s still generally true. Elite boutiques often advise on the sell-side or can advise extremely cash-rich companies (like Big Tech), which eliminates the need for a financing division. However, historically, the largest transactions every year tend to still primarily be done by the bulge brackets.
Pros and Cons of Working for a Bulge Bracket
Here are some high-level pros and cons for working for a bulge bracket.
Stronger Brand and Prestige Outside of Finance
To me, the most enticing thing about working for a bulge bracket is that the brand tends to be a little bit better known outside of finance. I think maybe one third of people who do investment banking end up leaving finance altogether, in which case it can be much more helpful to have a well-recognized and well-respected brand like Goldman Sachs or Morgan Stanley.
If you want to do something like politics, raise money, or build a reputation in a different country, it can be helpful to have a more recognizable brand on your resume. I’m still deciphering the true value of this in my own life, but you can sort of notice the impact when people write executive biographies. Executive biographies will almost always explicitly mention if an employee worked at a top bulge bracket, but I find that’s less commonly the case for top elite boutiques.
There is of course also the “social” value you get at cocktail parties when you talk to people in other industries and they know where you work. Your parents will likely be prouder of you when they can bring to their peers that their child works at the Goldman Sachs. Literally no one will care that you worked at a top group at Evercore, unless you’re maybe skulking at an undergrad party at NYU or IU.
Exposure to More Categories in Finance
As mentioned, bulge brackets have financing arms and commonly work across geographies. If you’re at an elite boutique, you’ll never be able to be the bookrunner on an IPO or be the lead on a debt financing deal. These are important functions in finance that people in elite boutiques will never be exposed to. This can be a bit of a disadvantage depending on what you end up doing.
Larger Professional Network
Bulge brackets are large and you’ll be exposed to a larger cross-section of people. This can make things more bureaucratic, but you’ll theoretically be able to interact with a more diverse network. Elite boutiques will have meaningfully smaller analyst classes and only a few divisions. At a bulge bracket, there will be tons of people around the globe across a variety of functions.
You could argue that you don’t actually benefit or get to interact with all those people, but I think you still get the benefit of loose affiliation. Think about how self-righteous McKinsey people feel when they see another ex-McKinsey employee out in the wild. It’s a bit like that.
More Lateral Opportunities
Another understated benefit of the bulge bracket structure is that it’s very, very easy to lateral to different geographies or functions. You can start out in a more esoteric banking function and slowly lateral groups to ultimately end up in a New York investment banking role. Or if you’re trying to return to your home country, it might be easier in the context of a bulge bracket. I’m from Toronto, and every bulge bracket at least has an office with a few people there, while many of the elite boutiques don’t have any presence there.
Some of these bulge brackets even have investment arms (e.g., Goldman Sachs, Morgan Stanley, and J.P. Morgan), which can give you one more path to get from the sellside to the buyside.
More Corporate Infrastructure
This is way more tactical, but some elements of the job are easier at a bulge bracket. Bulge brackets have resources and things like a dedicated presentations group or a hyper-efficient bookbinding service. At elite boutiques, work can sometimes feel a little janky because there isn’t necessarily the scale or resources to be extravagant.
One of the main reasons why people leave bulge brackets for elite boutiques is that bulge brackets will take a higher percentage of the deal fee, leaving less for the deal team. If you’re a rainmaker MD, you’ll likely maximize your career earnings at a place like Centerview.
Tends to be Much Harder to Climb the Ladder
The other main reason why people leave bulge brackets is because it tends to be harder to climb the corporate ladder. These companies are much larger and have much longer histories, meaning that there is generally a glut of people at the mid-level. It can take significantly longer to reach partner at a bulge bracket where there are many mouths to feed.
Tends to be More Bureaucratic and Less “Entrepreneurial”
From a cultural perspective, these bulge brackets are often described to be more bureaucratic and often more politicized. Many of these banks are among the largest firms in the world and are heavily scrutinized. Larger organizations tend to have to be more careful when managing their personnel.
There are certainly advantages to being at bulge brackets, notably the brand and exposure to the financing business function. If you think there’s a good chance you’ll leave finance, you might be a lot better off with a big brand.
That being said, I personally think that there are enough benefits to being at a top elite boutique that I would still prefer to be at a top elite boutique over most of the bulge brackets. I’ve gone on record saying (and stand behind) that I would take Goldman Sachs and Morgan Stanley over Evercore, but Evercore over every other bank. You can check out our Elite Boutique Investment Banking Primer for more detail on that.