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What’s a tier 1, tier 2 and tier 3 investment bank now?

tier 1 bank tier 2 bank tier 3 bank

Once upon a time, people used to talk about “bulge bracket investment banks,” a term that loosely meant top US banks like Goldman Sachs, J.P. Morgan and (then) Merrill Lynch. The bulge bracket passed with the 2008 financial crisis, and since then it’s become more common to talk in terms of banks that are tier one, tier two, or tier three – but which is which? Today’s release from research firm Coalition offers an insight. It also underscores McKinsey & Co’s view that in future there will only be three to five banks that are truly global and strong across most product areas and places – the rest will be strong only in particular regions or products.

The tier one investment banks: J.P. Morgan, Goldman Sachs, Citigroup, Bank of America, Morgan Stanley (just)

If we take tier one investment banks to mean banks which are global leaders in most product categories (rather than just banks with a nebulous sense of prestige attached), there aren’t many of them. As the chart below shows, there’s only really one in fact: J.P. Morgan. J.P. Morgan ranks first or second globally across all product areas (credit and municipal finance excepted).

Although they’re also in the first tier, Goldman Sachs and Citi and Bank of America have taps in their coverage. They are each strong globally across eight to ten product areas, but there are holes like G10 FX at Goldman Sachs, and G10 rates, equity derivatives and prime services at BAML.

Morgan Stanley’s place in the first tier is tenuous – it’s only really strong in equities, G10 rates and commodities and municipal finance.

The chart below makes it clear which banks are likely to be in McKinsey’s global product grouping in future: J.P. Morgan, Goldman, Citi and BAML.

Coalition main table

The tier two investment banks: Deutsche, Barclays, Credit Suisse, UBS

If the tier one investment banks are all Americans, the charts above and below suggest the tier two investment banks are all Europeans.

Despite its “issues”, Deutsche Bank is still a strong global player. It’s top globally for G10 FX trading and it’s second globally for credit trading. It ranks in the top four for debt capital markets, municipal finance, securitization and emerging markets and it’s in the top 10 for most other products. Where Deutsche isn’t strong is equity derivatives and commodities and – as the charts below show, it’s not too hot in APAC IBD (M&A, ECM and DCM). Deutsche’s power base is Europe.

By comparison, Barclays, Credit Suisse and UBS lack top slots globally in any products, but broadly rank in the top four to six for most of them. Barclays’ investment bank is – unexpectedly – now stronger in the U.S. than EMEA, but has withdrawn from Asia. Credit Suisse and Deutsche rank equal sixth with Barclays in the all-important U.S. market.

Credit Suisse’s investment bank, like Barclays’, is stronger in the U.S. and Asia than on its home territory of Europe. And UBS is particularly strong in Asia.

Coalition regional

The tier three investment banks: HSBC, BNP Paribas, SocGen

Using McKinsey’s categorization and Coalition’s global chart above, HSBC, BNP Paribas and SocGen look like competitors for the third category of, ‘regionally focused banks strong in some product areas.’

HSBC is a market leader in Asia Pacific (APAC) where its investment bank ranks third for fixed income trading, but HSBC lacks a real presence in the U.S.

BNP Paribas ranks outside the top 10 in the U.S, and APAC, but is eighth in Europe where it’s strongest in fixed income.

And SocGen is a world leader in equity derivatives and futures and options trading, but is grounded in Europe and lacks a real presence elsewhere.

Changing tiers 

Coalition’s data is a snapshot in time. The tiers are – needless to say – evolving as banks change their strategies.

Barclays, for example, is increasing its strength in the Americas but has a clear hole in European equities – something that may be addressed when new investment banking CEO Tim Throsby turns up in January.  Citi’s European equities business also looks weak – even though the bank has hired steadily in this area over this year and last. Citi and Barclays could find themselves competing for the same staff if they both try plugging their European equities holes in 2017.


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