Once upon a time, people used to talk about "bulge bracket investment banks," a term that loosely meant top US banks like Goldman Sachs, Morgan Stanley 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. Things are not what they used to be.
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 Coalition 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). As the regional charts at the bottom of the page show, J.P. Morgan is also strong across markets in the U.S., Europe and EMEA.
By comparison, Goldman Sachs' FICC business is weak globally (with the exception of G10 rates) and the bank still lacks much of a presence in Asia. Bank of America has gaps in fixed income and equities and is also weak in Asia. Morgan Stanley is globally strong in equities, commodities trading and ECM.
If the tier one investment banks are all Americans, the charts above and below suggest the tier two investment banks are all Europeans - although HSBC's business is strongest in Asia.
Deutsche Bank is still a strong global player. It's second globally for credit and securitization trading and it's third globally for credit trading. It ranks in the top four for G10 rates, emerging markets macro and prime services and it's in the top nine for most other products. Where Deutsche isn't strong is most of equities and most of IBD. It's still weak in the U.S. and it's not great in Asia Pacific. Deutsche's power base is Europe.
By comparison, Barclays, UBS Credit Suisse lack top slots globally in any products, but broadly rank in the top four to six for most of them. HSBC ranks second globally for G10 FX and macro trading, and is predictably strong in Asia but lacks a real presence in the U.S. Barclays' investment bank is stronger in the U.S. than EMEA, but has withdrawn from Asia. Credit Suisse is now as strong as Barclays in the important U.S. market.
Beyond the first and second tiers things get more complicated. Just because a bank's not top ranked globally, it doesn't mean it's not strong in its home market or a particular niche. BNP Paribas, for example, ranks outside the top 10 in the U.S, and APAC, but is comparatively strong in Europe. SocGen is a leading player in equity derivatives and futures and options trading, but is grounded in Europe and lacks a real presence elsewhere.
Using McKinsey's categorization, it's evident that many of the tier three banks occupy the category of, 'regionally focused banks strong in some product areas.' The same applies to Nomura in Asia and Wells Fargo and RBC in the Americas.
Coalition's data is a snapshot in time. The tiers are - needless to say - evolving as banks change their strategies.
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