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. Things are not what they used to be.
The tier one global investment banks: J.P. Morgan, Citigroup, Bank of America, Goldman Sachs, Morgan Stanley (in that order)
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). As the regional charts below show, J.P. Morgan is also strong across markets in the U.S., Europe and EMEA.
By comparison, Citi’s equities business is still weak globally and it’s comparatively weak in EMEA. Bank of America has gaps in fixed income and equities and is weak in Asia. Morgan Stanley is globally strong in equities and commodities trading, but not much else.
Much is being made of Goldman Sachs’ third position on the rankings, which the Financial Times points out is the “worst ever.” Goldman’s fixed income sales and trading business is letting it down. The firm has a plan to resolve this, but for the moment the equities business rules supreme. Goldman is also let down by its weak presence in Asia. Again, the bank plans to do something about this, but things won’t change overnight.
The tier two investment banks: Deutsche, Barclays, Credit Suisse, HSBC
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 (down from first last year) for G10 FX trading and it’s third globally (down from second) for credit trading. It ranks in the top four for macro trading, securitization municipal finance, and prime services and it’s in the top nine for most other products. Where Deutsche isn’t strong is futures and options and commodities. It’s still very weak in the U.S. and in APAC equities trading and IBD (M&A, ECM and DCM). Deutsche’s power base is Europe.
By comparison, Barclays and Credit Suisse lack top slots globally in any products, but broadly rank in the top four to six for most of them. HSBC is weak everywhere and in everything except Asia and G10 FX and macro trading, where it ranks second globally. Barclays’ investment bank is stronger in the U.S. than EMEA, but has withdrawn from Asia. Credit Suisse and Barclays rank equal sixth, ahead of Deutsche, in the all-important U.S. market.
Credit Suisse’s investment bank, like Barclays’, is stronger in the U.S. than in its home territory of Europe.
The tier three investment banks: UBS, BNP Paribas, SocGen
UBS was in the second tier last year, but has dropped to tier three. Its only area of strength is equity derivatives.
BNP Paribas ranks outside the top 10 in the U.S, and APAC, but is fifth in Europe where it’s strongest in fixed income. SocGen is strong 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.
Changing tiers
Coalition’s data is a snapshot in time. The tiers are – needless to say – evolving as banks change their strategies.
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