The Irrefutable Role of the “Big Four”

In most major industries, there are groups of four. In sports, from both a financial and a historical standpoint, there are four key franchises that are “Too Big to Fail”. This term was first coined following the 2008 financial crisis, and was made even more popular with Andrew Ross Sorkin’s 2009 bestselling book on the subject, which detailed the events leading to the 2008 financial crisis.

This term for the major banks that became a focal point of the financial crisis are very often linked to the financial services industry. But they can be applied elsewhere. Even quartets of athletes have been dubbed “The Core Four” several times throughout history. The “Big Red Machine,” the fantastic Cincinnati Reds team of the 1970s that captured World Series titles in 1975 and 1976, was led by Pete Rose, Johnny Bench, Joe Morgan and Tony Perez (all Hall of Famers), and more recently the “Core 4” that served as the foundation for the five most recent Yankee World Series championships, consisted of Jorge Posada, Mariano Rivera, Andy Pettitte, and of course, Derek Jeter.

While many, particularly those within the finance and banking sector, would argue that there are a number of “Too Big to Fail” banks and institutions around the world, the four major institutions that are usually associated with the 2008 crisis are Bank of America, JPMorgan, Morgan Stanley, and Goldman Sachs. In sports, it’s a similar situation. In the Barclay’s Premier League, there are four iconic names that dominate English football – Manchester United, Liverpool, Chelsea, and Arsenal. In baseball, it’s the New York Yankees, Boston Red Sox, Chicago Cubs and the Los Angeles Dodgers. These teams have the ability to separate themselves from other franchises due to the lack of a salary cap, which is present in the NFL, NBA and NHL, and creates a greater level of competitive parity in these leagues.

At one point just prior to the crisis it was again a set of four banks – Bank of America, Morgan Stanley, Citigroup, and Wells Fargo – that controlled nearly forty percent of FDIC-insured deposits from institutions, an increase of seven percent from just prior to the crisis, according to Reuters. While one of the key contributors to the financial crisis was the enormous credit boom that lasted from 2003 to 2007 and resulted in unhealthy and risky investments into structured products such as collateralized debt obligations (CDOs) and collateralized loan obligations (CLOs) by firms such as AIG.

Since large banks are so closely intertwined through various financial contracts and loans, if one fails others are sure to follow, as we nearly saw in 2008 when Bank of America acquired Merrill Lynch and JPMorgan Chase acquired WaMu and Bear Stearns.

But there are clear advantages in larger institutions, such as convenience. The bigger banks have locations across the country and are far more accessible than regional and community banks. Smaller banks do not have the resources that larger commercial banks offer, such as mobile banking and practically ubiquitous ATM locations. A similar comparison could be made for the major soccer and baseball franchises. Just as an example, anywhere you go in the US, you’ll find Yankee fans, and anywhere you go in the UK you’re sure to find Manchester United fans, along with their Big Four counterparts. Take these teams out of the picture, and you undoubtedly have a giant void, in both championships and revenues.

Going into last season, the Yankees, Dodgers, Red Sox and Cubs (in that order) were the top four valued franchises in baseball, with the Yankees valued at $2.3 billion and the Cubs valued at a “measly” $1 billion, according to Forbes. Similarly Manchester United, Arsenal, and Chelsea are currently the top three valued franchises in English football, with Manchester United valued at $2.81 billion (Liverpool is currently valued fifth right behind Manchester City). This has a major impact on league merchandise sales, just as it does on each of the teams’ individual ticket and sponsorship revenues.

Clearly the big four play a vital role in many industries. In sports it has translated to championships. In banking, they have been responsible for, and engaged in, countless deals and restructurings. But one thing is true in every industry – the dominance of any “Big Four” or group of “Too Big to Fails” has concentrated billions of dollars of assets. Remove these players and the world would look very different.

Image courtesy of cooldesign at Freedigitalphotos.net