In good news for JPMorgan Chase (NYSE:JPM), they almost doubled their fees generated from equity capital market (ECM) underwriting, as the company enjoyed an estimated $2.2 billion in revenue from the business.
Equity capital markets refer to underwriting and selling the stock of a company, a very lucrative part of the investment banking business. This is one of the reasons large banks will strongly fight against reinstating the Glass-Steagall act, which is being pushed by some lawmakers at this time.
What’s interesting on the investment banking side is the change in the main revenue generator, as in the past it has largely been fees generated from advising on mergers and acquisitions, which have largely dried up over the last couple of years.
Overall global growth for the ECM market came in just under $890 billion, which was up a huge 27.7 percent from 2008. A significant portion of that was of course related to the capital requirements of banks which needed to raise significant money during the economic crisis. Of the $689 billion in follow-on activity, close to 50 percent was connected to the capital needs of banks.
Along with J.P. Morgan Chase, which led the ECM field, was Goldman Sachs (NYSE:GS), which came in at the second spot, while Bank of America moved up one slot to number three on the list, a surprise to many considering the seemingly endless struggles the company experienced throughout 2009.
Some may be surprised at the large increase in the overall ECM, but when you take into consideration it was led primarily by IPOs from the Asian market, and it makes better sense. Of the top ten IPOs in 2009, eight of them were from Asia.
The type of IPO that excelled this year are what are called carve-out IPOs. What this means is a mature company with a proven track record replicates its business in another market; although there can be some differences from the parent company.
These are attractive in the current economic conditions as investors are looking for stability and something they can count on rather than an unproven entity.
While this is good news for ECM in general, the reality is business is still difficult in the sense of consistency, and going forward into 2010, it will still be that success will be determined on a case-by-case basis rather than an overall surge in the IPO market.
