Will the IPO Frenzy Keep Helping Bank of America Corp, JPMorgan Chase, and Goldman Sachs?

Excellent activity in the M&A and IPO markets has provided a boost to Bank of America, JPMorgan Chase, and Goldman Sachs. Why has it been so strong and will it continue?

Jul 21, 2014 at 7:00AM

Sector powerhouses such as Bank of America (NYSE:BAC), JPMorgan Chase (NYSE:JPM), and Goldman Sachs (NYSE:GS) have all reported growth in investment banking revenue for the second quarter, but Goldman clearly outperformed the others. What caused the tremendous growth for Goldman and will it continue?

Gs Logo

source: company

JPMorgan and Bank of America did pretty well
JPMorgan Chase, the number one investment bank by fee revenue, earned $1.8 billion in investment banking fees for the quarter, up 3% year-over-year. While this is not spectacular growth, consider that advisory fees rose by a staggering 31% and equity underwriting fees grew by 4%.

The reason overall fee revenue growth wasn't more impressive was weakness in the fixed-income market, as debt underwriting fees fell by 6%. This disproportionately weighed on the overall results, as debt underwriting makes up half of JPMorgan's investment banking fee revenue.

Bank of America, the second-largest investment bank by fee revenue, saw similar results, as fee revenue rose by a little more than 2% and produced a company record in equity underwriting fees.

Goldman is in another league
Ranking number one worldwide in mergers & acquisitions, as well as IPOs and other equity offerings, which were the other two's strong points, we wouldn't expect the sectorwide lull in fixed-income underwriting to affect Goldman Sachs quite as much. And we'd be right.

Goldman's net investment banking revenue grew by an impressive 15% from the previous year as underwriting revenue popped 20%. Equity underwriting revenue grew a staggering 47% and even debt underwriting revenue grew, in contrast with peers.

Strengths and weaknesses
The fixed-income business has been weak across the board so far in 2014, both in terms of trading revenue and underwriting fees.

The strong points are what we might expect while the stock market is at record highs: IPO and M&A activity. As long as the market is strong, it is easier for companies to build up investor interest in potential IPOs. And the low-interest rate environment and high consumer confidence makes it more attractive for companies to make acquisitions.

What can we expect going forward?
The drop in fixed-income revenue should be a temporary one. The sluggish trading volumes and new financial regulations are both making it difficult for banks to turn a profit, but the institutions seem optimistic that it'll work out in the long run. Goldman Sachs said that economic growth will drive activity going forward, and the current fixed-income environment has been driven by the current economic climate.

As far as IPOs and M&A activity, it depends on how long this rally in the market lasts and what interest rates do over the next few years.

IPO activity will remain very strong as long as the market stays at near-record levels, and we've already seen significant activity in the first few weeks of the third quarter with GoPro and El Pollo Loco going public. And, M&A activity will stay strong as long as interest rates are low, and we're seeing tremendous activity such as Reynolds American's buyout of Lorillard. One survey shows experts predict strong M&A activity to continue throughout 2014.

However, if we see a sudden market correction like many experts are calling for, or if interest rates climb faster than expected, the banks could definitely take a hit in their investment banking revenue. For now, investment banking is strong and will remain strong as long as the current conditions hold out.

Bank of America + Apple? This device makes it possible.
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its destined to change everything from banking to health care. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here

Matthew Frankel has no position in any stocks mentioned. The Motley Fool recommends Bank of America and Goldman Sachs. The Motley Fool owns shares of Bank of America and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers