JP Morgan Chase’s Corporate and Investment Bank (CIB) website states the “CIB leads transactions aimed at helping our clients succeed. The support we provide clients ripples through the economy, creating jobs and providing financing for growth and investment domestically and across the globe” (JPMC CIB website). The CIB aims to achieve its goals through the operation of 8 divisions: Corporate Banking, Treasury Services and Trade, Global Knowledge Network, Investment Banking, Investor Services, Public Finance, Quantitative Research and Markets. This part of the article will focus on the 2018 performance and 2019 prospects of the Investment Banking and Markets divisions.
Investment Banking Division Analysis
JP Morgan Chase investment banking division supports a broad range of corporations, institutions and governments by providing strategic advice, capital raising and risk management expertise (JPMC Investment Banking division website). I’ll be analysing the 2018 performance of the division in M&A and debt and equity capital markets, focusing on the largest deals the divisions executed and relative performance against other investment banks followed by analysis of current deals and a 2019 M&A outlook. Overall, the investment banking division raised the highest total revenue of all investment banking divisions with $6,839.51mn in revenue (Financial Times, 2018).
The investment banking division acts as a strategic adviser in M&A to companies that are either acquiring or selling. 2018 was a strong year in the global M&A market and JP Morgan Chase M&A had a strong 2018 too. The division raised $2,167.56m in fees from M&A advisory; the second highest of all investment banks to Goldman Sachs for the year. The divisions largest deal of 2018 was acting as advisor to Atlantia on its acquisition of a 42.9% stake in Abertis Infraestructuras with the transaction valued at $29.7bn. In a close second was advising Altice USA on its $28.6bn separation from its European parent. Both deals were cross-border deals, a trend that JP Morgan Chase believe is changing the M&A market moving forward. The division advised on 13 M&A deals which exceeded $10 billion in value, advising companies such as Blackstone, Walmart and AXA.
The division has started 2019 by completing advising Takeda Pharmaceutical on its acquisition of Shire for $81.5bn. The division is working on an array of pending deals, the largest two being the firm acting as advisers to Sprint on its $59.6bn sale to T-Mobile and IBM on its $36.7bn acquisition of Red Hat.
The division produced a 2019 Global M&A outlook. Their optimistic about the year, but don’t believe it will be as strong as 2018 was in terms of deal volumes. They believe corporate clarity will continue to act as one of the main drivers of the M&A market and that the market for buybacks will continue to grow in 2019. US tax reform has led to excess cash for corporations, which supported the M&A market in 2018. The firm is of the opinion that this excess cash will continue to support the M&A in 2019. The division has expanded its client base to include Sovereign Wealth Funds, Family Offices and Long Dated Private Equity Funds in addition to strategic and corporate buyers, which should facilitate further revenue growth from new sources of M&A deal flow in 2019. They understand the risks in the M&A market in 2019, highlighting broadened CFIUS oversight, Chinese cross-border dynamics and Brexit negotiation as potential hurdles. However, the advice the division is giving is that companies shouldn’t put their strategy on hold because of these uncertainties and that the companies long term interests must be at the forefront of its strategy.
The investment banking division offers a range of services in debt and equity capital markets as well as syndicated and leveraged finance to its clients. The table from the Financial Times shows 68% of 2018 investment banking revenues are from these areas. Equity includes initial public offerings, follow on stock offerings and convertibles and earned 23% of investment banking revenue. They successfully took NIO public in October 2018 raising over $1bn for the Chinese company. Bonds and loans offer a variety of products which vary in risk exposure and earned 25% and 20% of investment banking revenues respectively. JP Morgan Chase raised the highest revenue from bond and loan issuance of the investment banking industry and was second to Goldman Sachs in equity capital markets revenue.
Currently, the division is working on taking Lyft public at a $15bn valuation as well as Airtel Africa. It also continues to work on bond and loan issuance and is hoping to maintain its position as the investment banking market leader.
Markets (Sales, Trading and Research) Division Analysis
The markets division offers market-leading research, proprietary pricing data and analytics, and trade execution across multiple asset classes. (JPMC Markets division website) The division is also referred to as sales, trading and research. I’ll be looking at performance and news in 2018 and a 2019 outlook.
The markets division offers clients market access in commodities, credit, credit liquidity solutions, emerging markets, equities, fixed income, foreign exchange, futures & options, prime services, public finance, rates, securitized products and structured products. The division has 3 teams which contribute to the overall function of the division. The research teams feed the trading and sales teams information, usually through reports. The Sales teams act as brokers between the investment bank and its clients and the traders execute the trades and use market knowledge and insights to price trades. Using the quarterly reports for 2018, markets and investor services raised a total revenue of $23466mn.
The research team within the division have published a global markets outlook for 2019. They believe that US equities and emerging markets should be the focus of investment in equities. This is because of the uncertainties surrounding investing in European equities such as Brexit and Italian debt. They believe oil will increase in value following sharp falls in the last quarter of 2018. They attribute this to Organization of the Petroleum Exporting Countries (OPEC) cutting supply along with its non-OPEC partners, Iran sanctions, and lower growth in U.S. liquids supply. J.P. Morgan analysts forecast the US dollar will be less supported against the euro and other developed market currencies in 2019, especially in H2. The Great British Pound is expected to be volatile, and its value against other currencies is dependent on the uncertain delivery of Brexit. The Rates team are forecasting 2 hikes from the Fed in 2019 and a bearish sentiment towards UK rates as Brexit negotiations rumble on.