In the year since the collapse of Lehman Brothers (LEHMQ, news, msgs), many companies have seen their market values decimated.
A surprising number, however, have added billions of dollars to their worth. And, perhaps even more shocking, some of these companies were key players in the Wall Street meltdown of 12 months ago.
According to data from Standard & Poor's and Bloomberg, the U.S. company that increased its market capitalization the most over the past year is Goldman Sachs Group (GS, news, msgs). The New York company's market value increased by $37.3 billion between Sept. 14, 2008 -- the day before Lehman filed for bankruptcy -- and Sept. 15, 2009.
Second among U.S. firms is JPMorgan Chase (JPM, news, msgs); its market cap increased by $33.8 billion in that period.
As an indicator of the technology sector's outperformance in 2009, the market value of No. 3 Apple (AAPL, news, msgs) increased by $30.9 billion. But financial giants round out the top five, with Wells Fargo (WFC, news, msgs) seeing its market value increase by $27.4 billion over the 12 months and Bank of America (BAC, news, msgs) boosting its market cap by $25.9 billion.
One name on the list appearing near the bottom of this page increased its market cap thanks to a blockbuster deal. Investors bid up shares of Schering-Plough (SGP, news, msgs) after the drug maker agreed in March to be acquired for $41 billion in cash and stock by rival Merck (MRK, news, msgs).
"It's amazing how little has changed in the financial markets," says Jeffrey Hirsch, the editor-in-chief of the Stock Trader's Almanac. "As an observer of Wall Street, things seem to be back to normal."
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Six wild months later, however, and the financial sector is again about 15% of the U.S. equity market, as measured by the S&P 500. And Wall Street's biggest players have fared even better: At least by the measure of market value, the Street's titans appear stronger than a year ago.
Shareholders get diluted
This rebound is not necessarily good news for shareholders. To replenish their balance sheets, the big banks issued hundreds of millions of new shares, and accepted hundreds of billions of dollars from the U.S. Treasury. These capital infusions significantly diluted shareholders' stakes.In the case of Bank of America, the banking behemoth's market cap rose 21% in the past year, but the value of its shares declined 48%. Goldman Sachs, however, managed to increase its market value almost 70% while also raising its share price 8.2%.
A company's market capitalization is its total value according to the collective judgment of the stock market. What made investors believe that the value of these Wall Street franchises had actually increased -- despite the worst financial crisis in a lifetime?
First, these big institutions got the "seal of approval" from the federal government, which implicitly guaranteed it would keep the companies in business, says Michael O'Rourke, the chief market strategist at institutional brokerage BTIG.
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Also, the big players have gotten bigger. JPMorgan gobbled up Washington Mutual and Bear Stearns. Wells Fargo took over Wachovia. Bank of America acquired Merrill Lynch. Meanwhile, many smaller rivals, such as mortgage originators, have closed or been weakened.
"So much of their competition has been eliminated," O'Rourke says. These banks have short-term problems, he says, but "in the long term they're going to be entrenched enterprises."
This is often what happens during times of economic stress, says John Merrill, chief investment officer at Tanglewood Wealth Management. "The strong get stronger, and the weak get blown away."
Two years after the financial crisis began, the financial sector is still waiting for new regulations pledged by politicians. Those new rules could still change the competitive landscape on Wall Street and hurt the big players. But Hirsch worries that the momentum for sweeping reform is losing steam.
"I think we missed our opportunity to level the playing field," he says. "I'm not sure we've put things in place to prevent that kind of crisis in the future."
Until then, Wall Street giants will find ways to capitalize on their size and competitive advantages. And even with new regulations, they will no doubt return to what they do best: finding ways to make pots of money. Crisis or no, some things may never change.
| Company | Market cap on 9/14/2009 | Market cap on 9/15/2008 | Dollar change | Percent change | Share-price change |
|---|---|---|---|---|---|
| Goldman Sachs (GS, news, msgs) | $90.76 billion | $53.46 billion | $37.30 billion | 69.8% | 8.2% |
| JPMorgan Chase (JPM, news, msgs) | $171.68 billion | $137.88 billion | $33.78 billion | 24.5% | 9.1% |
| Apple (AAPL, news, msgs) | $155.61 billion | $124.68 billion | $30.92 billion | 24.8% | 9.3% |
| Wells Fargo (WFC, news, msgs) | $130.33 billion | $102.96 billion | $27.37 billion | 26.6% | -8.4% |
| Bank of America (BAC, news, msgs) | $146.99 billion | $121.12 billion | $25.86 billion | 21.4% | -48.0% |
| Schering-Plough (SGP, news, msgs) | $46.86 billion | $29.39 billion | $17.46 billion | 59.4% | 48.4% |
| Oracle (ORCL, news, msgs) | $113.71 billion | $97.98 billion | $15.74 billion | 16.1% | 12.9% |
| Google (GOOG, news, msgs) | $150.34 billion | $136.49 billion | $13.85 billion | 10.1% | 7.5% |
| Ford Motor (F, news, msgs) | $23.80 billion | $11.32 billion | $12.48 billion | 110.2% | 63.3% |
This article was reported by Ben Steverman for BusinessWeek.
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