Stocks: The Real Post-Meltdown Victors

A surprising number of stocks actually have boosted their market caps in the Year from Hell. An even-bigger surprise: Many are Wall Street titans

A year after the collapse of Lehman Brothers, many firms have seen their value decimated by the stock market.

A surprising number, however, have added billions of dollars to their worth. And, perhaps even more shocking, 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 in the past 12 months is Goldman Sachs Group (GS).

Goldman Sachs boosted its market value by $37.3 billion from Sept. 14, 2008, the day before Lehman filed for bankruptcy, to Sept. 15, 2009.

Second among U.S. firms, JPMorgan Chase (JPM) saw its market cap rise $33.8 billion in that time period.

Tech, Schering-Plough Outperform

A sign of the technology sector's outperformance in 2009, No. 3 Apple (AAPL) boosted its market cap by $30.9 billion, but financial giants round out the top five. Wells Fargo (WFC) saw its market value rise $27.4 billion, and Bank of America (BAC) boosted its capitalization by $25.9 billion.

One name on the list below increased its market cap thanks to a blockbuster M&A deal: In March 2009, Schering-Plough (SGP) agreed to be acquired by rival drugmaker Merck (MRK) for some $41.1 billion in cash and stock.

The data demonstrate that, despite a tumultuous year, much stays the same on Wall Street. "It's amazing how little has changed in the financial markets," says Jeffrey Hirsch, editor-in-chief of the Stock Trader's Almanac. "As an observer of Wall Street," Hirsch adds, "things seem to be back to normal."

There's no doubt the financial sector, and many financial firms, took a big hit from the financial crisis. In September 2007, the financial sector made up about 20% of the broad S&P 500 index. By September 2008, that had fallen to 15%, and in the depths of the market crisis in early March 2009, the financial sector's share fell to 8.6%.

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.

Massive Shareholder Dilution

This rebound is not necessarily a good sign for financial firms' shareholders. To replenish their balance sheets, big banks issued hundreds of millions of new shares. They also accepted hundreds of billions of dollars from the U.S. Treasury. Those capital infusions diluted current shareholders' stakes significantly.

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 sunk 48%. Goldman Sachs, however, managed to increase its market value almost 70% while also raising its share price 8.2%.

A firm'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, says BTIG Chief Market Strategist Michael O'Rourke, these big institutions got the "seal of approval" from the federal government, which implicitly guaranteed it would keep them open.

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 other 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," he says.

Waiting for New Rules

Two years after the financial crisis began, the financial sector is still waiting for new regulations promised by politicians. Those new rules could still change the competitive landscape on Wall Street and hurt the big players. But Hirsch worries 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 take advantage of their size and competitive advantages. And even after 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.

Biggest Jumps in Market Cap from Sept. 2008
Company Name Mkt Cap 9-14-09 (billions) Mkt Cap 9-15-08 (billions) $ Change (billions) % Change Share price % change
GOLDMAN SACHS GROUP 90,763.00 53,459.20 37,303.80 69.80 8.20
JPMORGAN CHASE 171,680.90 137,897.00 33,783.90 24.50 9.10
APPLE 155,607.10 124,685.40 30,921.60 24.80 9.30
WELLS FARGO 130,334.60 102,957.80 27,376.80 26.60 –8.40
BANK OF AMERICA 146,988.30 121,122.50 25,865.70 21.40 –48
SCHERING-PLOUGH 46,863.10 29,398.10 17,465.00 59.40 48.40
ORACLE 113,713.60 97,977.50 15,736.10 16.10 12.90
GOOGLE 150,338.40 136,486.70 13,851.70 10.10 7.50
FORD MOTOR 23,805.30 11,323.20 12,482.20 110.20 63.30
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