JPMorgan’s Kevin Foley Says Capital Markets Are ‘Very Much Open’

JPMorgan says capital markets remain "very much open," with continued good demand despite the Middle East conflict and recent market volatility. Kevin Foley, the bank's global head of capital markets, noted a rotation in investor interest but confirmed that deals are still getting done, signaling resilient primary market activity.

Analysis

Large-cap universal banks with dominant ECM/DCM platforms are positioned to outperform on fee capture and lower warehousing risk over the next 3-12 months; for every $1bn of incremental primary issuance the top houses typically convert tens of millions in fees and ancillary flow revenues, which compounds given light loan growth. A sustained “open” issuance window also diverts liquidity from secondary markets into primary allocations and staple bookruns, mechanically tightening new-issue concessions but leaving a temporary bid vacuum in secondary credit and mid-cap equities for 2–8 weeks post-deal.

Volatility-driven derivative flow is the underappreciated profit center: elevated headline risk increases demand for structured products and hedges, lifting FICC/derivatives revenues even if net interest income is flat. But hedging costs rise in the same environment, so banks that can warehouse less (strong balance sheets, higher CET1) net more incremental profit than those forced to hold unsyndicated positions.

Key reversal triggers are discrete and fast: a multi-day escalation in the conflict or a liquidity shock that pushes VIX >25 or US IG OAS +25–50bp could close issuance windows within days and flip primary supply into a secondary glut over 1–3 months. The consensus favoring sustained issuance may be underestimating a front‑loading risk — heavy near-term supply that, if demand softens, will produce outsized spread widening and secondary underperformance for issuers and underwriters who retained paper.

Key Decisions for Investors

• Pair trade (6–12 months): Long JPM (ticker: JPM) 1–2% NAV / Short GS (ticker: GS) equal-$ exposure. Rationale: JPM’s scale in FICC+ECM should earn higher fee conversion and less warehousing; target 150–250bp relative outperformance, stop-loss at 8% pair move against position.
• Defined-risk options (6–9 months): Buy JPM call spread (buy-calls / sell-higher-strike calls) sized 0.5–1% NAV to capture fee tailwinds while capping premium. Risk/reward ~1:3–1:4 if issuance environment remains constructive.
• Tail hedge (0.25–0.5% NAV): Buy 3–6 month protection on IG (CDX IG protection or LQD puts) sized to offset 50–100bp spread widening. Small premium for >4x payoff if issuance windows close and IG OAS widens >50bp.
• Hedge/alpha (3 months): Short HYG or JNK (size 0.5–1% NAV) vs long investment-bank exposure to profit if high-yield primary demand collapses and secondary spreads blow out; reduce if HYG tightens or HYG/HY new-issue concessions improve.