How banks are using SpaceX to woo the super rich
The IPO lets lenders nurture ties with wealthy clients and find new ones – which may matter even more
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[NEW YORK] On the 51st floor of JPMorgan’s gleaming New York City headquarters, 350 wealthy investors gathered last week to hear directly from Elon Musk about his public offering of SpaceX.
Seated in the front row were billionaires Robert Kraft, the New England Patriots owner, and Kenneth Langone, the Home Depot founder.
JPMorgan CEO Jamie Dimon told the people gathered that night that they were part of the “democratisation of finance”, in which individual investors are being treated the same as hedge funds and other big players.
“In my view, it’s a wonderful thing to do,’’ Dimon said.
It also showcased the growing importance of the richest investors to Wall Street banks in an economy in which a few individuals have accumulated vast fortunes.
Nearly two dozen banks and brokerage firms are set to reap more than US$500 million in fees from this week’s SpaceX initial public offering, the largest such payout ever.
But perhaps just as important – or maybe more important to some banks – is the opportunity the IPO gives them to nurture their relationships with their richest clients and develop new ones.
The country’s biggest banks have been aggressively building their wealth management businesses.
As individual investors increasingly compose a larger share of the US stock market, giving clients access to shares in one of the most hyped IPOs, and the top executives behind it, is one way for banks to stand out in a sea of increasingly fierce competition, said Timothy Welsh, founder of Nexus Strategy, a consulting firm to the wealth management industry.
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“That exclusivity, that velvet rope, that prestige factor validates why they can charge premium fees and have that differentiated wealthy offering as their claim to fame,” he said. “It’s very important to be able to reward your best clients.”
At the biggest investment banks, wealth management was long seen as something of a sleepy backwater, with high-flying Wall Street bankers working on large corporate deals considered the biggest stars. But the amount of fees that can be generated from clients’ personal fortunes and the feast-or-famine nature of deal-making has made managing wealth more vital for banks.
And a transfer of wealth from an ageing population, expected to take place over the next 20 years, is amping up competition for these customers. JPMorgan, Morgan Stanley and other financial giants have spent billions to build out their wealth units, which account for an increasingly large share of their businesses.
“In my 35 years, I’ve not seen competition for the wealth management business any more intense,” said Mike Mayo, an analyst at Wells Fargo. “They have been opening branches, hiring bankers, expanding private banks.”
Recently, Morgan Stanley hosted an event for its wealth management clients to hear from the SpaceX management team. Bank of America hosted parties for 5,000 clients to watch presentations from SpaceX executives Gwynne Shotwell and Bret Johnsen, as well as its co-president, Jim De Mare.
At JPMorgan’s simulcast of Musk’s presentation last week, its clients gathered across 90 bank branches. Dimon brought that idea of using the branches to Musk, said two people with knowledge of the company’s discussions about the IPO.
The company’s bankers have spent the past six weeks in SpaceX offices with company badges working on the strategy, the people said. The bank has also tapped its high-net-worth clients to invest in prior initial public offerings.
In his remarks, Dimon described the 3,500 people watching Musk’s presentation on the simulcast as JPMorgan’s “top individual investors” across the US.
There is more than flattery on the line. Musk needs the banks’ wealthy clients for his IPO to succeed: High-net-worth individuals are expected to make up a large portion of the US$22.5 billion the company is looking to raise from individual investors to support the US$75 billion deal.
IPOs typically “pop” in first day trading, giving investors who bought into the deal an easy way to turn a big profit by selling their shares. The fact that SpaceX, which analysts at Morningstar say is worth US$780 billion, is looking to be valued at upward of US$1.75 trillion may not give it much room for growth when it hits markets.
But Morningstar’s analysts also say shares of SpaceX may continue to trade up, at least in the short term, partly because of a new Nasdaq rule that will effectively force index funds to buy its shares a little after two weeks following its listing.
SpaceX is also looking to sell to everyday investors with accounts at firms including Fidelity and Robinhood.
Many brokerages that focus on a broader client base have restrictions on IPO trading in the weeks following a listing. For example, Fidelity temporarily blocks investors from future initial public offerings if they trade the shares they received in the IPO just once during the 15 days following a listing.
JPMorgan’s wealthy clients are under no such restrictions, the two people with knowledge of the IPO discussions said.
SpaceX and other mega IPOs expected this year, including OpenAI and Anthropic, are likely to create a cadre of newly wealthy individuals, including the companies’ employees, as they eventually cash out their shares in the private companies going public. This new wealth presents another big business opportunity for the banks.
“They are looking at the IPOs not as just the fees that they earn, but with a multiplier effect for them to serve all the new millionaires, in some cases billionaires,” Mayo said.
The economics of private wealth management is coveted by banks in part because it does not require banks to invest their own cash.
Banks earn management fees, which are often based on a percentage of the amount of money a client invests. Banks can also sell other services to these clients such as estate planning and extending credit lines backed by their homes, artwork or stock holdings.
“That’s the beauty of wealth management,” said Welsh, who previously worked at Charles Schwab and Merrill Lynch. “It’s infinitely scalable.”
Those dynamics explain in part why banks have been building out these lines of work. In 2020, Morgan Stanley said it was paying US$7 billion to acquire wealth management firm Eaton Vance and US$13 billion for discount retail broker E-Trade. Its wealth and asset management business is now about half the bank’s business.
At JPMorgan Chase, which acquired First Republic bank in 2023, wealth advisory makes up about 13 per cent of its business. The bank, like many of its competitors, has been focused on using a “one firm strategy,” using all of its arms for business development, Mayo said.
The bank now has more than US$4.5 trillion in assets across its businesses catering to individual investors. Marianne Lake, the bank’s CEO of consumer and community banking, laid out the bank’s wealth management ambitions at the company’s investor day last year:
“We are sitting on a gold mine,” she said. NYTIMES
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