How the Stock Market’s Relentless Rise Saved Companies

Companies hit hard by the downturn also opted to issue bonds to raise cash last year — a record $2.28 trillion, 60 percent more than in 2019, according to figures from the Securities Industry and Financial Markets Association. This was an attractive solution after the Fed cut rates and even began buying up corporate bonds itself to steady the market.

But issuing stock has its own appeal. For one, it’s not debt that needs to be paid back. Over all, companies issued $342 billion of stock last year, 76 percent more than in 2019. Initial public offerings brought in $85 billion of that sum, which means that most stock sold last year came from companies that sold additional shares to raise money.

According to Dealogic, the heaviest issuers were property investment and development companies, many of which are vehicles for investing in shopping malls and collections of office buildings, where rents plummeted during the lockdowns. They were followed by health care companies. Companies in leisure and recreation were the sixth-most-frequent issuers.

Wall Street banks take a juicy cut of almost all of that activity, whether companies are issuing stocks or bonds, and record fees in those businesses helped smooth over what would have otherwise been a grim year.

Banks took in $17.36 billion in revenue from their equity markets business last year, up 121 percent from the previous year, according to data from Dealogic. Fees from helping companies sell bonds were almost as high, jumping almost 60 percent to $11.30 billion.

That revenue was crucial as other businesses that Wall Street specializes in, such as lending directly to corporations and households, suffered. Banks also reserved billions of dollars in expectation that the sharp economic decline caused by the pandemic would set off a surge of defaults and bankruptcies, making it impossible for them to continue collecting interest payments on outstanding loans.

In January, the country’s largest banks revealed that they had begun releasing some of those rainy-day reserves. But there was more. As Bank of America’s chief financial officer, Paul Donofrio, put it, banks are returning to more normal standards for lending money.

“Across the industry — and as appropriate during a recession- or depression-like situation — you’re going to be careful about extending credit,” he said on a Jan. 19 call with journalists to discuss the bank’s fourth-quarter earnings. “I think most banks like us are on their way back to the credit standards pre-pandemic.”