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When the pandemic occurred, banks reduced credit to companies that seemed risky and investors responded cheerfully by buying stocks and bonds.
By Emily Flitter, Matt Phillips and Peter Eavis
Last spring, when Denny’s closed its national chain of 24-hour restaurants during weeks of pandemic-induced blockades, his lenders warned him to pay his debt temporarily, or else. With banks charging prohibitive interest rates, Denny’s executives turned to the last clean and well-informed position of U. S. companies: the stock market.
Denny issued enough new inventories last year to raise approximately $70 million, not enough to solve all of his problems, but enough to avoid a disaster. And this is just one of many corporations rescued through inventory investors who bought their inventories as the market progressed, probably indifferent to the effects of the pandemic.
The upward trend in stocks even as the economy has continued in 2021, and companies continue to benefit. On Thursday, AMC Entertainment Holdings became the newest company to check for the benefits of absurd market dynamics. Chain, who faces an existential risk from the pandemic, announced that it will issue 44. 4 million more shares.
In addition, an organization of Wall Street lenders to whom AMC owed $600 million said they were converting debt into shares, which could get more cash from retail investors bidding for the shares than the company’s own payments.
That’s not how things work.
“It’s been years, decades, that corporations have turned their backs on banks,” R said. Christopher Whalen, fund manager in New York.
It turned out to be a mutually desirable division, Mr Whalen: companies raised the money they needed, while banks have avoided lending at incredibly low rates and made a living helping companies sell more stocks and bonds.
The trend prestes the war between retail investors accumulated on Reddit and the hedging budget to short-sell the shares of troubled companies, adding the GameStop video game store.
Think of Denny’s: traders had several motivations imaginable to buy their shares. Some may have tried to make a brief ascent due to the announcement of a loosening of restrictions on restaurants. Others might have made the decision that Denny’s inventory had fallen so much. drastically, from nearly $21 in early February to just over $5 in mid-March, you still had nowhere to go.
But some of the market’s activity in 2020 simply didn’t make sense, like when investors piled up on Hertz’s stock after the company’s bankruptcy, getting rid of shareholders.
Whatever their momentum, the buyers didn’t act out of benevolence. For much of last year, they were hungry for some kind of money back. It would all be paint when the Fed lowered interest rates to 0 and seized public debt by pushing Treasury bond yields to traditionally low levels.
And U. S. corporations were there for them, in a position to factor more stocks and bonds at any time.
Last year, major issuers included struggling corporations such as Denny’s: American Airlines, United Airlines and cruise ship shipping operators Carnival and Royal Caribbean, according to Dealogic, a company that tracks new sales percentages.
“We believe that the fundamentals of our business remain sound, and there is still widespread enthusiasm and enthusiasm for cruise ships,” Carnival CHIEF Executive David Bernstein said when asked if the market welcome to Carnival offers surprised him. pleased to see the market’s reaction to our beyond gives accordingly. “
Carnival and other issuers were fortunate to have investors willing and on hold, unlike banks.
Companies can borrow coins by obtaining a bank loan or by promoting equity among investors. Borrowed currencies can be spent on daily expenses, new investments or percentage buybacks, at least in general times. Last year, however, many of the corporations that issued giant amounts of new percentages and corporate bonds needed coins to survive.
Carnival raised $4. 5 billion in bond sales and new percentages in the fourth quarter alone. Its executive leader, Arnold W. Donald, said in a call on January 11 with analysts that donations had been “very well received” but were also needed. This year he will face a “zero source of income” environment, Donald said. In other words, investor cash is the only way the company can continue to operate.
Even airlines, which, unlike cruise lines, are not absolutely closed, have Wall Street cash. America’s total debt exceeded $40 billion last year. On November 10, when the company filed to factor 38. 5 million shares in its shares, it said in one that the cash would move to “general corporate purposes” and “improve the company’s liquidity position. “Translation: American needed more help paying his bills.
The companies most affected by the recession also chose to factor bonds to increase liquidity last year: a record $2. 28 trillion, 60% more than in 2019, according to figures from the Securities and Financial Markets Industry Association. and even began buying corporate bonds to stabilize the market.
But the stock factor has its own appeal. First of all, it’s not the debt you’ll have to pay. Overall, corporations factored $342 billion in shares last year, 76% more than in 2019. Initial public offerings generated $85 billion of that amount, meaning the maximum share sold last year came here from corporations that sold more shares to raise funds.
According to Dealogic, the most important issuers were genuine investment and real estate progression corporations, many of which are cars to invest in buying supermarkets, shopping malls and workplace building collections, where rents fell. They were followed through health care corporations. were the six maximum common emitters.
Wall Street banks take a hefty percentage of almost all of this activity, whether corporations manufacture stocks or bonds, and record fees at those corporations have helped polish up what would have otherwise been a dark year.
Banks made $17. 36 billion in profits from their inventory market operations last year, 121% more than last year, according to Dealogic data. Fees to corporations for selling bonds were almost as high, from about 60% to $11. 30 billion.
This income was because other corporations in which Wall Street specializes, such as direct loans to businesses and households, have suffered. Banks have also set aside billions of dollars in the hope that the severe economic recession caused by the pandemic will cause a wave of defaults. bankruptcies, which prevents them from collecting interest on notable loans.
In January, the country’s largest banks revealed that they had begun releasing some of these reserves for rainy days, but there are more. As Bank of America CHIEF financial officer Paul Donofrio said, banks are returning to more general cash lending standards.
“In the total sector, and if there is in times of recession or depression, they will pay attention to loans,” he said in a Jan. 19 phone call with reporters to discuss the bank’s fourth-quarter results. “I think top banks like we’re going back to pre-pandemic lending standards. “
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