Morgan Stanley beat expectations in its quarterly earnings report released Wednesday morning. The company is one of many banks to report quarterly results in recent days.
Some companies, including Citigroup Inc. and JPMorgan Chase & Co., said profits fell in part because interest rates remained high. But the bank has another line of business that has been performing well in recent months. That’s investment banking.
A big way investment bankers make money is by helping companies raise money.
“And that comes in two forms: either in the form of debt or equity,” said Drew Pascarella, who teaches finance at Cornell University.
Let’s start with debt: Many companies are looking to take advantage of lower interest rates. This could help companies refinance existing debt and expand.
“Think about new factories, new jobs, new digital initiatives that companies may have been waiting for because capital was too expensive a year or two ago,” Pascarella said.
The second step is to raise funds through the stock market.
Jay Ritter, a professor at the University of Florida, said this year’s IPOs have been delayed. However, as the stock market rises, already listed companies continue to issue new shares.
“And companies are much more likely to issue stock when stock prices are high than when they are low,” he said.
If this situation continues, Ritter predicts companies will continue to tap the stock market and call investment bankers for help.
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