CHICAGO - Merrill Lynch & Co. has scooped up nearly 30 public finance bankers from the ranks of the now-shuttered municipal group at UBS Securities LLC - taking advantage of a "once-in-a-decade opportunity" as its Wall Street neighbors shed staff to cope with subprime market-related losses, the firm's municipal chairman said.
Other Wall Street and regional firms have stepped in to make strategic hires in certain markets and sectors from among the ranks of professionals fired by UBS and other firms, but none as aggressive or significant in size as Merrill.
The hirers will boost the firm's existing banking staff of about 120 by 20%, according to John Lawlor, chairman of Merrill's municipal markets business for the last decade. The additions will augment the firm's physical presence on both coasts and Chicago while establishing a new one in Philadelphia. The bankers range from senior professionals to vice presidents and associates with a focus on the transportation, housing, health care, higher education, infrastructure, and the general government sectors.
The most senior individuals that are joining the firm as managing directors include prominent Los Angeles-based banker Frank Lauterbur and his colleague there Jeffrey Bower, both of whom will work on the firm's infrastructure team. James Calpin joins in New York City and Nancy Clawson in Chicago, both working on the transportation infrastructure team.
Working from a new Philadelphia office is veteran Ralph Saggiomo, who joins the infrastructure team, and Carol Rein who will work on transportation infrastructure. H. Jay Bellwoar joins the higher education group in the new Philadelphia office. Much of Lauterbur's group joins him as does the public-private partnership team that included Rein, Calpin, and Clawson.
"The municipal market place and municipal clients are a very important strategic client group for Merrill Lynch," Lawlor said in an interview late last week with The Bond Buyer. "We have been watching the events of this year and so has senior management and when UBS went out of the municipal market we all viewed this as a strategic, once-in-a-decade opportunity to be able to sit down with very senior municipal public finance experts and discuss the opportunities at Merrill Lynch and how Merrill Lynch fits into the market place."
Merrill's move may send a resounding message of commitment to a municipal market shaken over the last 10 months by the collapse of the auction-rate market, the shattering of the triple-A insurance industry, widespread layoffs, and the absence of two pillars following UBS' closure of its municipal department and JPMorgan's acquisition of Bear, Stearns & Co.
But it also raises some questions. Some current Merrill bankers are worried over the security of their positions as the firm blends the new and existing staffs. Some longtime veterans not yet promoted to managing director status are also upset that new bankers were brought in at that level.
And while the hirers signal a strong commitment on Merrill's part, they come amid continued uncertainty and turmoil on Wall Street with previous subprime-market related market losses claiming many chief executives and their business strategies - including Merrill's Stan O'Neil who was replaced late last year with John Thain. Last week, analysts warned that Merrill could report another $3 billion to $5 billion of losses stemming from its exposure to subprime securities when second quarter earnings are announced.
THE ADDITIONS
Location, sector, and client relationships drove the firm's recruitment of bankers from among the roughly 125 affected by UBS' exit from municipals. "We were very targeted in who we were going after based on our view of the marketplace and where we could add muscle," Lawlor said.
Ultimately as negotiations continued, Lawlor said the firm began to view its hiring plans as a merger because of the similar municipal business models of UBS and Merrill. Both firms held all lines of the municipal franchise in one unit including originations, trading, marketing and retail with similarities in philosophies in areas like capital commitment.
In addition to the new managing directors, the firm added the following individuals in its health care group: Robert Junqua in New York as a director, John Woodward in San Francisco as a director, and Elvir Mujanovic in New York as an associate.
New transportation bankers include Mitchell Gold as a director in New York, David McCarthy and Michael Placencia, both as vice presidents in New York, and Evan Sokolov as an associate in New York.
New transportation infrastructure bankers include Eugene Spinelli as a director in Philadelphia, Jeanny Pak as a director in New York, and Michael Vogel as a vice president in Philadelphia. New infrastructure bankers include Bruce Huang and Kenneth Gillespie, both as vice presidents in Los Angeles,Jack Tsang as an associate in Los Angeles, and Craig Dussinger as an analyst in Los Angeles and Cory Czyzewski as an associate in New York.
New higher education bankers include C. Harper Watters and Ted Matozzo as vice presidents in Philadelpia and Adam Gentzel as an associate in Philadelphia. Jeffrey Sula joins as a director in the housing group in the Boston office. David Detar joins the general markets group as a vice president in Philadelphia. Spencer Coker, a quantitative specialist and analyst, joins New York as a director.
All 28 are expected to start over the next few weeks.
Lawlor believes the additions complement the current team of about 120 bankers with little overlap, but market sources said some existing bankers don't agree. Some are concerned they will now have to compete to keep their long-standing clients.
The competition is all the more acute as some said Merrill bankers, like those at many other firms, felt Wall Street's pain in their performance-based compensation checks earlier this year. "There is a lot of uncertainty," said one market source.
Lawlor countered that in some sectors and regions the firm's staffing was lean and the additions will boost its ability to serve clients - the driving force behind the firm's action - with enough work for senior professionals to go around.
He did leave the door open to potential changes in the leadership of individual sectors.
"I think it's safe to say that in any merger you are going to have a lot of speculation," Lawlor said. "We are still figuring out organizational structure," he said. Currently, Edward Malmstrom manages the health care and higher education group, James Smith the infrastructure and transportation groups and Michael Wheet is manager of airport team.
The firm expects revenues and market share to increase with the boost in bankers, but Lawlor stands behind his position that its client service and return on equity that drive the firm's business decisions.
"We focus on what makes sense for our shareholders and don't like to get tied up" in rankings, he said. The firm declined to comment on municipal-generated revenue numbers last year or expectations following the expansion.
Nationally, Merrill has held the top spot on competitive transactions for the last 12 years. The firm so far this year maintains that position with $6.9 billion in 48 issues for 21.5% of the market share, according to Thomson Reuters.
On the negotiated side, the firm this year ranks seventh with $13.3 billion n 129 deals for 7.4% of market share. The firm closed out last year in the fourth spot among senior managers of negotiated deals with $30.9 billion in 257 transactions for 8.8% of market share.
On negotiated deals in the education sector, the firm ranked third last year and the same so far this year. In general purpose, it ranked second last year and first so far this year. In transportation, the firm ranked third last year and fifth so far this year. In housing, the firm ranked second last year and 1st this year. In health care, it ranked second last year and third this year.
In the Northeast, the firm ranked third last year and first so far this year. In the Southeast, the firm ranked second last year and fourth so far this year. In the Southwest, it ranked sixth last year and fifth this year. In the Midwest, it ranked third last year and sixth this year and in the Far West, it ranked second last year and fifth this year.
The firm's negotiated rankings have been on the rise over the last five years as the firm rebuilt its banking team nationally after a mid-2001 restructuring in which Merrill focused on its competitive business and health care banking. Several dozen positions were cut and the firm saw the defection of some key bankers as its commitment to municipals was questioned. In addition to its headquarters in New York and offices in Chicago, Boston, and California, the firm has bankers in offices in Pittsburgh, Seattle, Dallas, Houston, Atlanta, and Florida.
Lawlor, who first joined Merrill in 1983 and is a U.S. Navy veteran, also tried to dispel concerns over whether the firm would maintain its commitment in a still volatile market. "It's a long-term commitment we have to this marketplace ... this comes from the top," he said.
Like Merrill, the PaineWebber brokerage that was acquired by UBS was built to support a massive retail brokerage network, and support from the top is crucial for a low-spread business like municipals. That's especially true as the hierarchy of investment banks look to shave costs amid the massive write-downs associated with the subprime market collapse.
Lawlor said with growing retail demand, Merrill is maintaining its strategic focus on global wealth management and high net worth individuals and he's been encouraged by the firm's leadership to increase originations in order to feed its investor clients' appetites.
As for its municipal clients, Lawlor said the nation's growing infrastructure needs suggest that new-money issuance will remain strong and with the larger banking staff, he believes the firm is "in much better shape to capture that business going forward" with the hope being that issuers will see Merrill as an underwriter they can shift business to.
Issuers concerned that the broker-dealers' retractions could drive up interest rates and stem the flow of creative financing ideas welcomed Merrill's news. "It's good to hear a firm is committed to public finance," said Frank Hoadley, Wisconsin's capital finance director and chairman of the Government Finance Officers Association's debt committee. Hoadley said he values the viewpoints of a range of bankers has been "discouraged" by the continual layoffs.
As a veteran of the industry who last year wrapped up a one-year term as chairman of the Municipal Securities Rulemaking Board, Lawlor said while challenging, the market environment is also invigorating.
"What you thought six months ago, is different today," he reflected. "We have been staying close to our clients and close to the market."
