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B of A Trumps Citi for Top Spot

JAN 3, 2011 11:25pm ET
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Bank of America Merrill Lynch in 2010 reclaimed its title as the top underwriter of municipal debt, thanks mainly to its dominance in the competitive market.

The bank underwrote $59.9 billion of muni bonds in 2010, a 7.5% increase from 2009, based on a Thomson Reuters methodology that apportions credit for underwritings based on how much of a syndicated deal was placed through each underwriter.

These deals gave B of A Merrill a 13.9% share of the market, placing the firm in the top spot among municipal underwriters after losing that claim to Citi in 2009.

After winning the top underwriter title in 2009, Citi came in second place in 2010 with $58.9 billion of deals for a 13.7% share of the municipal market. Citi’s underwriting volume rose less than 1%.

Citi had no comment. B of A did not respond to a request for comment.

With such similar shares of the market, the difference between Bank of America and Citi is B of A’s preeminence in the competitive market, where banks bid for deals, as opposed to the negotiated market, where selected underwriters try to place deals with investors.

B of A Merrill far and away takes on the most municipal bonds in the competitive market. It underwrote $11.4 billion of munis in the competitive market in 2010, according to Thomson, good for a 15.6% share of the competitive market and more than $2 billion more than the second-most-active bank, Citi.

In the negotiated market, where 83% of municipal debt was underwritten, Citi was the most active. It underwrote $49.6 billion of bonds in the negotiated market in 2010, for a 13.9% share. B of A was second with a 13.6% share.

JPMorgan once again placed in third overall for 2010, with $46.9 billion of underwritten deals and a 10.9% market share. Morgan Stanley came in fourth with $36.8 billion s and an 8.6% share.

Last year was a wild one for public finance desks as municipalities set a record by borrowing $431.9 billion. Not only did underwriters face more volume than ever, they also had to find buyers for an unprecedented volume of taxable bonds.

More than 35% of municipal borrowing last year came through taxable bonds, mostly because of the taxable bond classes created through the American Recovery and Reinvestment Act in February 2009.

The fourth quarter was especially crazy, as municipalities tried to push through about $133 billion of bonds, in part to bring the taxable bonds to market before the ARRA programs expired at the end of last year.

The rush of supply pushed yields up 68 basis points in the fourth quarter, based on the Municipal Market Advisors 30-year triple-A scale.

“It was challenging, but we worked extensively with the issuers and with the buyers, had substantial meetings with investors and the issuers,” said Alex Rorke, head of public finance at Loop Capital, which placed sixth among co-managers with $11.75 billion of deals. “Certainly the increased volume was a good challenge for all the firms involved.”

Most of the biggest underwriters of these types of taxable bonds were also the biggest underwriters overall. Citi was the top underwriter of stimulus bonds last year, with $18.3 billion, followed by B of A Merrill with $17.2 billion.

According to Thomson Reuters, municipalities issued $133.3 billion of stimulus debt last year.

A glance at the biggest underwritings of the year shows that many were taxable. For example, Bank of America and Citi were joint book-runners on California’s $3.4 billion taxable general obligation sale in March, some of which came as Build America Bonds. That was the second-biggest municipal bond sale of the year.

JPMorgan in January underwrote Illinois’ $3.5 billion of taxable pension bonds, which were use to make contributions to the state’s pension funds — which at the time were underfunded by more than $60 billion. That was the biggest muni deal of the year.

The fastest-growing firm in the underwriting tables continues to be Siebert Brandford Shank, which picked up some bankers from Wall Street firms after the financial crisis and has been expanding its business ever since.

Siebert Brandford senior managed $9.14 billion of municipal bonds during the year, good for 10th in the underwriting tables, seventh among co-managers, and a 2.1% market share. The firm’s volume represents growth of 55.5% from 2009, leapfrogging Robert W. Baird & Co. and Piper Jaffray & Co. The firm ranks eighth in negotiated underwriting, where it does all its business.

The firm’s co-founder, Napoleon Brandford, said the company hired about 30 bankers from firms such as Lehman, Bear Stearns, and UBS after the financial crisis.

“We sat on the sideline and we waited for the most appropriate time, which was 2008, to exponentially grow,” Brandford said.

He expects to write more business in 2011 than in 2010, despite the anticipated drop in issuance.

Siebert Brandford Shank’s target market is the 50 biggest urban areas and the 23 biggest states, reflected in the average deal size of $120.3 million, compared with the average municipal deal size of $31.7 million in the market overall.

By contrast, Morgan Keegan & Co. continues to grow its business by working with smaller issuers.

Morgan Keegan underwrote $13.4 billion of municipal bonds in 2010, landing in the ninth spot with a 3.1% market share. Its average deal size for the year was $17.8 million.

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