While the low-volume environment has made municipal bond underwriting all that more competitive, a few investment banks that focus on smaller deals — those under $10 million — have been able to jump dramatically in the rankings.
Raymond James and Janney Montgomery Scott are two firms that have been able to capitalize on low issuance.
While issuance for the first three quarters is down 35%, Raymond James and Janney have doubled their respective market shares.
In the senior manager rankings for small issues, Janney cut into the top 10, coming in at number eight for the first three quarters of 2011, up from when it placed 22nd for the same time period in 2010, according to figures by Thomson Reuters.
Despite the low number of deals in the market, Janney participated in 80 deals versus 49 last year, more than doubling its market share to 3% from 1.4%, and underwrote almost $500 million versus the $260.8 million last year.
As a senior manager in the small issue market, Raymond James moved to 14th from 29th place for the first three quarters of the year, compared to the first three quarters of 2010.
The firm participated in 69 deals, or $337.7 million, compared to 46 deals, or $185.6 million, last year. Market share doubled to 2.1% from 1%.
“What you’re seeing is the early returns from what has been a multi-year investment in the expansion of our municipal finance business and has gone across all businesses from sales, trading and underwriting to public finance banking,” said John Forney, managing director of public finance for Raymond James.
“What we have done is tried to 'right-size’ our municipal finance practice within the context of our larger firm,” he added.
In comparison, the public finance practice was relatively small to its other businesses.
“The municipal finance practice was not proportionally sized for a firm with our depth and reach,” Forney said.
In the last two to three years, Raymond James has expanded from 25 vice president-level muni bankers to over 50 and opened new offices in Austin, San Antonio, Dallas, Houston, San Francisco, Philadelphia and West Virginia.
The financial firm has focused on expanding its specialty practices, like housing and health care, as well as on hiring generalist bankers with experience in regions where the firm has a strong corporate footprint.
“We have been able to attract bankers who were on existing platforms of companies ranging from Morgan Stanley to Morgan Keegan & Co. to Bank of America Merrill Lynch, and they decided they like the story about a large, successful non-Wall Street, non-bank-owned firm that was right-sizing its public finance platform,” Forney said.
In terms of new hiring, he said he’s pleased about establishing a “critical mass in a number of different sectors and geographies,” and plans to continue to hire selectively.
“You will continue to see growth, regardless of new hires, because what you’re seeing now is the tip of the iceberg and the early returns from the investments we have already made,” Forney said.
And while he is pleased about the traction Raymond James is starting to get in the market, he recognizes it has been a difficult environment for everyone, as issuers are now moving much more cautiously when issuing debt.
“We have to make sure we’re getting the same blocking and tackling with the issuers and making sure issuers know that despite the difficulties in the market, interest rates are low and from a cost standpoint, it’s good to be getting out into the market,” Forney said.
Robert W. Baird & Co. remains in the top spot in the small-issue space, underwriting $1.2 billion and holding a 7.5% market share. For the first three quarters of 2010, the firm held an 8.6% market share by underwriting $1.6 billion.
RBC Capital Markets and Morgan Keegan came in second and third place, respectively, switching spots from a year ago. RBC underwrote $1.1 billion, about the same amount it did last year, and increased market share to 6.7% from 6.3%.
Morgan Keegan underwrote $1 billion, down from the $1.3 billion it underwrote in the first three quarters of 2010, and saw its market share fall to 6.3% from 6.8%.
BMO Capital Markets suffered the steepest drop, falling 18 spots to 25th in the first third quarters from seventh over the same period last year.
Fifth Third Securities fell 10 spots to 19th, underwriting $283.8 million over 78 deals.
Spokesmen for BMO and Fifth Third did not return calls seeking comment.
