Competition over a shrinking pool of business claimed another victim with this week's shuttering of Lebenthal & Co.'s municipal underwriting and institutional sales arms.
Lebenthal, which said Monday that it intended to focus solely on municipal retail sales, joined a growing list of companies that have closed underwriting units or merged to form bigger firms amid falling muni prices last year and a plunge in issuance in 2014.
"With the smaller firms, any positions they held last summer they got hurt from a capital stand point, and no matter how much the market recovers there is a certain level of inertia that prevents them from getting involved," said John Mousseau, director of fixed income at Cumberland Advisors in Vineland, N.J.
The timing of Lebenthal's exit is unfortunate, he added, ahead of what could potentially be a glut of refundings come late 2014 and early 2015 if rates remain relatively unchanged and hundreds of billions of dollars in issuance comes up on callable dates.
"It's going to be a good pay day for muni underwriters in the next two years and good for muni issuers as they take out 5% debt with 4% debt," Mousseau said.
Heavy competition and a reduction in the public finance side of the municipal industry has coincided with firms narrowing the scope of their business, including Morningstar Inc. which last week announced its plans to eliminate municipal credit analysis. In February, Bernard B. Beal, president of the New York-based brokerage firm closed M.R. Beal & Co. after a quarter century to merge forces with Blaylock Robert Van LLC, a New York-based investment banking and financial service firm.
Some believe Lebenthal -- once led by municipal bond pioneer Jim Lebenthal -- will continue to thrive because it is one of the best brand names in the retail muni business, even though its municipal banking efforts fizzled.
"Jim Lebenthal is the muni business' best salesman: not because he sells bonds, but because he 'sells' the idea that municipal bonds help grow America because of investment in this country's infrastructure," said Dick Larkin, senior vice president and director of muni credit analysis at Herbert J. Sims & Co.
Mousseau, meanwhile, said a woman-owned firm like Lebenthal had a unique entry-point as senior and co-manager on new municipal financings, but that opportunity was plagued by declining volume.
Lebenthal will lose approximately 200 accounts as a result of the departure from municipal institutional sales, Alexandra Lebenthal, president and chief executive officer of the firm told The Bond Buyer on Monday.
She said the move also affects 15 employees, including co-heads of public finance Greg Anderson and Matt Deane along with institutional traders, underwriters, bankers, and sales staff.
"Obviously, it was tough to make this decision, but it was clear where we should focus our attention - and that is not institutional sales and not senior book-running," she said in a phone interview on Monday.
The firm had not senior-managed any municipal deals since 2010. As a co-manager, so far this year it completed 50 deals for a total par amount of $10.44 billion, according to The Bond Buyer. That is down from 73 deals in all of 2013 for a total par amount of $25.97 billion.
Instead, effective immediately, the investment management and financial planning firm plans to dedicate its municipal resources toward building its wealth management division, which has provided the best returns on capital and is where the 89-year-old New York-based firm has inherent strength and experience, according to Ms. Lebenthal.
"We made a decision to go back to our roots and focus on high net worth sales to individual retail accounts," she said Ms. Lebenthal, whose grandparents, Louis and Sayra Lebenthal, started in the business in 1925.
Lebenthal said the company could add to its retail sales and trading team of seven employees pending growth of its wealth management business.
She said despite market concerns over interest rates, and decreasing volume, the firm in the last six months has experienced a "big shift" in retail municipal bond sales — the cornerstone of the Lebenthal brand.
Larkin said the firm's reputation will sustain its strong retail municipal following.
"Investors didn't come to them for new issue deals," he said. "They came to Lebenthal because of Lebenthal's brand name, and the company's commitment to and integrity in selling municipal bonds to retail investors."
Ms. Lebenthal has been at the helm of the family firm since 1995. In 2001, she sold it to Advest, but in 2007 relaunched the firm, building one of the largest woman-owned financial institutions in the city.
Entering the municipal underwriting business in 2011, it later established offices in Chicago and Los Angeles, doubled its public finance revenue, and qualified for more senior-managed deals, Ms. Lebenthal has previously said.
Ms. Lebenthal acknowledged that "everyone is vying for the same business." Still, she added, the firm will continue to maintain MuniAxis, its platform for odd-lot municipal bond transactions, as well as other key components of its overall business.
