DALLAS - A.G. Edwards & Sons Inc. has voluntarily withdrawn from engaging in certain negotiated business in Texas for two years under MSRB Rule G-37 because its chief executive officer contributed $200 to Gov. George W. Bush's re-election campaign on Oct. 13.
The St. Louis-based firm, which has been working for several years to make inroads into Texas' municipal bond market, confirmed in a statement to The Bond Buyer on Friday that it voluntarily agreed to the two-year ban after failing to heed the Municipal Securities Rulemaking Board's restrictions on political contributions.
The decision came after Benjamin F. Edwards 3d, chairman, president, and chief executive officer, made a "small" contribution in the Texas governor's re-election race this fall.
A.G. Edwards' release declined to disclose who received the contribution, but sources said that Edwards, who lives in St. Louis, gave the money to Bush's gubernatorial campaign.
The decision essentially eliminates the firm from competing for bond issues by any agency for which Bush appoints governing boards, including the Texas Public Finance Authority, Texas Water Development Board, Texas Department of Housing and Community Affairs, state-run universities, and several other agencies. A.G. Edwards in the third quarter handled deals for the TPFA, Texas Department of Criminal Justice, the Texas A&M University System, and other bond programs for state-run universities.
Market participants said the decision could be a serious blow to A.G. Edwards' effort to expand its book of state-level business in Texas, where it has won the respect of local firms as a solid and ethical competitor.
The firm, however, drew the ire of Wall Street firms in 1996 when it pushed them out of a $300-million TPFA deal by accepting a historically low spread.
In February 1996, Prudential Securities Inc. and Lehman Brothers dropped out of the syndicate when A.G. Edwards offered to senior manage the deal at a spread of $2.50 per $1,000 of bonds.
During the past year the firm has been trying to recruit senior public finance officials to expand its Houston offices, according to industry professionals.
And the decision illustrates the complexities that firms face in complying with G-37's restrictions. Under the rule, which was adopted in April 1994 to curb pay-to-play practices in the municipal market, dealers generally are banned from engaging in negotiated business with issuers for two years if they or their municipal finance officials contribute to issuer officials who can influence the award of bond business.
The rule contains a de minimis provision that allows municipal finance professionals to contribute up to $250 to any governmental official or candidate for whom they can vote. But in this, case Edwards, who lives in St. Louis, obviously could not vote for Bush in Texas.
A.G. Edwards said it agreed to the voluntary ban under Rule G-37 because the firm is "technically considered a municipal finance professional under the rule."
"A.G. Edwards continues to support the goals underlying Rule G-37 and will, of course, continue to honor the rule's provisions," the firm said in the statement.
Officials with the TPFA and the Water Development Board said Friday that they were aware of A.G. Edwards' decision, but declined to comment on the firm's decision.
Nancy Marstiller, director of debt management for the Water Development Board, said that the firm elected not to compete for a new 15-member underwriting team that was chosen this past Thursday.
"I had heard that they were no longer going to handle any deals for agencies whose boards are appointed by the governor," said Marstiller.
Securities Data Co. statistics show A. G. Edwards was senior manager on at least three negotiated transactions for the state or state agencies during the last three years. It has participated in three other negotiated underwritings during that period, worth about $375 million.
