Beal Closes Firm to Seek Muni Synergy With Blaylock

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Bernard B. Beal started the year by shuttering M.R. Beal & Co. after more than a quarter century to join forces earlier this month with Blaylock Robert Van LLC, a New York-based investment banking and financial services company with little municipal focus.

Blaylock welcomed the arrival of the former head of the minority-owned brokerage firm as chairman of Blaylock Beal Van LLC, a newly-formed firm which was approved as of Jan. 31, according to a Financial Industry Regulatory Authority filing. Beal was joined by key salesman and bankers, including Mike Brennan and Bruce Gow, in a move aimed at ramping up the combined firm's muni underwriting business.

The closure of M.R. Beal, meanwhile, left a bitter taste with former employees who, speaking on condition of anonymity, characterized the move as sudden, complained of canceled bonuses and pay cuts, and said the company's finances had recently deteriorated. Beal caught employees off guard with the shuttering of offices in Chicago and Texas, they said.

In early January, Beal requested the termination of its registration from the Securities and Exchange Commission, FINRA, NASDAQ, NYSE, and 13 states where it does work, according to a public filing. Before its closure, M.R. Beal was headquartered in New York, and had offices in Chicago, Dallas, and Sacramento.

Eric Standifer, chief executive officer of the new joint venture, said that firm's closure was the result of a planned transaction that had been in the works for over a year.

"Early on in our conversations it was agreed that Beal was going to close his broker-dealer," Standifer said in a recent interview with The Bond Buyer. He said the two agreed to pool their resources to "align strategically" and create a "synergy" between the companies.

"Our business has been relatively small, coupled with the fact that 2013 was a tough year in the municipal underwriting arena for everyone," Standifer said, referring to Blaylock Robert Van.

He also said he was unaware of any trouble within M.R. Beal before or during the deal, other than some hiring limitations going forward.

"We let some folks go, and not everyone made it over here," Standifer said. He said Beal let some key staffers know about the intention to marry the two companies "as early as last summer" and some of those employees "decided to take their own paths."

Beal, who founded M.R. Beal in 1988, didn't respond to a request for an interview. M.R. Beal's key clients, accounts, and assets have migrated to the partnered firm, according to Standifer.

A review of public filings shows that M.R. Beal might have been a casualty of a slump in business following the financial crisis due to a decrease in volume, as well as a nearly 21% decrease in underwriting spreads since 2009.

The company's senior-managed volume dipped to five deals in 2012 from 13 in 2011 -- and a record 25 deals in 2010, following seven in 2009 before the financial crisis.

An SEC filing showed that as of the 2011 audit, the firm had assets of $1.66 billion, $756,655 of total liabilities, and $905,069 of capital.

Municipal analysts say it was probably difficult to increase capital in the two years since the audit given recent market changes. Obstacles, such as decreasing underwriting spreads and thin capital, as well as higher regulatory costs, can be amplified for small municipal firms, they said, and are driving mergers in the industry such as the recent acquisition of Los Angeles-based public finance investment banking boutique De La Rosa & Co. by Stifel Financial Corp., the parent company of Stifel, Nicolaus & Co..

The combination of Blaylock and M.R. Beal brings together the pair of minority-owned firms working to carve a larger footprint in the municipal industry -- and offset some of the problems intrinsic to smaller firms.

"This relationship is a home run," Standifer said, adding that he hopes to gain from Beal's lengthy experience on the municipal banking side of the business.

Beal now oversees municipal banking, underwriting, sales, and trading activities as chairman at Blaylock Beal Van. In his new role, Beal manages a municipal staff of about 20 people and works primarily in Blaylock's New York City headquarters, Standifer said. The firm also has offices in Oakland, California and Chicago.

Standifer said he was eager to have Beal on board because of his 30 years of experience in municipals, which he hopes will boost the firm's muni underwriting. It was senior manager on less than $30 million in 2013, according to data from Thomson Reuters as of Feb. 6.

"I saw first-hand in the 1990s Bernard pioneering deals in California and all the business he was grabbing," Standifer said. "His expertise and his trademark in muni banking was what I was interested in."

According to a Feb. 3 press release announcing Beal's new role at Blaylock, M.R. Beal had managed municipal financings in excess of $400 billion, and served as financial advisor on over 60 deals worth in excess of $7 billion.

"The Blayock Robert Van expertise was in corporate capital underwriting and fixed-income trading," but the firm lacked the "horse-power or expertise to exploit our strong municipal relationships," Standifer said.

According to the Thomson Reuters data, Blaylock Robert Van ranked 111th in 2013 with two senior-managed deals totaling $28.6 million, up from one deal totaling $4.4 million in 2012 when it ranked 144th. Last year, Blaylock was ranked 40th among co-managers, with 33 deals for $11 billion.

Beal, on the other hand, ranked 24th among senior managers in 2010 for 25 deals totaling $2.39 billion — its highest volume in the five years between 2009 and 2013, according to Thomson Reuters.

Beal ranked 13th among co-managers with 218 deals totaling $47.4 billion last year. However, Beal's senior-managed business and rankings fell in 2013 to 13 deals with a total par amount of $976 million and 35th, up only slightly from the five deals totaling $782.8 million it senior-managed in 2012 when it ranked 46th, the data showed.

The former employees who spoke on condition of anonymity said they weren't surprised by the exit of the firm's founder, since he closed the Chicago and Texas offices in late December and early January, respectively.

A New York municipal trader said he heard the firm was having trouble over the last year.

Staffers were frustrated as they hadn't yet received their holiday bonuses, one former employee said.

In addition, a former employee of Beal voiced concerns on the website glassdoor.com, an employment and recruiting database with reviews of six million companies.

"Management is not willing to listen to its employees," was one of the complaints from a public finance analyst who previously worked full-time at Beal for more than a year. Aside from the firm's minority status and track record in municipal finance, the ex-employee was not optimistic about the company outlook. "The firm's capital is dangerously low and pay and bonuses have been postponed in the past," the former employee wrote in the Jan. 4 review.

Another posting on the site in July was more positive about the work environment, though it said Beal was a small company competing with bulge bracket firms

Standifer said he was unaware of any problems regarding insufficient capital or complaints about employee salaries or bonuses. Prior to the partnership, the two firms "crossed paths infrequently," having been in a few municipal deals together, he said.

"I did not know him well prior to a year and a half ago, but I knew him professionally" Standifer said. "They were easy to find — they were at the top of the prospectus, we were at the bottom." The combination with M.R. Beal was the latest for Blaylock.

Blaylock Robert Van was originally formed in 2007 by the merger of Blaylock & Company, an East Coast-based minority-owned investment banking boutique founded in 1993 by Ronald E. Blaylock, with Robert Van Securities, Inc., a West Coast-based minority-owned broker-dealer founded in 1991 by Standifer.

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