Hilltop repositions in a leaner municipal bond market

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DALLAS — After a difficult year in the municipal bond market, Hilltop Securities is expanding nationally, restructuring its executive leadership and rebuilding its financial advisory team in its home base of Texas.

The changes were underscored by the December announcement that Hill Feinberg, the pioneering leader of Hilltop and its predecessor First Southwest Co., will step aside as president and chief executive in February, handing over the reins to Piper Jaffray’s senior executive managing director, Brad Winges.

Feinberg, who will remain chairman, said Winges will bring a new management style to the nation’s third largest financial advisory firm two years after the merger of First Southwest Co. and Southwest Securities under the umbrella of Hilltop Holdings.

“They’ve asked me to stay on for at least a couple of years,” Feinberg told The Bond Buyer, acknowledging that his employees sometimes see him as a “hard ass.”

“I’m not paid to be liked,” Feinberg said. “I’m paid to run a company.”

Although the Dallas headquarters of First Southwest and Southwest Securities were just a few blocks apart and they contended for some of the same business “you had some real cultural differences,” Feinberg said. “The merger of these two firms was very difficult.”

In the process of merging the two firms, Hilltop lost 11 experienced bankers to other firms, notably Masterson Advisors, a Houston start-up founded last year by 22-year First Southwest Co. veteran Drew Masterson.

Along with his Hilltop colleagues, Masterson took a number of major clients with him, leaving First Southwest’s Houston office depleted.

To recover lost ground in the lucrative Southeast Texas region, Hilltop announced on Thursday that it had hired of C. B. “Bix” Rathburn, senior vice president with Moody Bank and a former education administrator, to work in the Houston office.

Also joining the Houston office is Bat Taniguchi, associate relationship manager with Frost Bank in Houston, where he analyzed, assisted, reviewed and prepared credits for the bank’s public finance clients.

“Hilltop Securities will continue to add quality bankers in Houston, and hiring knowledgeable and quality people like Bix and Bat are proof of that,” said David Medanich, vice chairman and head of public finance. “Bix is an experienced public servant who has strong relationships with local government officials and issuers in the Houston area. Bat comes to us as a skilled analyst who has modeled and helped structure transactions for many Houston issuers.”

In 2018, managing director Chris Allen, a 26-year veteran, relocated to Houston to work with managing director Joe Morrow, who has a matching tenure at the firm.

Before joining Moody Bank, Rathburn was the director of economic development for Galveston County. He had also worked for 34 years in higher education serving in top administrative positions. Rathburn said Hilltop’s full-service profile attracted him to the firm.

“Unlike a lot of municipal advisory-only firms, Hilltop Securities is a one-stop shop invested in its municipal business,” Rathburn said. “I believe our partnership is going to be a great thing for both the region’s issuers and the firm.”

The Houston hires come after a lean year in municipal finance nationally and in Texas.

According to Thomson Reuters, total bond issuance in Texas fell 23% in 2018 to $31.4 billion. Since 2016, a record year for issuance, volume was down 38%. Nationally, volume was down about 25%.

“Business has been very tough in the last year,” Feinberg said.

The top municipal advisors accounted for 20% less volume nationally, as their par amount of deals dropped to $273.9 billion from $345.8 billion. The number of transactions fell by 1,199.

Hilltop’s U.S. volume fell to $22.7 billion from $35.8 billion, while its market share was two percentage points lower than in 2017 at 8.3%. That was good enough to keep the firm in third place behind Public Financial Management Group, which claimed a 17% market share, and Public Resources Advisory Group with a 13% share.

While PFM poses little threat to Hilltop’s dominance in Texas, the firm does see opportunity to grow in the Lone Star State.

Dan Hartman, head of financial advisory services at PFM, told The Bond Buyer that even though Texas volume was down sharply in 2018 due largely to the loss of advance refunding in the 2017 tax reform, new money issues continued to rise.

“Clearly our intent is to grow in Texas,” Hartman said. “It was a tough year. Volume is down precipitously. But the new money component has been going up over the past four or five years in Texas.”

Last week, PFM announced two hires in its Houston office to serve clients in South Texas: Karlos C. Allen and John L. Guess IV, who come on as senior managing consultants at PFM.

Allen, previously senior consultant at TKG & Associates at Houston, had also worked at Stifel Financial Corp., Rice Financial Products Co., and RBC Capital Markets. Allen’s clients have included the city of Houston, Harris County, Texas Public Finance Authority, University of Houston System, Klein ISD, Spring ISD, Lone Star College, Houston Community College, Fort Bend County and Metro Transit Authority.

Guess was previously senior staff analyst for the city of Houston.

Hilltop recently announced hires for its offices in Florida, Ohio and Michigan.

In the process of expansion, Feinberg said he aims to make the employees staying with the firm feel more appreciated.

“Probably the biggest mistake I’ve made is that I don’t think the people here understand how good they are,” Feinberg said. “We have done a poor job of communicating that.”

In a year-end memo, Feinberg gave his troops a pat on the back while offering a bullish outlook.

“Volatility in the investment markets has been well digested and managed,” he wrote. “Maybe we could have done better, but we worked hard and are learning. . . I feel we will step to the next level. My confidence is high on what we are achieving in the departments and the professionals we are adding.”

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Municipal advisors Career moves Sell side Hill Feinberg Bradley Winges Drew Masterson Hilltop Securities Texas
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