DALLAS – Newly christened as Hilltop Securities, the merged firm of First Southwest Co. and Southwest Securities is aiming for the top of the nation's financial advisory ranks with a growing presence in the Midwest.
"We have a new story to tell and one that's pretty strong for all our lines of business," said Robert Peterson, president and chief operating officer of Dallas-based
"Although we're not really a start-up," adds Hill Feinberg, its chairman and chief executive officer.
Indeed, the two firms together represent more than 100 years of experience dating to First Southwest's founding in 1946. For 43 years, the two companies competed for the same clients, with headquarters just a few blocks apart in downtown Dallas.
Southwest Securities, whose name disappeared from the market listings in 2015, was often ranked in the top five of financial advisory firms in Texas before the merger.
Now, Feinberg is sharing offices with Peterson at the Renaissance Tower, where SWS stood as a separate company until the merger Jan. 1, 2015. A year later, with regulatory approvals in hand, the two companies officially began operating as one under the ownership of Hilltop Holdings.
Peterson is not a holdover from SWS but a recent arrival who last worked in finance at retailer J.C. Penney Co. from 2012 to 2013. Before that, he worked for 20 years at Piper Jaffray Co. where he held numerous senior-level positions including head of private client services, and as the company's global head of equities. Peterson joined Hilltop Securities in April 2015.
Feinberg, one of the most prominent figures in public finance, has served as chairman and chief executive of First Southwest since 1991. Before that, he was a senior managing director at Bear Stearns & Co. from 1979 to 1991 with a focus on retail brokerage, and a vice president and manager of Salomon Brothers in the Dallas office.
Feinberg now introduces himself as chairman of Hilltop Securities rather than First Southwest. While the SWS name is gone, FSW will fade out over the coming year, Feinberg said.
"We are getting the word out through our business and advertising," Feinberg said. "We want people to know we are really committed to growing the business."
One of the company's most significant moves came last month with the hiring of five bankers to expand in the Midwest.
Four of Hilltop's hires come from the former Edward Jones team in St. Louis. They are managing directors Chris Collier, Reagan Holliday, and directors Ben McGuire and Kate DeProsperis.
Another director, Ed Kurth, joined Hilltop in late 2015 from Cabrera Capital Markets. The new bankers report to Jack Addams, who remains head of public finance for Hilltop, as he was at FSW.
Hilltop's employees have an average tenure of more than a decade, the company says. The new structure gives firm "deeper bench strength and better distribution," Feinberg said.
In 2014, FSW ranked second in the Midwest among financial advisors, credited by Thomson Reuters with $2.7 billion of deals, about a third of the volume recorded by Public Financial Management. Last year, First Southwest didn't make the top 10.
Nationally, First Southwest – which included Southwest Securities -- ranked second behind PFM in 2015. FSW's 845 deals were tallied at $32.2 billion compared to PFM's 1,009 deals and $62.1 billion.
With Southwest Securities under its wing, First Southwest's volume grew about 15% nationally in 2015 while its number of deals multiplied six-fold.
In the Southwest region, where First Southwest has dominated for years, the volume rose to $18.5 billion, a 26% increase from its 2014 volume of $14.7 billion.
In the Northeast, FSW ranked third behind PFM and Public Resources Advisory Group, while in the Southeast it ranked second behind PFM. In the Far West, FSW ranked 10th with about $1.7 billion of deals.
In the transition year of 2015, First Southwest-Hilltop saw departures along with arrivals in its ranks.
Former vice chairman Michael Bartolotta, once considered the heir apparent to Feinberg, left in August to become managing director for Citi in Houston.
Eight months earlier, 10 former Southwest Securities executives jumped ship to join Samco Capital Partners.
Going forward, vice chairman David Medanich, a 34-year First Southwest veteran, is considered heir apparent. Previously senior vice president at FSW, Medanich joined the firm from the Municipal Advisory Council of Texas.
The company started 2016 with 1,100 employees and 53 offices in 17 states. It managed $14.9 billion in retail assets and $20 billion in municipal cash management assets. Clearing assets totaled $41 billion.
Hilltop will remain an underwriter while providing financial advisory services, Feinberg said.
About 75% of the business will involve FA services, with 25% dedicated to underwriting, he estimates.
"We'd like to grow the underwriting side," Feinberg said.
While Hilltop cannot combine underwriting and financial advisory services for public clients, maintaining trading desks indirectly gives the financial advisors a better read on market conditions, Feinberg said.
To deal with an increase in regulation, Hilltop is also bulking up its continuing disclosure department, Feinberg said. From a single compliance officer in 2003, the department has grown to a staff of seven.
"With the demands for transparency, that's going to grow," Feinberg noted.
Under the new corporate structure, Hilltop Securities emerges as a separate company from Plains Capital Bank, the Dallas-based commercial bank that acquired FSW during the financial collapse of 2008. To restore investor confidence, the investment banks were combined with commercial banks.
As a separate entity, Hilltop Securities proved its value in 2015, according to Hilltop Holdings chairman Jeremy Ford.
"While managing through the integration process, the broker-dealer segment's profitability steadily improved during 2015, and we are now well-positioned to execute on our vision during 2016," Ford said in a fourth-quarter conference call.
In Hilltop's home state of Texas, execs see continued growth in 2016, despite the downturn in oil prices over the past two years.
"Business is booming," Addams said. "There are still a lot of refunding opportunities."
"If Texas were to go into a long downturn, it would not affect us until next year," he added. "In the muni bond business, we lag economic downturns."
