Mizuho Securities, the broker-dealer unit of Mizuho Financial Group, Japan’s third-largest bank, hired municipal industry veteran Jerry Rizzieri as head of fixed-income trading.
Rizzieri was formerly a managing director and head of municipal finance for Barclays Capital. Before that he worked for Lehman Brothers’s muni group, which Barclays purchased during the financial turmoil in late 2008.
Rizzieri will report to Patrick Fay, executive managing director and head of fixed income.
The hire could signal that Mizuho is gearing up to enter the municipal market, as the base of investors interested in munis has broadened thanks to taxable Build America Bonds.
The bank is still in discussion mode and has not made any decisions about running a muni business, a source close to the matter said.
A spokesman declined to comment on the implications of the hire, while Rizzieri and others were unavailable for interviews.
The allure for BABs among foreign investors is clear, as municipal debt has a low default record compared to corporate debt. Also, recent long triple-A rated BABs offered about an 80 basis point spread over Treasuries, according to data from JPMorgan.
Anecdotal evidence suggests foreign appetite for the assets has been growing.
Hard data is less recent but confirms the same trend. The Federal Reserve, for instance, indicated that overseas investors increased their municipal debt holdings by $19.6 billion last year to $60.6 billion, a 50% increase in holdings for the year. Overall, however, foreigners only owned about 2.2% of outstanding muni debt.
“This Fed data is the best evidence that we have of foreign participation in the BABs market,” Chris Mauro, municipal strategist at RBC Capital Markets, said in recent research note.
“Because foreign ownership in 2009 is significantly greater than historic levels for these investors, this increase is likely attributable to foreign investments in BABs.”
If Mizuho, which means “abundant rice” in Japanese, enters the municipal market, it would be one of many recent developments for the firm, which has roots dating back to 1864 and was formed through a merger of three banks in 2000.
Over the past year, the Japanese bank has expanded its capital markets platform by launching services for emerging markets, investment-grade debt, U.S. equities, convertible bonds, and mortgage trading and origination.
John Koudounis, president and chief executive officer of Mizuho Securities, said in a press release that those new services “are a strong indication of our commitment to deliver first-class investment banking services to issuers and investors.”
A foray into underwriting municipal debt would likely be much safer than the bank’s first attempt to enter the U.S. market, which resulted in significant losses.
In December 2006, the firm lured a young mathematician, Alexander Rekeda, who had spent two years building up a collateralized debt obligations business at Calyon Capital Markets, to form a new department in structured credits.
The new group got involved in the subprime mortgage-backed market just as real estate prices started heading downwards and homeowner defaults started rising.
Once the financial crisis hit, the group’s poorly timed trades cost the firm $7.1 billion, according to Bloomberg News.