Low volume and intense competition have limited U.S. Bank’s ability to underwrite new deals since it launched a municipal securities group last September, but bank executives have adopted a long view and continue to bulk up the team with industry veterans.

With issuance down nearly 40% from last year, U.S. Bank hasn’t run the books on a new-money issue this year and has only been co-manager on one $12 million deal, according to Thomson Reuters.

But the new team’s activity has been far from stagnant, said Alex Wallace, who runs public finance operations from Charlotte, N.C.

“We measure our activity a little more broadly,” Wallace said. “In addition to underwriting fixed-rate and variable-rate transactions for our clients, we are also focusing on four areas that do not show up in the league tables — remarketing takeovers, swap novations, replacement credit facilities and direct purchases.”

He said the challenge isn’t so much volume-driven, but in making the transition from a commercial bank model to a universal bank model.

U.S. Bank, headquartered in Minneapolis, boasts ratings of Aa2 from Moody’s Investors Service and AA-minus from Standard & Poor’s and Fitch Ratings.

Such high marks allow it to be a major player in renewing credit facilities and participating in direct lending, areas that have been quietly growing in 2011 as state and local governments struggle to get finances under control and limit new bond sales.

The objective, according to Richard Kolman, head of the muni securities group in New York, is a full-service build-out for trading and sales on all points of the curve.

“When we talk to clients and financial advisors, they don’t just want one option,” said Kolman, who joined the bank in May 2010. “They want to analyze the pros and cons of public and private solutions.”

The bank’s venture into municipals was motivated by a desire to become “a full-service financial institution” that provides a complete range of financial services to clients, according to Sarah Madson, who assumed the role of chief operating officer of the muni securities group in March 2010 after spending a decade with JPMorgan.

“The plan was to be patient, build slowly and leverage the bank’s long-term relationships with government and not-for-profit clients,” Kolman added. “The volume slowing down, in a way, helps us a bit, because it allows us to be a little more patient. The people we are hiring are senior professionals with in-depth experience.”

In the past year, the firm established a muni presence on the East Coast, with Wallace and two directors based in Charlotte and Kolman’s underwriting and sales group based in New York.

Health care and nonprofit operations are run from Chicago and led by Brian McGough, who previously led health care investment banking at BMO Capital Markets. USB’s West Coast office is centered in San Francisco, with operations led by 30-year veteran Scott Nagelson. He previously ran the San Francisco office at Jefferies & Co.

Kolman described this initial build-out as phase one of the team’s development. Phase two is adding “at least 10 public finance folks in 2012 as well as additional traders and sales professionals.”

New as the team is, it wasn’t cut from whole cloth. Its parent group, U.S. Bancorp., has been involved with public finance for more than 75 years as an agent and trustee. As of mid-year it had been trustee on 26% of all new volume, ranking it second with 317 issues totaling $15.6 billion.

Kolman has called his team USB’s first organically developed underwriting group. The bank’s earlier underwriting experience began in May 1998 with the acquisition of Minneapolis-based Piper Jaffray & Co.

Under the name U.S. Bancorp Piper Jaffray, the firm operated as an underwriter with a focus on clients issuing bonds totaling less than $10 million.

It became the third-largest underwriter of such deals in 2003, according to Thomson Reuters.

USB spun off the underwriting unit at the end of 2003 to focus on consumer banking, private client, and trust and asset management services. In the wake of the financial crisis it adopted a strategy to expand its corporate banking business to include a national franchise for capital markets.

“A lot of talent has shifted in our industry over the last three years,” Wallace said. “That’s created an opportunity for us.”

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