DALLAS — In the process of introducing himself to employees of Hilltop Securities, new chief executive Brad Winges is also re-introducing Hilltop to the bond, banking, insurance and mortgage markets.
After 28 years in leadership roles at Piper Jaffray in Minneapolis, Winges officially took over from longtime CEO Hill Feinberg at Hilltop’s Dallas headquarters on Feb. 20.
Feinberg, who will retire as chairman of Hilltop on June 30, led the search for his successor. Feinberg will remain chairman emeritus.
“We really wanted to find someone who could evolve into the head of the company,” Feinberg said. “We were not finding people who had a varied background. I think an executive in the fixed-income market needs to have a feel for both the taxable and tax-exempt issues. What we were finding was a lot of specialists in the taxable or tax-exempt sides.”
“Brad will outshine me pretty quickly,” said Feinberg, who got to know the Piper Jaffray exec in their work with the Bond Dealers Association.
“I looked at Hilltop in totality and saw an enormous opportunity,” Winges said. “This firm is sitting on a gold mine of an opportunity not just in Texas and the Southwest but nationally.”
While Hilltop sits solidly atop municipal advisors in Texas and the Southwest and ranks third nationally, the name of the company remains somewhat unfamiliar compared to the predecessor firms First Southwest Co. and Southwest Securities, Winges said.
“We’ve got to get more people aware of the Hilltop name,” Winges told The Bond Buyer shortly after arriving in the Dallas headquarters. “I think Southwest Securities and First Southwest Co. were very well recognized. Now, we’ve got to get the Hilltop name out there.”
As Hilltop boosts advertising and conference sponsorships, Winges is touting the firm to clients, potential clients, media and investors as he visits Hilltop offices around the country.
Tours of the east and west coasts are first on his agenda.
“Sometimes you lose touch with the front line,” he said, promising an active suggestion box and a willingness to respond to fresh ideas about how to grow the firm.
“We are definitely in growth mode,” Winges said. “We see opportunity in an industry that is consolidating.”
Hilltop Securities was the product of the 2015 merger of Southwest Securities and First Southwest Co. Hilltop Holdings became the parent firm of First Southwest and PlainsCapital Bank, the sixth largest Texas-based bank by deposits, in 2012. PrimeLending, a mortgage originator ranked sixth in the U.S. for purchase units in 2014, also came with the deal, as did National Lloyds Corp., a niche property and casualty underwriter providing homeowners insurance for low value dwellings.
In a brutal year for the municipal bond industry, Hilltop saw its 2018 bond advisory volume fall 36% from 2017 to $22.8 billion nationally. While Hilltop retained the third ranking behind Public Financial Management Group and Public Resources Advisory Group, its market share dropped to 8.3% from 10.4% the previous year.
Their par amount of deals handled by the big three FA firms dropped to $273.9 billion from $345.8 billion, according to data firm Refinitiv. The number of transactions fell by 1,199. The dearth of refunding opportunities due to changes in federal tax law explains nearly all of the lost business.
“It was a tough year,” Feinberg said.
Winges, who arrived shortly after management’s compensation meetings with employees, said large FA firms like Hilltop work to soften the landings for employees in lean years such as 2018.
“I’m really proud of the fact that they’ve been able to pay people very well and smooth the peaks and valleys,” Winges said. “I think we’ve done a very good job of articulating compensation to the employees. You cannot run an entire firm where your compensation is tied to the cycles.”
Under his retirement agreement, Feinberg receives an annual salary of $500,000, plus the excess of commission payouts over that in any given year. Feinberg also receives one-time payments of $900,000 on or before March 15 and $500,000 on before March 15, 2020, according to an SEC filing. Feinberg also sold shares in Hilltop worth $1 million last November.
Winges received options on 93,363 of Hilltop Holdings Inc. shares on his start date with the firm. At the $19.35 closing price on Friday, the shares would be worth $1.8 million.
For Winges, retaining top talent is a key goal after Hilltop lost 11 bankers in Houston to other firms in 2018. Winges said that Hilltop's employee culture was one of the factors that attracted him to the firm and a competitive advantage.
“Culture’s a very big thing for me,” Winges said. “The culture of the people here couldn’t be finer. One of the advantages for Hilltop is its diversity, 46% female and 25% ethnically diverse.”
“Diversity provides a different perspective,” Winges said. “In investment banking, we haven’t always had all the perspectives.”
In Texas, Hilltop competes with the state’s second-ranked financial advisor, Estrada Hinojosa & Co., one of several firms founded by former First Southwest Co. bankers. Noe Hinojosa Jr., the firm’s chief executive, built his business on neglected credits in the Lower Rio Grande Valley and the border region, helping local issuers gain access to the capital markets.
The newest company created by a former First Southwest banker is Masterson Advisors, launched in 2018 in Houston by Drew Masterson. Masterson, who worked for First Southwest for 22 years, brought over the core of his seasoned team.
For financial advisors and underwriters, Texas promises a rapidly growing and diverse population. Texas is the second-youngest state in the U.S. by median age behind Utah and has the fourth-most ethnically diverse population, according to recent Census data.
In 2018, nearly 94% of the $2.5 billion of bond propositions from Texas cities won approval, and voters passed nearly 91% of about $10 billion of school district bonds.
"The amount of new issuances — tied to two years of above-average voted authorization — has and is projected to offset the decline in advance refunding issuance tied to federal tax legislation," according to a recent report from Hilltop's public finance team.
Winges also plans to enhance recruitment of younger people to replenish the ranks of an aging profession. An initiative called Hilltop University will partner with colleges and universities around the country to try to steer business- and government-oriented students toward municipal finance and fixed-income investment.
“Hilltop needs to be the firm that transcends the generational gap that’s taking place in fixed income,” Winges said. “A good percentage of our industry is going to retire over the next seven to 10 years.”
Winges said he is also interested in exploring the opportunities that might come from artificial intelligence, a technology that is transforming commercial banking and hedge funds but little discussed in public finance conferences.
“You have all that data. Now what are you going to do with that?” Winges asks. “That is going to be the first challenge. There will be opportunity for people who know how to program for AI.”
At Piper, Winges was head of municipal sales and trading, among other roles. He has also led the firm’s risk management efforts and balance sheet investing and funding. Early in his career while at the Chicago Mercantile Exchange, he was one of the youngest futures and licensed seat exchange traders in the United States.
A past two-term chairman of the Bond Dealers of America board of directors, Winges remains on the board’s executive committee and co-chairs the BDA’s fixed income market structure committee. He is a founding member of the American Securities Association and was appointed to the Securities and Exchange Commission’s fixed income market structure committee earlier this year.
Winges said he left Piper on good terms and “agreed to play nice.”
“I think they can be a good ally for Hilltop,” Winges said of Piper Jaffray. “I see them as a friendly competitor."
