During the 1980s, the formula for success in the municipal bond market was simple: Relationships plus skill equals prosperity. There was a general commitment to affirmative action, and an increasing number of the publicly elected officials handing out lucrative bond deals were black. For minorities wanting a piece of the action, it was a win-win situation.
And win they did–WR Lazard, Howard Gary, Grigsby Brandford and Pryor, McClendon, Counts & Co. These firms, mainstays on the BE INVESTMENT COMPANIES list, were synonymous with success. The principals were serious players in the high-stakes game of municipal finance, where you paid to play and it paid to know the players, i.e., politicians.
“There was a greater emphasis on blacks playing a major role in public finance, which certainly gave people like me the opportunity to come into the marketplace,” recalls Charles A. Bell, CEO of Charles A. Bell Securities Corp. (No. 7 on the BE INVESTMENT COMPANIES list). When Bell opened his firm in 1986, he already had over 20 years of experience working for large companies like Bank of America and Lehman Brothers, and plenty of friends in all the right places. Within two months of opening, he became co-financial advisor to the city of Los Angeles, which meant he could bring a steady source of income into his company. Soon after that, Bell served as a consultant to the underwriter of a $110 million bond issue for Compton, California.
It was deals like these that characterized municipal finance’s heyday during. the ’80s. In ’89, for example, Bell underwrote more than $1 billion in bond issues and served as Financial advisor for another $216 million in issues. Even as municipal finance showed signs of slowing down and many large Wall Street firms began shifting away from munis, Bell’s firm pushed forward even more tenaciously. After slumping to $368 million in issues for 1990, Bell’s earnings were soaring again three years later. His firm underwrote over $3 billion and was advisor for an additional $2.7 billion. In addition, because business was so good, Bell continued to focus on public finance deals.
“I’d been in this business for a long time and had established credibility,” he recalls. “It made sense to start and stay in an area where people knew you and you knew the business.”
That was the good old days. Today, Bell is feeling the squeeze, like many who depend on municipal finance to stay in business. “There is no doubt, whether you’re a small or major firm, that the business is not there as it was four or five years ago,” he reflects. “I’m just as concerned as any other firm about my staying ability, given the lack of product, lack of business in our industry, increasing costs and smaller reads.”
BONDS GO BUST
What went wrong? From 1980-89, municipalities issued $1.06 trillion in debt. According to The Bond Buyer, the industry bible, ’92 and ’93 were the biggest years ever: bonds were issued in the amounts of $234.6 billion and $291.9 billion, respectively. During this