paying interest on that debt. McCall, who is issuing far fewer bonds these days, says that ratings agencies are looking at all the debt issued over the last few years and down credit ratings of many municipalities. Because there are less bond deals to go around, most majority firms have gotten out of the muni bond business entirely, while many minority firms are being pushed to the brink.
Last year, the auditor at WR Lazard expressed doubt about the firm’s viability. In fact, the creme de la creme of minority investment firms, like Pryor, McClendon, Counts & Co., Howard Gary and Grigsby Brandford, are facing legal and financial problems. Calvin Grigsby, whose firm disintegrated under the weight of rumors of misconduct, has reportedly relocated his firm from San Francisco to Miami under the name Grigsby & Associates (see “Meltdown in the Muni Bond Market,” December 1996).
“There is an almost racist perception that if minority firms got business in the past, it was only because they were doing something illegal, like paying people off,” McCall asserts. “Their actions are being scrutinized much more closely than others.” Whether or not the pressure of staying in business forced the principals of these firms to resort to criminal conduct hasn’t been proven. But the firms mired in scandal will find it hard to fully recover.
CHANGE FOR SURVIVAL
Given that the industry is changing, the investment banking firms must change, too. But as Bell is learning, change does not always come easily. “We have, to a degree, tried to diversify but that’s going to take time,” he laments. A year or so ago, he establ
ished Charles A. Bell Asset Management Corp. to manage corporate and pension funds. But in addition to not having the capital required for a broad expansion, Bell has faced problems entering the equity market. “I don’t have the relationships with corporate people that are necessary to become a major player or a general participant,” he explains.
This is exactly the dilemma Nathan A. Chapman Jr. tried to avoid when he started The Chapman Co. (No. 13 on the BE INVESTMENT BANK list) in 1986. When formulating his business strategy, Chapman determined that diversification was key. “Everything has its time, and sooner or later if you’re too leveraged in one product, then when that product goes away, your business is in jeopardy.” Chapman’s firm began on the equity side, adding public finance later. Although the municipal bond market was still hot in 1986, he offered products that were cool, such as retail brokerage.
“We continued to develop the business and grow it,” says Chapman, “because we knew there would come a time when the ability to deal with clients on a retail level would be successful and that has proven to be the case.” Variety is the spice of retail brokerage, where clients have many needs such as mutual funds, annuities, stocks and bonds of all types.
Chapman also wanted to be a big player on the corporate side. “We knew that’s where we wanted to