Building Strong Bonds

How Siebert Brandford Shank & Co. L.L.C. became Wall Street�s fastest-growing public finance firm

As a student of engineering and finance, Shank is perfectly suited to put together bond deals. (Photo by Lonnie Major)

It’s a little after 7 a.m. on A mild April morning, and Suzanne Shank is seated in the back of a Lincoln Town Car barreling north out of New York City on Interstate 95. She’s checking e-mail and voice messages on two cell phones and looking over a presentation she plans to deliver at a 9 a.m. meeting in Hartford, Connecticut, with State Treasurer Denise Nappier.

Connecticut, like many states these days, has financial issues. Its tax receipts are decreasing while its budget continues to expand. As she has done many times before, Shank will make the case that her firm can help the state borrow the money it needs at a low cost. “I have a few ideas,” Shank says, pursing her lips. As president, CEO, and vice-chairwoman of Wall Street bond firm Siebert Brandford Shank & Co. L.L.C. (No. 3 in taxable securities with $1.8 billion in lead issues and No. 1 in tax-exempt securities with $7 billion in lead issues on the be investment banks list), Shank could’ve sent one of her 75 staffers to Hartford for the early morning meeting. But this is where Shank prefers to be, out on the road, generating business face-to-face: “I love to sell.”

Have you ever wondered where your city or town comes up with the money to build a fancy new school, add a terminal to the old airport, or erect a gleaming sports arena? Surely, they use the tax dollars you paid them. But, when mayors and governors have ambitions for renewal, they turn to people like Shank, whose firm specializes in orchestrating bond transactions that help finance public works projects.

Shank says she stopped trying to explain what she does to family members. “It took my parents a long time to get it, but now they’ll read something in the paper about a city issuing bonds—and they’ll call me,” she chuckles. Bond issuances can be complicated transactions, but essentially SBS assists states and municipalities in borrowing money by structuring bonds and then locating investors willing to take on public debt. What these investors get in exchange are generally low-risk, tax-exempt investment vehicles with a predictable rate of return. What SBS receives is a share of each bond issuance. In most cases, bond underwriters share between 0.5% and 1% of the total issuance. The lead underwriter takes the lion’s share—some 40% to 70%—and the remainder is split among firms that co-lead or play a less central role in the structuring and selling of the bonds. If, say, SBS is lead underwriter for a $1 billion bond issuance, the largest possible underwriting fee would be $10 million (or 1%). In this scenario, SBS could receive as much as $7 million (or 70% of the $10 million) in income.

In many ways, the recent recession and collapse of historic Wall Street firms during 2008 and 2009 proved to be a boon for SBS’s business. In 2008, Shank sat down with the firm’s co-founder and chairman, Napoleon Brandford III, and devised an aggressive expansion plan. SBS made several key hires, adding more than 30 bond specialists who fled larger firms such as Merrill Lynch & Co. Inc., Bear Stearns & Co. Inc., and Lehman Brothers Holdings Inc. As other firms exited the public finance space, SBS saw an opportunity to broaden market share. Together, Brandford and Shank steered the company to focus mainly on deals that finance transportation-related public works projects such as infrastructure improvements on roads, bridges, seaports, and airports.

The plan worked. As a result, in 2009, SBS expanded in both size and stature. Last year, the company was the lead underwriter in bond deals for the Dallas/Fort Worth International Airport, the Cleveland Airport System, the New York City Municipal Water Finance Authority, and the City of Detroit. At the same time, SBS took advantage of the Obama administration’s Build America Bonds, or BABs, a $64 billion stimulus program in which the federal government backs taxable municipal bonds to help states and municipalities complete construction and other projects. These bonds are attractive to states because the federal government pays for 35% of the interest on bonds for public projects. SBS ranked seventh nationally among lead underwriters constructing BABs deals in 2009.

In all, SBS senior-managed 39 transactions worth $5.9 billion, compared to 32 deals totaling $3.5 billion the previous year. The average deal size was $150 million, placing it third, just behind Goldman Sachs & Co. (with $177 million) and Citigroup Inc. (with $157 million) among all national firms. In the first quarter of 2010, having been lead underwriter of $3.25 billion in bond issuances, SBS achieved a feat no other minority-owned firm has ever accomplished: the firm broke into the top 10 ranking of all municipal bond senior managers. Due to its groundbreaking achievements and stellar financial performance, black enterprise has chosen Siebert Brandford Shank & Co. L.L.C. as our 2010 Financial Services Company of the Year.

ENGINEERING DEALS
Shank never imagined herself a celebrated Wall Street bond dealer. When she graduated in 1983 from Georgia Institute of Technology, better known as Georgia Tech, her plan was to build a career in the field she’d studied and been so passionate about: engineering. Shank worked as a civil and structural engineer for General Dynamics Corp. for two years after leaving school. It wasn’t long before she realized she had a knack for organizing and leading projects. To hone those skills and put herself on the fast track for engineering management jobs, Shank enrolled in the M.B.A. program at the Wharton School of the University of Pennsylvania in 1985. Once Shank began her coursework, she discovered her real passion was finance. The field’s number-driven underpinnings felt more familiar to the trained engineer. “Management seemed a little touchy-feely to me,” she says. “I gravitated toward finance because it’s technical, and there’s a real answer to every problem.”

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