"If you market yourself as a competent firm, and you have a demonstrated record of performance, and if the firm happens to be a minority-owned business, then that’s much more acceptable."
Yet, for all the new volume that is coming into the market, some black-owned investment firms are finding it prudent to diversify their operations. "We used to be 100% muni finance. Now mortgage-backed securities and federal agency underwriting represent 10% to 20% of the business," says Morgan Bassey, who heads Harvestons Securities Inc., a Denver firm founded in 1993.
Harvestons was recently tapped to co-manage a variety of muni offerings — including an $80 million refinancing for the Denver Convention Center and a $46 million bond issue from the Colorado Water and Public Authority. Nonetheless, this year Bassey plans to expand into equities as a way to decrease his reliance on fees from municipal transactions.
That’s probably a smart strategy, especially since the average profit, or so-called gross spread, to a firm that underwrites a municipal bond offering has dropped to $7.84 per $1,000 of bonds from a high of $23.25 per $1,000 in 1982, according to Securities Data Co.
Elsewhere, however, firms like Rice Financial Products Co. of New York continue to carve out lucrative niches for themselves. The company’s origins were in transactions such as derivatives and interest-rate swaps. In fact, the firm is the only African American investment bank that participates in that market as a principal and counterparty. Still, Chairman J. Donald Rice notes that "not a single transaction that we’ve ever got in the derivatives market was on the basis of being any kind of affirmative action or target group. It just doesn’t exist in the derivatives market." The firm’s highlights include several firsts for the muni market, such as the sole execution of a $300 million derivative financing for a California pension system.
This year, Rice Finan
cial completed the acquisition of Houston-based Apex Securities, a firm with a first-rate track record in the muni market. In 1998, Apex (No. 4 on the be investment bank list) senior-managed $976 million in municipal offerings and co-managed $3.96 billion. Rice now plans to use Apex as a platform to further build his business. "Our goal is to leverage our expertise and dominant position in municipal derivatives and to expand that to the general muni market," he says. Since the acquisition, adds Rice, "our municipal underwriting is about twice the dollar volume it was before."
COMPETITION FOR CORPORATE BOND UNDERWRITING HEATS UP
Undoubtedly, the folks in the municipal finance sector face tough competition to gain new business and hold onto existing clients. But to hear some African American pros tell it, going head to head with the likes of Merrill Lynch and Goldman Sachs for corporate bond business isn’t just cutthroat — it’s out-and-out war. "You’re competing against very large firms that are very well capitalized and have a history of relationships," says CEO Christopher Williams. "So when they