No Longer Business As Usual - African American investment firms

Black Enterprise, June, 1999 by Lynnette Khalfani

A new breed of investment banker is aggressively pursuing corporate accounts and strategic alliances.

AFRICAN AMERICAN INVESTMENT FIRMS faced a curious paradox in 1998. On the one hand, some firms thrived amid a bullish stock market, a reenergized public finance sector and increased opportunities in corporate bond underwriting a lucrative territory long dominated by Wall Street's top-tier brokerages. On the other hand, African American financial pros suffered last year from the same woes and then some--that afflicted the rest of Wall Street. Mergers and acquisitions resulted in thousands of across-the-board job cuts, and black investment bankers, brokers, traders and money managers got their share of pink slips. Profits were tougher to come by and, of course, competition intensified from every possible direction.

Amid such circumstances, the mettle of black-owned firms was truly tested. In response, many businesses rose to the challenge--and some even achieved their best annual performance ever--in terms of deals managed, revenues and profits. Still, a lot of African American investment banks had to fight tooth and nail just to break even. "Access to capital remains the No. I problem facing black-owned broker-dealers," says Tony Chapelle, a longtime industry observer and editor of Securities Pro, a trade publication that tracks African Americans on Wall Street.

Although 1999 is certain to present the black broker-dealer community with new challenges, key players will no doubt keep marching on several right into the record books.

Take Bernard Beal, for instance. The chairman and CEO of M.R. Beal & Co. (No. 8 on the BE INVESTMENT BANK list) plans to allow his institutional customers to buy securities over the Internet. If M.R. Beal is successful, it'll be the first minority-owned firm to sell fixed-income securities via the Net.

Then there's Christopher Williams' firm, Williams Capital Group (No. 3 on the BE INVESTMENT BANK list), whose application for membership on the New York Stock Exchange was in the final stages at press time. This is a major feat, given the tens of thousands of broker-dealers nationwide and the less than 400 members of the NYSE. If approved, Williams Capital will be one of a handful of African American firms that have, over the past 30 years, gotten a seat on the Big Board.

But first let's take a look at the high-lights of 1998, and tell you what to expect for the rest of this year.

MUNI BONDS STAGE A COMEBACK

Perhaps one of the biggest surprises of 1998 was the resurgence of the municipal bond business. For the past five years, many observers had all but written off this area--citing slimmer profit margins, and attacks on affirmative action initiatives that channeled state business to minorities and heightened, competition.

To varying degrees, these factors had an impact on minority-owned firms engaged in muni operations. But none of them negate one key fact driving the muni business: more than 13,000 states, counties, cities, districts and agencies across America need an estimated $2 trillion to finance a myriad of public projects over the next few decades. Roads need to be rebuilt; school buildings need overhauling; and stadiums and convention centers need upgrading.

As a result, some $280 billion in municipal bonds were brought to market last year, second only to a record $290 billion in new issues in 1993, according to Securities Data Co. of Newark, New Jersey. Meanwhile, the number of municipal bond deals in 1998 peaked at 14,367, topping the old record of 14,015 transactions in 1993. On a year-to-year basis, municipal bond issuance was up 30% in 1998.

No minority-owned firm did a better job of capitalizing on the increased volume in 1998 than Siebert Brandford Shank (No. 1 on the BE INVESTMENT BANK list). SBS served as the lead manager of $2.5 billion in total deals last year and co-managed another $26.1 billion worth of bond offerings. As lead manager, or senior manager, an investment firm does everything from providing complex analysis and advisory work to structuring transactions and selling the lion's share of the bonds in an offering. SBS's largest deal last year was a nearly $300 million offering for Detroit public schools.

The firm also lead-managed five deals worth over $ 100 million--very large transactions considering the muni market is overwhelmingly a small-issue arena. Roughly 70% of all new muni offerings in 1998 were $10 million and under.

When SBS competes for business, issuers "are frequently surprised at the size and complexity of the deals that we've done" says president and CEO Suzanne Shank. "But we always try to come through and do a better job than our competition. That's what we have to do to have staying power."

SBS employs 35 people, mostly bankers and sales professionals, in 10 offices across the U.S. The firm was founded in late 1996 and originally operated as a unit of Siebert & Co., which is owned by Muriel Siebert, who's white. But in 1998, Shank and Chairman Napoleon Brandford III split off from Siebert & Co. and got approvals from securities regulators to operate SBS as a separate entity.