July 8, 2020 – As 2020 move into its pivotal second half, investment bankers are gearing up for a slew of results from recent Requisitions for Proposals (RFPs) involving some of the nation’s largest issuers, including New York State (through the Empire State Development Corporation), New York City (including its very largest Municipal Water and Sewer debt entity) and the State of Connecticut.
RFPs by large North-East issuers tend to be issued every 3-5 years, with victorious firms given lucrative bond assignments on a rotational basis. The combined New York (state and city) issuance has traditionally ranged from $20-25 billion a year. Connecticut issuance has hovered at $5 billion based on a 10-year average.
Based on BuyMuni’s interview with public finance bankers, the most important factor in firm selection has been the relative performance of firms in underwriting and banking coverage. A secondary factor is the quality of the RFP response – which can range from hundreds to thousands of pages involving well-researched answers to intricate financing questions, biographies of the banking team and legal disclosures.
With 2020 emerging as a watershed year for race relations in America, the x-factor that has emerged recently is the relative reputation of investment banks on the issue of race, or more specifically, racial discrimination.
Morgan Stanley has previously settled lawsuits alleging discrimination against women, but the most recent lawsuit involving Marilyn Booker, an African American woman and previous Chief Diversity Officer at the firm, has raised eyebrows for all the wrong reasons. “It certainly doesn’t look good from the vantage of ambitious public officials who aim to cultivate liberal activists,” said a bond fund manager, also a former public finance banker familiar with the process.
The poster child of banking transgressions – Wells Fargo – also has a mixed record on race relations. The Philadelphia Inquirer reported in December that Wells Fargo & Co. agreed to pay the City of Philadelphia $10 million to settle a federal lawsuit that alleged that the bank discriminated against minority borrowers. Just this week, media reports cited Wells Fargo has having urged a Florida federal judge Monday to toss a real estate attorney’s discrimination lawsuit claiming he was prevented from opening a business account when a then-branch manager called him the N-word.
As of last week, Wells Fargo was still in the cross hairs of the Federal Reserve, which has banned the bank from increasing its balance sheet for various violations involving governance, internal controls and fair treatment of customers.
Will public officials actually award business (or rather, decline to award) on the basis of a bank’s less-than-pristine record on race?
A bulge bracket MD reflected, “the industry has changed since the 90s… at least 10-15 firms are capable of managing large transactions, public officials are not beholden to any large firm and have the leverage to take into account soft factors. Simply put, it’s their prerogative“.
Contact Jumanne Johnson at JJohnson@buymuni.com.
