Minority-owned investment banks increase share in US corporate bond markets

The presence of minority- and women-owned investment banks in the US capital markets is not a new phenomenon. Businesses such Blaylock Van, Seelaus, Loop Capital Markets and Siebert Williams Shank have been operating, in one form or another, since the 1980s and 1990s.

Within the municipal bond markets, in particular, such firms have been competing alongside bigger players for decades, with some success – Siebert Williams Shank, for example, has become a top-10 lead manager. But the going remains tough. And in the corporate bond markets, bigger banks are even more dominant.

There are some signs that this is starting to change, however. The killing of George Floyd in May 2020 has prompted much soul-searching in relation to racial injustice, both in the US and further afield, and has given the broader diversity and inclusion agenda a renewed sense of saliency and urgency. The capital markets have been no exception and, within the corporate bond area, issuers and banks have been considering whether the syndicates behind bond issuances comprise a diverse enough range of participants. And, perhaps even more crucially, whether smaller firms are being given senior enough roles.

Gradual change

Refinitiv data suggests that gradually such firms have been participating in a greater share of deals. For instance, in 2020 minority- and women-owned businesses participated in 44% of US investment grade corporate bond issuances (by value of the deals), compared to 28.5% in 2011, and following 43% in 2019 and 40% in 2018.

However, there is a clear difference in terms of the fees earned, as well as the experience gained, between being listed as part of a deal as, say, a passive bookrunner or even a co-manager, versus being a lead manager for a deal. And here such firms only represent a small minority. According to Refinitiv, minority- and women-owned businesses were lead managers in only 3% of US investment grade corporate bond deals (by value) last year.

Suzanne Shank, CEO of Siebert Williams Shank, a women- and minority-owned firm, says: “If you’re not a joint lead, then you don’t have access to the key information. Being given that role enables you to engage with the investors, to participate in the pricing conversations, really to have a seat at the table for all the important discussions and decisions.”

Dave Yang, a vice-president in minority-owned firm Loop Capital Markets’ corporate investment banking division, observes there is a “Catch-22 situation” where for firms such as his to win leading roles “you first need to get experience as a lead, but to get that experience you need lead role opportunities”. This has created a situation where, to date, most issuers have been reluctant to award lead manager roles to firms other than larger banks.

Taking the lead

However, in the past nine months or so, several prominent issuers have made a point of appointing minority and women-owned firms as lead managers. For instance, in November 2020, US insurance firm Allstate appointed four minority-, women- and veteran-owned business enterprises (MWVBEs) as lead managers for a $1.2bn corporate bond offering, along with a further five MWVBEs as co-managers. Loop Capital Markets was one of the four lead managers, and Mr Yang believes being involved in that deal has directly led to more opportunities to work on deals for other insurers.

“In the insurance space particularly, we’ve seen significant traction after the Allstate deal. Since then, we have participated as an active bookrunner on bond offerings by marquee names like New York Life, a seasoned issuer, as well as Highmark Health – who had not been in the market in 10 years,” he says, adding: “I think it’s powerful that both seasoned issuers and companies like Highmark are having the confidence to use a diversity firm like Loop.”

In September 2020, US telecommunications giant Verizon issued its second green bond, worth $1bn, and appointed Loop Capital Markets and Siebert Williams Shank as lead managers alongside Bank of America and Citi. Ms Shank believes the successful execution of this transaction had a broader impact. “It showed that the results when using a firm like ours are just as good. We attracted top-tier investors and delivered a really good outcome, and it in turn demonstrates for the issuer it isn’t a risk to engage with firms like ours.”

Several banks have taken similar approaches on some of their own bond issuances in recent months. In April, for instance, Deutsche Bank appointed six MWVBEs as joint lead managers on a $750m bond offering, with a further five as co-managers. Jeanmarie Genirs, head of US investment grade syndicate at Deutsche Bank, says: “We considered what can we really do to support these firms with their goals and success in the financial markets, above listing them as part of the syndicate.”

By asking some to be joint lead managers, it “enabled them to work right alongside with us; get involved in conversations with the issuer, in pricing strategy, every aspect of the deal,” she says. This gave them “access to all the nuances and extra information that you only have access to as a joint lead manager, enabling them to increase their profile and their impact on Wall Street. As part of this deal, they could have an informed discussion with investors and it gives them something to talk about in future conversations with clients,” she adds.

In January 2020, Citi also appointed four black-owned firms – Blaylock Van, CastleOak Securities, Global Oak Capital Markets and Loop Capital Markets – exclusively, to distribute a $2.5bn bond offering, in commemoration of Martin Luther King Jr Day.

A broader perspective

Michael Verdeschi, treasurer at Citi, says: “This kind of approach has been a part of how we have been accessing the market for a number of years now. Engaging with a diverse range of firms can provide us with a broader perspective on the market environment and a broader investor base. And at the same time, making a positive contribution in an area that is important to our firm, by supporting minority broker dealers. So, it’s a win-win.”

Citi says that since 2015 it has worked with more than 30 firms owned by under-represented minorities, women and veterans, totalling more than $150bn in bond issuance. It has also hosted events with minority broker-dealer firms to better understand the issues they face in the market.

Although such deals are still only a small proportion of the market, participants such as Mr Yang and Ms Shank are hopeful that these transactions, and the attention they have received, will be a catalyst for change. Ms Shank says: “We needed to see a willingness from issuers to give us a chance to sit at the table, and we’ve started to see that from some issuers on the corporate bond side.”

Mr Yang comments that the Allstate deal, “sent a very strong message out into the financial community, because it showed that firms like Loop Capital have the capabilities to lead transactions”. 

Crucially, being involved in such deals provides a foundation of valuable experience that firms can develop and leverage in order to win further lead mandates. “Being able to lead deals will help improve the expertise and skills of everyone in the firm. It builds muscle memory. If you’re able to lead deals rather than being a co-manager, where the scope of the work is more limited, the skills of everyone in the organisation sharpen – starting with our interns and analysts and up the chain, they’re all getting more deal experience and sharpening their skills,” says Mr Yang.

The benefits of greater involvement for diverse firms in the capital markets are manifold, he says. Such firms may employ talent that could otherwise struggle to access high-level careers in financial services; more growth for these firms means more opportunities for the communities they hire from. He points out that people working at minority-owned firms may move on to careers at larger banks, so it benefits the whole financial ecosystem.

In addition, MWVBEs are likely to be able to attract a more diverse investor base, for example, minority-, women- and veteran-owned asset managers, than where deals are solely led by large banks. This again opens up the capital markets to wider range of players.

Upwards and onwards

With 38 US investment grade corporate bond issuances lead managed by minority- and women-owned firms, according to Refinitiv data, 2020 was the highest year on record. So far, the momentum appears to be carrying on into 2021: as of June 4, 18 transactions had been lead managed by minority- and women-owned firms.

Ms Shank is hopeful that what she is witnessing within the capital markets is the beginning of meaningful change, rather than a short-lived trend. She says: “I believe that issuers and banks have been doing their own self-reflection about what their roles and responsibilities are in relation to diversity and inclusion. I do hope that the momentum keeps building, rather than this just being a moment. But it does feel different this time around.” 

Ms Genirs believes there has been substantive shift, and that diversity and inclusion issues have been moving higher up the agenda for both issuers and investors. She says: “From the conversations that we are having with clients, we know that diversity and inclusion is increasingly important to them, as well as investors. And I think it falls to all of us – issuers, investors and banks – to think about how together we can make a meaningful difference.”

Market participants also point to initiatives, such as a conference held by Bank of America in April that aimed to connect issuers with minority-run banks, and the emergence of diversity and inclusion coordinator roles within bond deals, as evidence of growing industry action in this area.

As for the tricky question of whether, ultimately, for minority- and women-owned banks to have a greater share of the market, large banks need to be willing to lose out to a certain extent, Ms Genirs is placing her hopes on more diverse and inclusive financial markets creating more opportunities for everyone. She says: “I’m going to be optimistic and say it’s not a fixed pie that we’re all competing for. I’m hopeful that there’s room for growth and partnerships which can benefit multiple firms.”