The new municipal underwriting group at U.S. Bancorp Investments continues to expand its ranks, adding Leon Bijou as the group's in-house legal counsel last week and securing Bill Bingham to oversee fixed-rate trading this fall.
The New York-based group plans to officially enter the market in mid-September and develop the fixed-rate business early next year. Its focus will be on the origination, underwriting, sales, remarketing, and trading of floating- and fixed-rate municipal debt.
Bijou is a transactional lawyer by experience and training who works with bankers and outside counsel doing deals. However, he's spent most of the past two years at the Securities Industry and Financial Markets Association, the trade group representing the financial markets sector.
As a staff adviser in the muni division, Bijou's role at SIFMA involved speaking with participants from all sides of the market, dealing with regulatory issues, legislation, and lobbying, and organizing conferences to answer critical legal questions relating to restructuring and bankruptcy.
Bijou said part of the appeal of municipal finance for him comes from the "feel-good element" he derives from facilitating construction of public infrastructure and seeing the tangible evidence of that work. At USB, he's anxious to deploy his experience to launch a new face among underwriters.
"An opportunity to be the lawyer for a department that's starting within a well-established, conservative bank, is something that I didn't want to pass up," he said.
Bijou previously served four years as associate general counsel for Goldman, Sachs & Co., and spent nine years before that as an associate with Orrick, Herrington & Sutcliffe.
"I get to take that whole constellation of contacts, people, knowledge, and products, and start it out from scratch writing manuals and building the infrastructure," he said.
Richard Kolman, who joined USB in May to lead the new group, said hiring Bijou was crucial given the changing regulatory and compliance issues of the market.
"The industry is changing every day, so he's an important cog for us as we move forward, making sure we do things correctly," said Kolman, who is best known for his near 30-year career at Goldman, where he was co-head of municipal finance. "If we're unsure, he's a person we can turn to in order to guide us and break down the issues very quickly."
Thomas Gallo, a short-term bond specialist hired last month, said Bijou will be the firm's desk expert on the Municipal Securities Rulemaking Board, making certain the firm remains in compliance as it develops a market presence.
"Especially for a new organization, reputational risk is something we take very seriously," Gallo said.
Bingham, who joins USB this fall, announced his resignation from Societe Generale last week. The 25-year industry veteran is currently on garden leave, according to Kolman.
Bingham joined Societe Generale in 2005 and most recently ran its municipal trading portfolio. He also oversaw the tender-option bond and arbitrage programs and will assume similar duties as a USB managing director. He managed Wachovia's municipal money market department from 1994 to 2005.
USB, which has recently hired a handful of junior traders and associates, will continue to look for senior traders in the next few months, Kolman said. One post he hopes to fill is a short-term salesman who has the skills to build out beyond the usual definition of short-term debt.
"The definition of short-term is not just floating-rate debt," Kolman said. "With rates being so low this year, for a lot of investors the definition of short term is out to three, even five years."
Three-year triple-A bonds yielded 0.55% on Wednesday, according to Municipal Market Data. In mid-2007, they yielded as much as 3.87%.
Kolman said he has been surprised investors haven't balked at the low rates. One reason, he added, is that investors have become more risk-averse, and despite all the negative headlines, most municipals remain a safe haven investment.
"People in the past thought of munis as an interest rate product," Kolman added. "But actually, it's not — it's a credit product."
Describing the shift in perception, he said there has been more emphasis on credit analysis this year because municipal bond insurers — which used to guarantee more than half of new issuance — now wrap less than 10% of new product. That has forced investors to study underlying credits, and that extra analysis has contributed to historically low yields.
USB, with its Aa1 rating from Moody's Investors Service and AA-minus ratings from Standard & Poor's and Fitch Ratings, believes it can take advantage of the market's robust appetite.
When Kolman's group enters the municipal market next month, they will do so as USB's first organically developed underwriting team.
The bank's earlier underwriting experience began in May 1998 with the acquisition of Minneapolis-based Piper Jaffray & Co. Under the name U.S. Bancorp Piper Jaffray, the firm operated as an underwriter with a focus on clients issuing bonds worth less than $10 million. It became the third-largest underwriter of such deals in 2003, according to Thomson Reuters.
USB spun off the underwriting unit at the end of 2003 to focus on consumer banking, private client, and trust and asset management services. USB was the second-ranked trustee in the country in 2009, managing 1,028 issues with a value of $58.5 billion.
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