It’s a little after 7 a.m. on A mild April morning, and Suzanne Shank is seated in the back of a Lincoln Town Car barreling north out of New York City on Interstate 95. She’s checking e-mail and voice messages on two cell phones and looking over a presentation she plans to deliver at a 9 a.m. meeting in Hartford, Connecticut, with State Treasurer Denise Nappier.
Connecticut, like many states these days, has financial issues. Its tax receipts are decreasing while its budget continues to expand. As she has done many times before, Shank will make the case that her firm can help the state borrow the money it needs at a low cost. “I have a few ideas,†Shank says, pursing her lips. As president, CEO, and vice-chairwoman of Wall Street bond firm Siebert Brandford Shank & Co. L.L.C. (No. 3 in taxable securities with $1.8 billion in lead issues and No. 1 in tax-exempt securities with $7 billion in lead issues on the be investment banks list), Shank could’ve sent one of her 75 staffers to Hartford for the early morning meeting. But this is where Shank prefers to be, out on the road, generating business face-to-face: “I love to sell.â€
Have you ever wondered where your city or town comes up with the money to build a fancy new school, add a terminal to the old airport, or erect a gleaming sports arena? Surely, they use the tax dollars you paid them. But, when mayors and governors have ambitions for renewal, they turn to people like Shank, whose firm specializes in orchestrating bond transactions that help finance public works projects.
Shank says she stopped trying to explain what she does to family members. “It took my parents a long time to get it, but now they’ll read something in the paper about a city issuing bonds–and they’ll call me,†she chuckles. Bond issuances can be complicated transactions, but essentially SBS assists states and municipalities in borrowing money by structuring bonds and then locating investors willing to take on public debt. What these investors get in exchange are generally low-risk, tax-exempt investment vehicles with a predictable rate of return. What SBS receives is a share of each bond issuance. In most cases, bond underwriters share between 0.5% and 1% of the total issuance. The lead underwriter takes the lion’s share–some 40% to 70%–and the remainder is split among firms that co-lead or play a less central role in the structuring and selling of the bonds. If, say, SBS is lead underwriter for a $1 billion bond issuance, the largest possible underwriting fee would be $10 million (or 1%). In this scenario, SBS could receive as much as $7 million (or 70% of the $10 million) in income.
In many ways, the recent recession and collapse of historic Wall Street firms during 2008 and 2009 proved to be a boon for SBS’s business. In 2008, Shank sat down with the firm’s co-founder and chairman, Napoleon Brandford III, and devised an aggressive expansion plan. SBS made several key hires, adding more than 30 bond specialists who fled larger firms such as Merrill Lynch & Co. Inc., Bear Stearns & Co. Inc., and Lehman Brothers Holdings Inc. As other firms exited the public finance space, SBS saw an opportunity to broaden market share. Together, Brandford and Shank steered the company to focus mainly on deals that finance transportation-related public works projects such as infrastructure improvements on roads, bridges, seaports, and airports.
The plan worked. As a result, in 2009, SBS expanded in both size and stature. Last year, the company was the lead underwriter in bond deals for the Dallas/Fort Worth International Airport, the Cleveland Airport System, the New York City Municipal Water Finance Authority, and the City of Detroit. At the same time, SBS took advantage of the Obama administration’s Build America Bonds, or BABs, a $64 billion stimulus program in which the federal government backs taxable municipal bonds to help states and municipalities complete construction and other projects. These bonds are attractive to states because the federal government pays for 35% of the interest on bonds for public projects. SBS ranked seventh nationally among lead underwriters constructing BABs deals in 2009.
In all, SBS senior-managed 39 transactions worth $5.9 billion, compared to 32 deals totaling $3.5 billion the previous year. The average deal size was $150 million, placing it third, just behind Goldman Sachs & Co. (with $177 million) and Citigroup Inc. (with $157 million) among all national firms. In the first quarter of 2010, having been lead underwriter of $3.25 billion in bond issuances, SBS achieved a feat no other minority-owned firm has ever accomplished: the firm broke into the top 10 ranking of all municipal bond senior managers. Due to its groundbreaking achievements and stellar financial performance, black enterprise has chosen Siebert Brandford Shank & Co. L.L.C. as our 2010 Financial Services Company of the Year.
ENGINEERING DEALS
Shank never imagined herself a celebrated Wall Street bond dealer. When she graduated in 1983 from Georgia Institute of Technology, better known as Georgia Tech, her plan was to build a career in the field she’d studied and been so passionate about: engineering. Shank worked as a civil and structural engineer for General Dynamics Corp. for two years after leaving school. It wasn’t long before she realized she had a knack for organizing and leading projects. To hone those skills and put herself on the fast track for engineering management jobs, Shank enrolled in the M.B.A. program at the Wharton School of the University of Pennsylvania in 1985. Once Shank began her coursework, she discovered her real passion was finance. The field’s number-driven underpinnings felt more familiar to the trained engineer. “Management seemed a little touchy-feely to me,†she says. “I gravitated toward finance because it’s technical, and there’s a real answer to every problem.â€
The summer after Shank’s first year at Wharton, the Savannah, Georgia, native traveled from Philadelphia to New York City “with a subway map and a list of addresses for interviews,†she says. “At that time, all the hot jobs were on Wall Street. I wanted to try it out for one summer.†She accepted an internship with James J. Lowrey & Co. Inc., an independent financial advisory firm that represented city and state governments in bond issuance deals by ensuring bond dealers on the opposite side of the table did their best to save cities and states money in such debt transactions.
Lowrey & Co. was a top firm in its tiny corner of the public finance arena. It was fortuitous that Shank chose to work for the small outfit. Lowrey’s size meant that even as a summer intern, Shank was expected to share her ideas with senior managers and venture out of the office to meet with clients. “It was a
very aggressive shop ranked as the No. 1 financial advisory firm when I was there, and I liked the nature of it. That’s where I caught the bug and decided this is what I want to do. I didn’t want to build submarines anymore.†Shank’s engineering roots, however, had given her an edge in public finance: “I know and understand the technical lingo behind the projects. Instead of designing and building infrastructure projects, I’m helping to finance them.â€When Shank finished her studies at Wharton in 1987, she joined Lowrey & Co. as a full-time associate. She logged airline mileage flying from New York to Florida and California, advising Lowrey’s clients such as the City of Miami and the Southern California Public Power Authority. She soon became attracted to the business being done by the bond dealmakers themselves. So, when an associate offered her a job at M.R. Beal & Co. (No. 3 in tax-exempt securities with $1.6 billion in lead issues on the be investment banks list), Shank leaped at the chance to put together deals of her own. The work wasn’t glamorous. “I worked like a dog,†she says. “I’m talking weekends, late nights–around the clock.â€
It was Shank’s relentless work ethic that drew the attention of Brandford, her then-competitor. He had gained the reputation as a master of financial deals while assistant to the finance director of Dade County, Florida, in the late 1970s and early 1980s. In 1982, he left public service to take a job as vice president in the public finance group in the San Francisco office of Shearson/American Express. Brandford was soon itching to create his own investment bank specializing in municipal bonds. In May 1985, he and Calvin B. Grigsby, who at the time was the founder and CEO of municipal leasing firm Fiscal Funding Co. Inc., formed a new firm called Grigsby Brandford & Co. Inc.
With Brandford as vice chairman, the new firm developed a national presence and became one of the country’s largest minority-owned investment banks. Brandford called Shank one day in 1991, hoping to steal her away from M.R. Beal & Co. “The truth is I had beaten Napoleon out of a big deal with the Detroit Public Schools that his firm thought they were going to get. So they came after me,†she says. Shank, lured by the prospect of a larger role in putting deals together, accepted Brandford’s offer.
While at Grigsby Brandford & Co., Shank distinguished herself further as a dealmaker, producing landmark deals such as the $1 billion McCormick Place Convention Center expansion deal in Chicago; downtown Detroit development projects, which included Tiger stadium; and the St. Louis convention center. However, a scandal caused some upheaval at the firm in late 1996. Grigsby, the chief executive, had been accused of being part of a kickback scheme in exchange for bond business in from the Southern District of Florida. Another case charged that Grigsby misused public funds. He was indicted in both cases but later exonerated of all charges. Long before Grigsby’s cases saw their way through the court system, Brandford and Shank, his star bond dealer decided to exit Grigsby Brandford and launch their own firm.
MAKING OF A FINANCIAL POWERHOUSE
Brandford remembers the exact date that he and Shank had dinner with Muriel Siebert to pitch their idea of starting a new firm. “It was September 30, 1996,†says Brandford. “We were
It was a beneficial match. Muriel “Mickie†Siebert is legendary in finance circles. In 1967, Siebert became the first woman to buy a seat on the New York Stock Exchange, and she founded her own brokerage firm, in 1969. Sometimes referred to as “the first woman of finance,†Siebert used her notoriety to fight for a larger presence of women and minorities in the financial industry. When Brandford and Shank put forth the idea of starting a firm together, Siebert jumped at the proposition. “Napoleon, Suzanne, and I formed the firm over dinner with a handshake,†explains Siebert. “I was impressed with each of their individual accomplishments in the public finance arena. They each had senior managed large deals for major issuers across the country. We wanted to form a firm wholly owned by women and minorities that would be a force on Wall Street–and that is exactly what we did.â€
After the dinner with Siebert, says Brandford, “we started the new business the next day. I saw it as a continuation of what we all did in the civil rights era, where the black and Jewish communities worked together to break barriers.†Siebert contributed $392,000, while Brandford and Shank invested $204,000 apiece to start the company. Some 30 of Grigsby’s 60 employees left for the new firm, Siebert Brandford Shank & Company L.L.C.
SBS had its work cut out for it to overcome those barriers. It was once common for clients to sometimes consider only one minority-owned firm for a deal and to pit us all against one another, Shank says. “My pitch was always that we wanted to compete against all firms because we had a track record of superior performance. Other growing firms seemed to focus more aggressively on getting a nice paycheck by just being included in the deal. While that’s more lucrative on a short-term basis, we began to be hired to lead larger deals because our clients had seen our results and trusted our ability to perform. This is a business of relationships. If you do well for your clients they remain loyal to you. I believe in the axiom ‘Slow and steady wins the race.’â€
Though SBS has been in business for nearly 15 years, it’s never seen a period like 2009. The key to its success has been attracting new talent. One of the strongest recruits has been former New York City comptroller Bill Thompson. Believing Thompson would add depth to its bond-structuring team, SBS went after him when he lost his bid to become mayor of New York last fall. He joined the firm in April of this year, noting his pride in becoming part of a company “that’s witnessed such considerable growth in recent years.†Thompson also echoed the firm’s reasons for bringing him aboard: “Given t
he current fiscal distress faced by most large cities and states across our country, my experience will prove invaluable as our firm identifies strategies to assist these municipalities.†Because of Thompson’s former role as the person who supervised New York City’s accounting and finances, he will not conduct bond business with the City.Many of SBS’s new hires reinforce what Brandford believes is one of the firm’s core strategic advantages: “We have far more former public sector employees than any other firm in this business.†Brandford says he’s pushed the company to find people who fully understand governments.
To that end, SBS has 18 regional offices in major metropolitan areas such as Atlanta, Chicago, Dallas, Detroit, Los Angeles, Miami, and Seattle. While larger firms were pulling back and centralizing their public finance operations in New York, SBS began significant expansion in 2002, setting up offices around the country with finance specialists who can service clients at a moment’s notice “rather than having to fly from New York,†says Brandford. “You can’t know how people in Seattle are thinking when you’re in New York. Or what officials in Fort Worth need when you’re based in New York. You have to have boots on the ground.â€
SBS’s frequent clients agree that the company has an aptitude for understanding their particular needs. “I talk to a lot of bankers and look at a lot of [deal proposals] that they put together. Suzanne has a way of preparing some of the most compelling [proposals] in the marketplace,†says Paul T. Williams Jr., president of the Dormitory Authority of the State of New York (DASNY). “It’s not magic. She just hones in on the issues that we want to hear about. Other bankers present you with what they want you to see. For example, when we’re preparing to go into the market, SBS always offers strong pricing analysis of comparable deals that are both quantitative and qualitative; not everyone does that.†DASNY is responsible for public financing of public works construction in New York State, and is the second largest issuer of bonds in the nation after the State of California. In 2008 and 2009 combined, SBS participated in 10 transactions for DASNY, helping to raise $3.2 billion. “We couldn’t be happier with Siebert Brandford Shank’s talent and professionalism. The caliber of service and ability to execute put them right on par with the rest of Wall Street,†Williams says.
Nappier couldn’t agree more. In 2008, when the credit markets were virtually frozen, Connecticut went ahead with a bond issuance led by SBS. “The deal was initially sized at $250 million, but the state was able to increase the issuance to $500 million thanks in large part to SBS’s confidence and ability to seize on an opportunity to capitalize on the turning tide in the markets,†says Nappier. The state treasurer was particularly grateful that SBS cut yields on the bonds, which eventually reduced Connecticut’s cost of borrowing to 4.9% and saved the state more than $20 million in debt service costs. “Along with our debt management team, SBS has been a critical component to the strength and vitality of our state’s economy,†she says.
All of this explains the warm reception Shank received when she showed up in Hartford to visit Nappier that April morning. The two women sat in a conference room, chatting for about 30 minutes. Then Shank gave Nappier’s staff a presentation on a possible opportunity to refinance some of its existing debt, using an innovative structural feature that might lower the cost of borrowing. Shank was once again doing what she does best: engineering a deal.
–Additional reporting by Dale R. Coachman