Texas law propels Jefferies Financial - Arkansas Online

Jefferies Financial Group is emerging as a clear winner in an effort by Texas Republicans to punish Wall Street banks for their restrictive gun policies.

The lucrative Texas municipal-bond market, second only to California in terms of issuance, has been turned on its head since a law took effect Sept. 1 that bars state entities and local governments from working with firms if they "discriminate" against firearms companies.

With some of Wall Street's largest banks having halted public-finance transactions in Texas because of the legislation, Jefferies is leading firms that have seen their business surge. It was the top municipal underwriter in the fast-growing state for the past four months, whereas in the same period last year it was 12th, data compiled by Bloomberg show.

"This is the biggest-growing place in the muni market -- other firms that are comfortable with the compliance will likely make a bigger play for Texas," said Martin Luby, a professor who researches public finance at the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin. With the law creating an opportunity for smaller firms, "they should get a little more aggressive and will likely ramp up hiring."

As 2021 winds down, the Texas municipal bond market and the bankers who conduct business with its many issuers, from the state to local agencies and school districts, are at a crossroads. There are signs that the turf battle is far from over, with major sums at stake for the winners -- hundreds of millions of dollars in underwriting fees just for the school debt approved in Texas in the past five years.

Last month, Citigroup underwrote its first transaction since August. The deal closed on Dec. 14 after getting the approval of the state's Republican attorney general. The bank, specifically targeted by the gun law's sponsor, prohibits its retailer customers from offering bump stocks or selling firearms to people who haven't passed a background check or are younger than 21.

Citigroup, the top municipal underwriter in the state the past three years and still the second-biggest nationwide, has slumped to ninth in Texas in 2021. Its restart there is an indication that other big Wall Street banks whose Texas municipal business is still on pause -- JPMorgan Chase, Bank of America and Goldman Sachs -- may have an opportunity to recommence underwriting there as well.

But it may not be easy to persuade issuers to hire them on deals again in the place of rivals that have been making inroads in the state.

Jefferies gets credit for underwriting around $1.9 billion of long-term Texas municipal-bond deals from Sept. 1 through Dec. 21, up from about $555 million in the same period of 2020, data compiled by Bloomberg show. More than two-thirds of its 2021 volume came after the law went into effect, highlighted by a $615 million offering in October by the Central Texas Regional Mobility Authority.

The bank is sending a strong signal that it plans to hold onto its gains, and that it's a destination for bankers at firms that have been shut out in recent months.

Jefferies this fall hired Citigroup's Mark Tarpley, a Dallas-based banker who focused on K-12 school districts, a sector of the Texas market that Jefferies traditionally didn't have a big presence in. It also brought on Pedro Ramos, a Denver-based banker who worked on Texas municipal deals at JPMorgan Chase.

A spokesperson for Jefferies, which is ranked ninth this year for nationwide municipal bond underwriting, declined to comment.

Other firms have climbed in the ranks as well. Dallas-based Hilltop Holdings Inc. gets credit for about $1.3 billion of Texas deals since the law went into effect, compared with $341 million in the same period last year. That made it the fifth-biggest underwriter in that period, up from 18th in the year-earlier span.

And Barclays is credited with handling $972 million of Texas municipal deals since Sept. 1, compared with $208 million in the same period last year. That makes it the sixth-biggest underwriter there since Sept. 1, up from 21st a year earlier.

Representatives for Barclays declined to comment. Hilltop spokesperson Jacy Hirschfeld said via email that the law has had little impact on the bank, and instead attributed the underwriting growth to hiring more bankers, traders and sales people over the past year.

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