Texas law propels Jefferies Financial

Jefferies Financial Group is clearly emerging as a winner in the Texas Republicans’ efforts to punish Wall Street banks for their restrictive gun policies.

Texas’ lucrative municipal bond market, just behind California in issuance, has been in turmoil since a law came into effect on September 1 that prohibits state entities and local governments from working with companies. they “discriminate” against gun companies.

As some of the biggest Wall Street banks halted government finance transactions in Texas due to legislation, Jefferies heads the companies that have seen their business increase. It was the state’s first rapidly growing municipal insurer in the past four months, while in the same period last year it was 12th, according to data compiled by Bloomberg.

“This is the fastest growing place in the municipal market – other companies that are comfortable with compliance will likely play a bigger role for Texas,” said Martin Luby, research professor. on Public Finances at the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin. With the law creating an opportunity for small businesses, “they should get a little more aggressive and will likely increase their hires.”

At the end of 2021, the Texas municipal bond market and the bankers who do business with its many issuers, from state to local agencies and school districts, are at a crossroads. There are signs the battle for territory is far from over, with significant sums at stake for the winners – hundreds of millions of dollars in subscription fees just for school debt approved in Texas over the past five years. years.

Last month, Citigroup completed its first transaction since August. The deal was reached on December 14 after obtaining approval from the state’s Republican attorney general. The bank, specifically targeted by the gun law sponsor, prohibits its retail customers from offering large-caliber inventory or selling firearms to people who have not passed security checks. history or who are under 21 years old.

Citigroup, the state’s largest municipal underwriter for the past three years and still the nation’s second largest, collapsed to ninth largest in Texas in 2021. Its reboot indicates that other major Wall Street banks including municipal activities in Texas are still on hiatus – JPMorgan Chase, Bank of America and Goldman Sachs – may also have the option to restart underwriting there.

But it may not be easy to persuade issuers to hire them again on deals in place of rivals who have made inroads into the state.

Jefferies is credited with taking out about $ 1.9 billion in long-term Texas municipal bond deals from Sept. 1 to Dec. 21, up from around $ 555 million during the same period in 2020, according to data compiled by Bloomberg. More than two-thirds of its 2021 volume came after the law came into effect, evidenced by a $ 615 million offer in October from the Central Texas Regional Mobility Authority.

The bank is sending a strong signal that it plans to hold on to its earnings and that it is a destination for bankers from companies that have been shut out in recent months.

This fall, Jefferies hired Mark Tarpley of Citigroup, a Dallas-based banker who focused on K-12 school districts, an area of ​​the Texan market in which Jefferies traditionally had little presence. based banker who worked on municipal transactions in Texas at JPMorgan Chase.

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

Other companies have also risen through the ranks. Dallas-based Hilltop Holdings Inc. is credited with about $ 1.3 billion in transactions in Texas since the law came into effect, up from $ 341 million in the same period last year . This made it the fifth largest underwriter during this period, up from 18th during the period of the previous year.

And Barclays is credited with processing $ 972 million in municipal transactions in Texas since September 1, up from $ 208 million during the same period last year. This makes it the sixth-largest underwriter since September 1, down from 21 a year earlier.

Barclays representatives declined to comment. Hilltop spokeswoman Jacy Hirschfeld said by email that the law had had little impact on the bank, and instead attributed the growth in underwriting to the hiring of more bankers, traders and of sellers in the past year.