When it comes to selling stocks and bonds, diversity is no longer just a human resources initiative.
A group of minority-owned investment banks are underwriting more deals and climbing the league tables by stealing talent bigger rivals and focusing on customer service.
Such firms helped fill the books on almost one-third of stock and bond sales by revenue last year, up from 17% in 2007, according to data from Thomson Reuters. All told, they were involved in 877 deals last year that raised almost $1 trillion.
Most of these firms are private, so it is hard to say if their income statements have swelled in step, but their ranks have.
A Personnel Touch
CastleOak Securities LP, a New York-based investment bank, hired about 13 people in the past year, grew its headcount by 36%. Most recently, the firm, which is 45% owned by Cantor Fitzgerald & Co., signed on a six-person team that will head up a new Oregon office, according to CEO David R. Jones.
As CastleOak worked on more deals, it was sought out for more work.
"It kind of snowballs," Jones explained. "Now, with our track record, our name has to be in the conversation when someone is looking to hire a small or minority-owned firm."
Siebert, Brandford, Shank & Co. LLC, a New York-based bank that deals mostly in municipal bonds, signed on 28 people in the last two years, growing its headcount by about 50%. At the same time, the firm climbed from No. 123 to 60 on league tables for managing stock and bond sales.
"We basically saw contractions of the behemoth Wall Street firms in many areas, including municipal finance," said CEO Suzanne Shank. "Very, very talented stars became available."
Guzman & Co., a Florida-based firm that is working on a $3 billion sale of Citigroup stock, said that it has been buoyed by the collapse of Bear Stearns and Lehman Brothers.
"That means something has to filter to the smaller guy," said CEO Leopoldo Guzman.
At the same time, Guzman has been winning business with efficient order execution and the type of customer-service that sometimes goes missing at massive companies.
"We go after clients with maximum TLC," Guzman said.
Jones, at CastleOak, said customer service was compromised at a lot of bulge-bracket firms by the crisis. Issuers are now paying less attention to brands and balance sheets and many of CastleOak's new recruits brought clients with them from bigger firms.
"Clients would call and say that they literally didn't know who their coverage was," he said. "They don't care about the brand name; they care about who's servicing them."
Looking for a Few Good Men and Women
Municipal bonds have historically been a sweet-spot for minority-owned firms. When hiring on this front, banks look for experience and familiarity with a specific region. Minority-owned firms that are beefing up corporate bond or IPO teams, however, are on the hunt for people with close ties to potential issuers and similarly cozy relationships with institutional investors.
Most of these bulging boutiques, however, don't go out of their way to hire minorities.
"We have that Marine slogan: we're always looking for a few good men -- or women, for that matter," said Eric Standifer, president of Blaylock Robert Van LLC, a New York-based firm that doubled in size last year. "If they're good at this, we'll consider them."
Most of the executives interviewed for this piece said that they take a closer look at minority applicants, but a candidate's ethnicity hardly ever made a difference in a hiring decision.
Still, minorities are playing a greater role in the industry overall. Almost one in four workers in the finance industry are minorities, according to a 2007 survey by Securities Industry and Financial Markets Association. That's up from about 18% in 2003.
Standifer said that growth has helped cultivate more cooperation between large and small firms. "When we call on these entities, we're calling on folks who sometimes look like us," he said. "It's not unheard of anymore."
A Kinder, Gentler Wall Street
But it isn't just new employees that are behind the tide of business; the flow of deals has been strengthened by lawmakers, too. New York, for example, revamped its financial services bidding process and adopted new guidelines to level the playing field for minority-owned firms. Last year, one in four of the state's underwriting dollars went to women- or minority-owned firms, up from 4% in 2007, according to Paul Williams, president of Dormitory Authority of the State of New York, one of five state agencies that sells bonds.
"When you look at the compensation that was being paid out...it was miraculous that they were still knocking on the door here to do business," he said.
Partly as a result, M.R. Beal & Co., a New York-based minority owned firm, was named sole bookrunner on a $1.3 billion bond sale by the DASNY early this month. Stanley Grayson, vice president and chief operating officer at Beal, said that the rule change not only makes sure that firms like his employer get in on deals, but that they harvest a greater portion of the associated fees.
The financial services bill pending in Washington, D.C., includes similar language. The latest version calls on federal agencies to include minority-owned businesses in purchasing decisions "to the maximum extent possible." Executives at minority-owned investment banks are most encouraged, however, by a second provision requiring each agency to submit to Congress an annual report charting progress on this front, including the percent of purchases that went to minority-owned firms. Many federal diversity initiatives lack this kind of annual audit.
Write to Kyle Stock