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As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe NowTop billing on the $1 billion bond deal went to a big name in banking: Wells Fargo & Co.
The other players were less familiar but chosen for a specific reason: they’re led by executives from groups underrepresented on Wall Street.
After being relegated to bit parts for decades, women- and minority-owned investment banks are slowly stepping into larger roles as corporations like Verizon Communications Inc., which issued the $1 billion of bonds this year, push their go-to banking partners to team up with diverse firms.
Result: Deals involving such firms are on track for their biggest year ever, after notching a record in 2022. Some 62% of US blue-chip bond transactions worth a total $776 billion used at least one arranger founded or led by women and people of color last year, compared with 24% a decade earlier, according to data compiled by Bloomberg. This year, these underwriters have worked on about 60% of deals worth $701 billion through Nov. 13, the data show.
The big bond issuers and their banks say the shift is proof of their commitment to leveling a long-lopsided playing field in US finance.
Verizon picked Wells Fargo as lead underwriter for its green bonds because the bank has partnered with diverse firms “significantly” when issuing its own bonds, Scott Krohn, Verizon’s treasurer, said in an interview. The rest of the lineup included Samuel Ramirez & Co., which describes itself as the first Hispanic-owned investment bank in the US, as well as three firms founded by African-Americans—CastleOak Securities LP, Loop Capital Markets and Siebert Williams Shank & Co.
“It’s a prestigious role,” Krohn said of the lead underwriter spot. “But you earn that through your own commitment to diversity as well.”
The bond market’s public support of minorities—fueled by a broader corporate commitment to do better on diversity, equity and inclusion in the aftermath of George Floyd’s murder in police custody in 2020—is noteworthy at a time when many businesses are under fire for those policies. American corporations have become increasingly reluctant to speak on social issues and some businesses have even changed the eligibility criteria for their diversity programs to fend off conservatives’ attacks on such strategies in light of the Supreme Court’s decision to ban affirmative action in college admissions.
Yet in this part of the market, corporations are leaning on Wall Street to demonstrate diversity bona fides. Who gets lucrative investment-banking assignments will depend in part on who has cultivated the diverse arrangers.
‘Important filter’
When Allstate Corp. sold preferred stock in May, it chose Morgan Stanley to lead the deal because of the bank’s record on working with diverse firms in a “genuine way,” according to Jess Merten, its chief financial officer. The insurer also enlisted Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo, in addition to Chicago-based Loop Capital.
“We do think it’s an important filter when we’re picking our large-tier banking relationships,” Merten said of the choice.
Danielle Squires, a managing director at Wells Fargo, said a couple of clients have hired the bank this year because of its support for diverse firms. “Had we not brought diverse broker dealers to the table, they probably wouldn’t have thought of us as seriously as they did,” Squires said. “We see it as just the winning business model.”
And a model that, increasingly, Wall Street can’t ignore. Amazon.com Inc. is working directly with more diverse financial firms in a range of roles, from commercial paper to investment management. It’s also paying them higher fees, said treasurer Tony Masone.
“Partnering with certified diverse-owned firms helps bring new and diverse long-term bond investors into our deals,” he said, adding that these types of investors help drive pricing and the ability to “upsize” a new bond deal. He said the Chicago-based Loop, founded by Jim Reynolds, brought in Garcia Hamilton & Associates LP, one of the largest minority-owned investment firms in the US, as an investor in 2021.
Paying attention
Merten, the Allstate CFO, said handing underwriting assignments to diverse firms can help corporations cement relationships with big investors while benefiting the diverse firms at the same time. If a small diverse firm has securities for sale that big banks don’t, investors have to deal with them. “So, ‘Hey BlackRock, if you want these bonds, you better get to know someone at Loop,” Merten said, “because that’s the only way you’re getting the bonds.'”
These firms have been around for decades. They used to be a backwater, said Bob Hong, co-head of capital markets at Samuel A. Ramirez & Co.
Now, Wall Street is being forced to pay attention.
“I have conversations with syndicate desks, and I really think we have their respect in terms of what we can do,” Hong said.
It’s unclear if the development will help women and minorities break through in the broader US financial industry, where businesses are still mostly run by white men. Diverse firms rarely manage big deals on their own. Historically, they’ve often taken relatively passive roles next to bigger, richer banks. This year, of the $701 billion in deals involving minority-led banks, only 5% had at least one acting as bookrunner—the lead adviser—Bloomberg data show. While that’s a slight improvement on last year’s 4.5%, it means they generally take home a much smaller portion of the fees on offer.
“Nobody should be putting on their sneakers and running victory laps,” Cynthia DiBartolo, founder and chief executive officer of disabled- and women-owned Tigress Financial Partners, said in an interview.
Wall Street, she says, has a long way to go when it comes to diverse firms and diversity throughout the industry. “We’re gently moving the needle,” DiBartolo said. “We really need to thrust that needle.”
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