Bloomberg News

Wall Street Job Seekers Find No Bottom for Analysts: Muni Credit

February 07, 2013

The $3.7 trillion municipal market is proving an oasis for Wall Street job hunters as the dwindling role of bond insurance and yields at four-decade lows fuel demand for analysis of the 89,000 U.S. local governments.

BlackRock Inc. (BLK:US), Franklin Advisers Inc. (BEN:US) and Vanguard Group - - which oversee about $300 billion in munis combined -- are among money managers adding muni staff as the ranks of top- graded issuers fell about 80 percent since 2007, close to a record low. In the same period, membership in the National Federation of Municipal Analysts has risen 30 percent.

The number of AAA local bonds has diminished since the financial crisis, when insurers including Ambac Assurance Corp. and MBIA Inc. (MBI:US) were downgraded because of losses on guarantees of subprime-mortgage-backed debt. Even as defaults last year were the fewest since at least 2009, bankruptcy filings by three California cities underscored the need for research vetting weaker credits when hunting for higher yields.

“As a new analyst jumping in at this time, you are in the thick of it immediately,” Kevin Maloney, 23, a BlackRock muni analyst who started in 2011, said in an interview at the company’s office in Princeton, New Jersey.

Salary Bump

The world’s biggest asset manager has hired three muni credit analysts in the past three years. Maloney, who majored in finance at Drexel University in Philadelphia, began by covering localities, including in Rhode Island, where the city of Central Falls (1058MF:US) filed for bankruptcy in August 2011.

Muni analysts such as Maloney have bucked a trend of dismissals at financial firms worldwide as declining trading volumes and regulator demands for more capital lead banks to trim costs. Wall Street companies have announced more than 300,000 job cuts since the start of 2011.

The demand for muni analysts has also raised salaries for such positions, said Paul Sorbera, president of Alliance Consulting, a New York-based search firm.

“I’ve seen some people who are vice-president-level who would’ve never made more than $200,000 in a job like that who are now making $400,000,” Sorbera said. “Pre-credit crisis, a lot of these people weren’t in high demand.”

Cuts Elsewhere

In the past three months, Lazard Capital Markets LLC cut six senior research analysts covering areas such as defense, while Avian Securities LLC, a research firm focusing on technology stocks, said it would close after 15 years in business.

Yet jobs monitoring localities continue to surface.

Hedberg search, a Minneapolis-based company that specializes in investment management jobs, placed seven senior muni analysts in the past year across the country in Chicago, Minneapolis, Boston, Atlanta and Los Angeles, according to its website. The company is seeking a muni analyst for an Atlanta money manager with $2 billion in assets.

BlackRock also added Joseph Gankiewicz in 2010 and Jenna Bryan-Krug in 2011 to its muni analysis group. Gankiewicz, 31, previously worked for the company advising clients, while Bryan- Krug, 30, came from Boenning & Scattergood Inc., where she assisted with public-finance underwriting.

San Mateo, California-based Franklin increased its muni analyst squad by 46 percent since 2008, to 19. Valley Forge, Pennsylvania-based Vanguard has 31 muni credit researchers, up from 24 at the end of 2007.

Record Downgrades

The hiring may continue as muni ratings suffer in the wake of the longest recession since the 1930s. Moody’s Investors Service said last week it downgraded a record $311 billion of debt in 2012, while raising $24 billion.

About 11 percent of munis issued last year had Aaa ratings from Moody’s, close to a record low and down from 57 percent in 2007, according to J.P. Morgan Securities LLC.

Assured Guaranty Municipal Corp., which last year insured $13 billion in new bonds and $1.3 billion in the secondary market, had its rating cut two levels last month by Moody’s. More than half of new muni sales used to be backed by insurers. That is now down to 4 percent.

“A lot of firms were panicking a little bit” once insurers lost their AAA grades, said Scott Hedberg, founder of the recruiting company. “They were definitely concerned with what their portfolios held, and there was a big push for getting muni analysts. There’s still a need.”

The NFMA has 1,322 members, up from 1,019 in 2008 and more than twice as many as two decades ago, according to Lisa Good, the Pittsburgh-based group’s executive director.

Credit Confidence

As analyst ranks have grown, investors have become more confident buying uninsured or lower-rated debt. AAA securities are trailing the broader market’s return to start 2013, after lagging behind for an unprecedented four years, according to Bank of America Merrill Lynch data.

“In a low-yield environment, basis points matter,” said Jeff Burger, a muni portfolio manager at Standish Mellon Asset Management and chairman of the NFMA. Boston-based Standish has tripled its muni analysts since 2008, to six, he said.

“You can find those opportunities with a professional staff,” he said.

The interest rate on benchmark 10-year munis fell about 0.01 percentage point to 1.86 percent yesterday, declining from the highest since August, data compiled by Bloomberg show.

Following is a pending sale:

NEW MEXICO (STONM1:US) plans to sell about $127 million in general- obligation bonds via competitive sale as soon as Feb. 19, data compiled by Bloomberg show. The state is one of 13 to carry a top rating from Moody’s. (Added Feb. 8)

To contact the reporter on this story: Brian Chappatta in New York at bchappatta1@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net


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Companies Mentioned

  • BLK
    (BlackRock Inc)
    • $317.36 USD
    • 0.81
    • 0.26%
  • BEN
    (Franklin Resources Inc)
    • $57.72 USD
    • -0.35
    • -0.61%
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