Procurement, Debt Management, Treasury and Investment Management

Be Tough, Not Rough, on Your Bankers

Page from GFR

Baseball legend Yogi Berra once said, “When you come to a fork in the road, take it.” Like with many “Yogi-isms,” it’s not quite clear what he meant. But upon further reflection, it seems Yogi is simpatico with today’s rock star management professor Adam Grant. According to Grant, good decision making is not about making the right decision, but rather about making the decision right. In other words, how you carry out a decision is more important than the decision itself.

Public finance investment banking is at its own proverbial fork in the road. States and local governments that will soon arrive there should follow Yogi and take it. And to comport with Grant’s advice, they should “be tough, not rough” on public finance bankers.

In October 2023, the Swiss banking giant UBS announced plans to scale back its municipal bond underwriting business (in other words, the process of taking bonds from a borrower to investors). To most in “Muniland,” this move was not entirely unexpected. UBS left the business after the financial crisis of 2008, only to reemerge in 2015. Since then, it had performed admirably. It was the go-to underwriter in certain niche corners of the market, and it built a strong secondary market sales and trading team (that is growing even today). But overall, it was a middle-tier player, ranking 15th in total underwriting in 2022.

The real shock came a few months later when Citi announced its plan to leave municipal bonds. Citi was a major player. It accounted for ten to 15 percent of new municipal bond underwriting each year since the Great Recession. It was a stalwart across the many sub-industries within municipal bonds, and it famously leaned into municipal bonds when others pulled back. There’s no question it will take years for other banks to fill the hole left by Citi’s exit. Moreover, there are rumors that other large banks will leave in the near future.

What sent two big banks running for the exit, with others potentially to follow? Broadly speaking, there’s three factors.