Following the lead of some other major commercial banks, Marine Midland Banks Inc., once a venerable and major competitor in the New York tax-exempt arena, yesterday announced it was bowing out of the municipal bond business.
The bank, which only 3 1/2 years ago beefed up its municipal securities staff, said -- effective yesterday -- it would close its section 20 subsidiary, Marine Midland Capital Markets Corp., and cease municipal institutional sales, trading, and banking.
Seventeen professionals and support staff are to be laid off, while 13 other members of the division will be transferred to other sections of the bank.
Marine Midland said it will, however, keep its hand in the business in other ways. In a statement, the bank said it wants to focus on financial advisory work through its subsidiary Public Financial Management, and also bolster its letter of credit business.
In addition, the bank is moving its municipal retail sales force into its "private clients group" within the bank.
The bank's section 20 subsidiary is yet another casualty of the beleaguered commercial banking industry in particular, and the vulnerability of a changed municipal industry in general. In May, Chase Manhattan Corp. closed its municipal securities operation, citing the results of a strategic review. And last year, Citicorp retreated from most of its municipal securities activities, deciding to focus on derivative products.
"I would confirm it is a sad day. We have to move forward. It is unfortunate that our bank has to exit the business," said William N. Hudson Jr., a 24-year veteran of the bank and currently executive vice president of corporate finance and municipal securities.
Mr. Hudson continued, "I would say it is more of a reflection of the difficult times for commercial banks." He will remain with the bank and continue to oversee corporate finance, as well as the letter of credit business and financial advisory work.
Sources close to the situation said the bank had recently received the results of a study of the bank's business lines prepared by an outside consultant. Mr. Hudson declined to discuss the findings of the study.
Marine Midland has had consistent success in the financial advisory business. The bank acquired Public Financial Management in 1984 and, since then, PFM has grown in size and scope. It was ranked 9th in 1985 as a financial adviser, with 42 issues totaling $2.64 billion, according to Securities Data Co./Bond Buyer. It was ranked 3d in in 1986 and jumped to the top spot in 1989 and 1990. For the first half of 1991, the firm ranked 1st, with 117 issues totaling $4.38 billion.
That success, however, is considered by some inside and outside of the bank to have contributed to municipal department's troubles over the last few years. Some market observers said the bank's municipal dealership lost ground to the adviser because of potential conflicts of interest and stipulations included in contracts signed when Public Financial Management agreed to be bought out by Marine.
Commenting on the letter of credit business, Mr. Hudson said, "Our parent works with us confirming our letters of credit, and we plan to continue that." Marine Midland is owned by HSBC Holdings, which also owns The Hong Kong and Shanghai Banking Corp. Marine Midland is rated A2 by Standard & Poor's Corp. and P1 by Moody's Investors Service, and HSBC Holdings is rated P1 by Moody's and A1 by Standard & Poor's Corp., said Carl Muller, senior vice president and treasurer of Marine Midland Banks.
In 1989, the bank provided letters of credit on 13 deals totaling $632 million, according to Securities Data Co./Bond Buyer. In 1990, the bank provided letters of credit on 7 deals totaling $119 million.
The bank's municipal securities division was once a powerhouse in municipal underwriting in New York. But the combination of a contracting municipal bond industry, increasing competition, lower bond volume, shrinking underwriting spreads, changes in the federal tax code, and a faltering real estate market that adversely affect commercial banks all contributed to slowing down the bank's progress.
Marine was ranked 26th as a senior manager in 1989, and 29th in 1990, according to Securities Data Co./Bond Buyer. For the first half of 1991, Marine was 42d.
Recently, Marine managed to regain some of the aura of its heyday in New York, landing co-manager slots on state authority syndicates, and also the New York City bond syndicate, as well as landing senior manager spots. As senior manager of New York issues, the firm was ranked 16th in 1988, 11th in 1989, and 12th in 1990. For the first six months of 1991, the firm ranked 12th.
Yet the closing of the division came as no suprise to a number of municipal bond professionals, who said the bank's section 20 subsidiary had been struggling for the last few years.
Its long time head trader and head of the bond department, Ronald E. Curvin, was recently asked to resign from the bank. His successor was John Esau, formerly director and manager of underwriting, who will be transferred to the private banking group with Jacqueline O'Brien, a trader.
The dealers noted that a major foray into public finance, started in late 1987 and early 1988 when the municipal industry was in the throes of despair and layoffs, was largely unsuccessful. The bank hired a number of former public finance professionals from L.F. Rothschild & Co. after that firm closed down its municipal securities department. But the move never really got off the ground, dealers said.
Paul Jancu, who headed Rothschild's banking efforts before joining Marine to serve as co-chief executive officer of the section 20 subsidiary and head of public finance, said he would remain for a short time at Marine, but plans to move on. He declined to comment further on the bank's decision.
