Huntington to pick up Chicago muni brokerage in strategic growth play

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CHICAGO — Huntington Bancshares Inc. in Columbus, Ohio, will acquire the Chicago-based municipal shop Hutchinson, Shockey, Erley & Co. as both look to broaden their public finance reach.

“Hutchinson Shockey is very complementary” to the Ohio company's business and shares similar types of public finance customers, said Scott Kleinman, executive managing director at Huntington Capital Markets. “Both institutions are committed to their communities and municipal finance” and the two are a “cultural fit.”

“This is about strategic growth,” said Hutchinson Shockey's chief executive, Tom Dannenberg.

Huntington will fold the Hutchinson Shockey team together with its Huntington Capital Markets group and the combined unit will be based in Chicago and retain the Hutchinson Shockey name.

It will operate as a stand-alone broker-dealer working under Huntington Capital Markets, which is a broader brokerage that includes corporate investment banking. Dannenberg will lead the group and report to Kleinman.

The publicly traded Huntington formally announced the deal after the market closed Thursday. It anticipates closing on the acquisition of the privately held Hutchinson Shockey in the fourth quarter pending regulatory approval. The financial terms were not disclosed.

While it's labeled an acquisition, in an interview Kleinman and Dannenberg characterized the deal as a partnership.

Hutchinson Shockey had been eyeing a partnership for the last year, Dannenberg said. “We were looking for a good strategic partner to grow our business and take it to a level we didn’t believe we could reach on our own,” he said.

The bank brings a resources, including its balance sheet, which can be tapped to provide credit, loan and private placement support, Dannenberg said, as well as services like depository and treasury management.

Huntington is always on the lookout for “opportunistic” staffing additions and acquisitions that bolster its business and offer the right fit, Kleinman said.

“We get a distribution and underwriting capability that we did not have,” he said. “We have a smaller public finance” operation, so “this helps us scale up. We are acquiring a really great business that makes other businesses in our firm better.”

Past acquisitions or mergers that folded stand-alone investment banks into commercial banks have resulted in some banker complaints over a change in culture with a greater focus on commercial products and competition over leading client relationships. Those complaints have quieted since demand has increased for bank products like private placements and liquidity support.

Dannenberg said he’s not worried. “HSE’s management team will continue to take the lead in managing our relationships. From the beginning of the talks with Huntington it was clear that this would be viewed as partnership where both organizations possess complementary expertise and offerings,” he said.

Hutchinson Shockey employs 51 with those ranks including sales, underwriting, trading, analytical, and banking professionals as well as administrative and operations. They work from 11 offices in nine states — Arizona, California, Colorado, Georgia, Illinois, Michigan, New Mexico, Texas and Wisconsin. It is wholly owned by employee shareholders.

Huntington’s municipal team includes 12 sales, trading, underwriting, and banking professionals in three offices, with two in Ohio and one in Pittsburgh, said Kleinman, a 26-year veteran of Huntington who was elevated to executive management director in 2014.

Kleinman and Dannenberg declined to discuss potential layoffs except to say that there is little overlap. Others sources said employees were told Thursday that layoffs were not expected.

Municipal market participants predict that the dwindling supply of municipal paper following the 2017 tax reforms that eliminated advance refundings will pressure firms — especially smaller, regional ones, and those that focus on just municipals — to cut staff or exit the business. Larger firms with multiple product lines are expected to fare better. Hutchinson Shockey and Huntington fall under those categories so their partnership bolsters each.

Kleinman and Dannenberg both said that post-tax reform market pressures may factor in decision-making but did not motivate an acquisition that has long been in the works. They said the merged entity would be better positioned to compete for clients and market share.

Dannenberg, who served as Bond Dealers of America board chair last year, says the contraction is a “temporary lull.” He joined the firm’s institutional sales team in 2004 and has been CEO since 2012.

Hutchinson Shockey ranks 34th among senior managers by volume nationally this year and finished 31st last year, according to Thomson Reuters data. In the Midwest, it ranks 20th this year and finished last year at 26th. Huntington ranks 57th so far this year nationally and finished 64th last year. In the Midwest, it ranks 32nd so far this year and finished 42nd last year.

Kleinman said the bank doesn’t have a specific goal with the acquisition based on league tables and declined to discuss financial targets except to say he expects the partnership to give it more of a competitive edge.

Hutchinson Shockey opened up shop in Chicago in 1957 solely focused on municipal securities. For the first decades it worked primarily on sales and trading and pushed into banking in the 1990s, when it also began expanding its reach. Over the last decade, it opened six offices in states west of its base in addition to one in Michigan, and most recently it opened an Atlanta office.

Huntington Capital Markets offers investment banking services. Its parent traces its roots to 1866, when it was founded by P.W. Huntington. The bank operates in eight states and has $105 billion of assets.

Keefe, Bruyette & Woods Inc. acted as exclusive financial adviser to Hutchinson Shockey.

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