With the start of a municipal bond underwriting operation, U.S. Bancorp is moving ever so slowly toward the business model of its bigger brethren.
The company has been involved in public finance for more than 75 years — but as an agent and trustee rather than an underwriter. Last year it was the second-ranked trustee in the country, managing 1,028 issues with an aggregate value of $58.5 billion, according to Thomson Reuters. As an underwriter, its operations were nominal — it senior-managed two issues, worth $4.2 million, and it did not co-manage any deals.
Dick Payne, vice chairman of corporate banking at its U.S. Bank unit, said the new division is part of a strategy "to transform our corporate banking business from a regionally focused organization to a national business positioned to provide a full range of financial services to the nation's largest companies, municipalities and nonprofit organizations in all 50 states."
U.S. Bancorp, the parent of U.S. Bank, is the fifth-largest commercial bank in the country, with $282 billion of assets, according to the bank's internal data at March 31. The banking companies that are bigger than U.S. Bancorp — Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc. and Wells Fargo & Co. — all have very significant investment banking operations.
U.S. Bancorp's muni underwriting business will be part of the capital markets group, led by Executive Vice President Jeff Stuart.
"The establishment of a municipal bond capability is the next logical step in the continued development of our capital markets franchise," Stuart said. "This new product capability will help us build stronger, deeper relationships as a full-service adviser to clients with capital-raising needs."
The bank confirmed Monday that Richard Kolman had been named to head the new municipal securities group, based in New York, which will originate, underwrite, sell, remarket and trade both floating- and fixed-rate municipal debt.
Kolman comes to U.S. Bancorp after more than a year and a half trying to launch Municipal Infrastructure and Assurance Corp., a start-up bond insurer.
"Although I still believe in the value of bond insurance and the value of MIAC, the U.S. Bank is presenting me with a terrific opportunity to build a business which will complement their widespread existing client relationships with government, nonprofit, health-care, real estate and commercial banking customers," Kolman said in an e-mailed statement Monday.
Alongside Kolman will be Alex Wallace, formerly a managing director and head of public finance at Wachovia Securities. He is to lead public finance and origination from Charlotte.
Kolman is well-known in the municipal bond world.
From 1978 to 2007 he worked at Goldman, Sachs & Co., including a stint as co-head of municipal finance from 1999 to 2004. When he left Goldman to form MIAC, he was given an Honor Roll award by the Securities Industry and Financial Markets Association for making significant contributions to the muni industry throughout his career.
A spokesman for MIAC said Kolman's departure would not affect the insurer's plans, though he declined to estimate a timeline for its market entry.
The spokesman also called Kolman's new role "complementary" to MIAC, in the sense that underwriters do not compete with insurers. Moreover, he said, Kolman would be "exploring options to continue his involvement with MIAC as an independent director."
An immediate successor would not be sought, he said, adding, "Our team is pretty deep across the board."
In recent months, MIAC has struggled to complete its capitalization and secure the high ratings that are a prerequisite to entering the business as a financial guaranty insurer of municipal debt.
The insurer was funded by Macquarie Group and Citadel Investment Group, but several months ago it was rumored that Citadel had backed out.
The MIAC spokesman confirmed Monday that Citadel is "not involved in the same capacity as it was initially" but declined to elaborate.
MIAC got a license from the New York Insurance Department to act as a financial guarantor in October 2008, and in February 2009 it announced its approval by the National Association of Insurance Commissioners to expedite licensing in all 50 states.
Since then, however, news about MIAC has been scarce, and proposed dates for market entry have come and gone. The bond insurance industry remains dominated by a single company, Assured Guaranty Ltd.
