In the bond markets Cantor has always been known as the “outer boro guys”…. never a fancy shop like Goldman or Morgan Stanley… but they were a dominant broker before 9/11 wiped out the majority of their employees… it’s good to see them hunting around for new products to make markets and service customers…
In the BBG clip Cantor Fitzgerald CEO Shawn Matthews talks about their expansion into municipal bonds and the outlook for Federal Reserve policy. Fitzgerald LP, one of the 18 primary dealers authorized to trade U.S. government securities with the Federal Reserve Bank of New York, said it was entering the U.S. municipal bond business as municipalities may issue record amounts of debt. He also talks about transparency in the muni market…
Here is how it looks for states and municipalities…
Source: Muni underwriting fees at 8 year high Bond Buyer, August 21, 2009
“The fees issuers pay to bankers to underwrite municipal bonds are higher then they’ve been for eight years, as the financial crisis heightened risk and decimated competition in the industry.
State and local governments this year are paying underwriters an average of $6.46 for every $1,000 borrowed, according to Thomson Reuters.
That payment, known as the underwriting spread, is up sharply from last year’s $4.83 average spread.
The last time issuers paid higher fees was 2001.
Underwriters and other market participants cite a number of factors for the fatter spreads, some on the supply side of the equation and some on the demand side.”
…Created under the stimulus act, BABs (Build America bonds) allow municipalities to sell taxable munis and in lieu of the traditional tax exemption receive a subsidy from the federal government equal to 35% of the interest costs.
Issuers have sold $26.75 billion of BABs since the launch of the program in April, according to Bloomberg LP.
Bankers have charged more to underwrite BABs — an average of $8.04 per $1,000 face, compared with $6.27 for other munis, according to Thomson.
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A sharp reader offers the following hypothesis (which I have edited):
Illinois is fundamentally bankrupt. It has less than $1 million in cash, pays vendors net 90, and owes its state university $450 million that it cannot pay. Oh, and it also has $60 billion in unfunded pension liabilities.
Now that the Republicans have 41 votes in the Senate, Illinois can’t count on any federal aid. The President’s home state will thus become insolvent.
(For some background on Illinois’s budget woes, see this link.)
My reader expresses similar concerns about California (where Governor Schwarzenegger’s budget assumes $6.9 billion in federal aid) and New York.
All of which raises a question for policymakers and municipal bond investors. Does the election of Scott Brown mean that the Senate will be unwilling to give federal aid to the states? The $862 billion stimulus bill last year (formerly known as the $787 billion stimulus bill) included substantial state aid, and it squeaked through the Senate with exactly 60 votes.
Now the Democrats (and the Independents who caucus with them) account for only 59 votes.
Does that bode ill for struggling states and the investors who own their debt?
Only time will tell. But I wouldn’t count the states out just yet.
The stimulus bill could have had 62 votes, but Senator Kennedy didn’t vote and Senator Franken hadn’t yet been seated. If the Senate majority can coordinate the same coalition–including Republican Senators Snowe and Collins of Maine–they will have one vote to spare for any new jobs bill (formerly known as a stimulus bill). In addition, with his paean to tax cuts in the State of the Union, the President was signaling that he wants to find enough common ground with congressional Republicans to get a jobs bill passed.
In the short run, then, I wouldn’t be surprised if substantial state aid finds its way into the jobs bill. That may buy Illinois and other struggling states some time.
In the long run, however, the reader is probably right that fiscally-strapped states will find the Senate less welcoming.
Legalistic answer to the title question: No. States can’t seek protection in bankruptcy court, so Illinois can’t technically go bankrupt.
http://wallstreetpit.com/15836-will-illinois-go-bankrupt-because-of-scott-brown
NEW YORK (Dow Jones)–Lebenthal & Co. is branching out beyond tax-exempt municipal bonds and is expanding its capital markets business to include a taxable fixed income and equities group.
The firm will now be able to assist issuers with capital structure services across the board, such as secondary stock offerings, corporate bonds and initial public offerings.
Due to the improving economy and the pent-up demand of issuers, the industry is forecasting a substantial pickup in capital markets activity this year.
Alexandra Lebenthal, President and Chief Executive, of the certified woman-owned firm, meaning she owns over 51% of the firm and has management control, said the firm has been thinking about expanding in the area for the past year, as it is a natural extension of its existing capital markets arm.
The boutique hired Steven Willis and Matthew Eng from Muriel Siebert to head up the efforts. Willis worked for four years as senior managing director of capital markets at Siebert. A search is under way to replace Willis and Eng, said a spokesperson for Siebert.
The expansion will offer existing clients more services, attract new clients and allow the sales force to offer more products to sell, said Willis.
Additional hires will be made to build out the area as well, Lebenthal said.
The New York-based boutique, which focuses on tax-free municipal bonds and wealth management, also added two professionals to its capital markets business in August. Lebenthal, which has 36 employees, is well known in the New York area for its advertisements advocating municipal bonds.
-By Jessica Papini, Dow Jones Newswires; 212-416-2172; jessica.papini@dowjones.com
http://online.wsj.com/article/BT-CO-20100203-717611.html?mod=WSJ_latestheadlines
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