How Citi's exit is reshaping the muni landscape

Citi's exit from the municipal business late last year, on the heels of UBS' closure of its negotiated underwriting business in October, has brought about a redistribution of high-level bankers, traders and other market players to a broad range of municipal firms that is leading to an evolved muni market landscape in 2024.

Word of the hiring began at the start of the year, then exploded in late February, with firms entering an arms race of sorts to announce hiring former Citi and UBS employees. At least 65 individuals — very likely more — have landed at various firms — bulge bracket, regional and smaller — across the industry.

The moves by Citi and UBS have led to two women, Beth Coolidge and Samantha Costanzo, to become heads of public finance at Oppenheimer and Huntington, respectively, thereby doubling the industry total in that position to four.

Citi's exit from the business as a major secondary market player has sparked concerns over liquidity challenges in times of volatility. But it has also led firms such as Stifel, Nicolaus & Co., Piper Sandler and Wells Fargo to beef up their sales and trading teams with high-yield professionals in a market that has seen that sector outperform since the start of the year.

Citi's exit capped a year of Wall Street belt-tightening that saw layoffs across public finance.

Despite the gains for many firms, the departure of two major firms from the muni market industry is "tumultuous for the people involved and for the industry overall," said Jeff Scruggs, managing director and head of Public Sector and Infrastructure Group at Goldman Sachs, during a Bond Buyer Leaders Forum interview.

"Fewer participants is nothing to celebrate," he said. "You don't celebrate people losing their jobs and you don't celebrate liquidity going down in the marketplace. That's never good for any participants, not good for investors. It's ultimately not good for issuers, and it's not good for the personnel in the industry."

The spree of recent hires is part of what James Pruskowski, chief investment officer at 16Rock Asset Management, calls the "Great Reset" in the muni market, rolling over from 2023, which saw a "war on junior talent and fee compression and regulation" that led to layoffs, compensation resets and consolidations of teams and businesses.

"The market naturally in this scenario created huge opportunities," he said. "There is no shortage of skilled labor; it's that they're being redistributed to other shops."

The resulting hires show that "some firms are smart enough and nimble enough to bring those people in and take advantage of both their skills and relationships," said Pat Luby, head of municipal strategy at CreditSights.

It has also altered the rankings of underwriters since the start of the year, with various firms moving up on the list.

There have been different approaches to hiring, with some firms bringing on senior bankers who will be "immediately additive," compared to others building out specific departments, he said.

Other firms have hired entire banking divisions from Citi and UBS as they work to build out specific departments, make geographic expansions or a combination of the two.

Raymond James, for instance, added 11 former Citi employees as it shores up its geographic expansion in certain areas, like the West, and firms up its specialty groups, such as a dedicated public power practice and the firm's nationally ranked housing finance group, said Gavin Murrey, head of Public Finance at the firm.

"We're expanding and this is something we've been doing for years now," he said, noting it could include expanding into new markets and those with only one or two bankers.

Some issuers have realized that not every firm is committed to growing their business vis-à-vis the departure of Citi and UBS and the layoffs that followed at those two firms, among others, Murrey noted.

Raymond James, he said, has made a substantial effort to scale their business, with the firm totaling 180 public finance employees.

However, he noted, the firm's expansion does not mean it will move away from the geographic middle markets, but rather see these hires as a "tremendous" opportunity to help expand into the larger issue space.

RBC Capital Markets has recently hired five new employees, four of whom were from Citi.

The firm received numerous resumes from former Citi and UBS employees, but the firm was "exact" in its hiring, said Bob Spangler, head of municipal finance at RBC Capital Markets.

"We were … making sure that we didn't just hire for hiring's sake," he said. "We wanted to find spots where we could either develop further where we already are strong or fill in where we thought it would be beneficial."

RBC's hiring on a relative basis was "modest," bringing on three senior bankers and two others to the sales and trading side, he said.

RBC saw opportunities to expand its presence in the mid-Atlantic, hiring Tim Egan and Chris Cusick, both of whom were affiliated with Citi's Philadelphia office, Spangler said.

The other two hires from Citi on the sales and trading side, Curt Demers and Casey Crawford, came as the RBC saw an increase in its volume in the primary market, he said.

Any time there is an increase in volume, having a "strong" new salesperson join the firm is valuable, Spangler said.

Piper Sandler, which brought on Citi's Ryan Hallam to co-head high-yield muni sales and trading, at the end of March, also wanted to be strategic in their hires.

"As we look to grow our market share in the municipal industry, Ryan's tremendous experience and strong relationships will enhance our capabilities and make us much more well-rounded," said Jon Allen, head of fixed income trading and risk at Piper Sandler, in a statement at the time. "He will immediately expand our coverage of institutional accounts, which is highly complementary to our public finance efforts."

The muni market overall is a "very congenial" business, said Vivian Altman, managing director and head of Public Finance at Janney.

"We're collaborative and cooperative with each other and … as a consequence, it presents an opportunity for those of us who are smaller or who have been growing as we have been and looking for talent," she said.

Julie Burger, co-head of Public Finance at Wells Fargo Corporate & Investment Banking, agreed that there are opportunities to "step up and find new ways to serve clients" — whether that's for the issuer or the investor.