Muni underwriters still grappling with Texas anti-boycott laws

Nearly two years after Texas laws banning state and local contracts with companies that "boycott" the fossil fuel industry or "discriminate" against firearm businesses took effect, investment banks are still struggling with compliance concerns.

Wells Fargo is the latest bank to be scrutinized under the firearm law just weeks after being selected for a state bond authority underwriter pool.

The Texas Public Finance Authority also picked BofA Securities and JP Morgan, which have been seeking to rev up their municipal bond business in the state that slipped after the laws took effect Sept. 1, 2021.

Bloomberg News

The three big investment banks are part of a 23-firm underwriter pool approved by the authority's board July 6.

The Texas Attorney General's Office last week informed bond counsel that Wells Fargo's standing verification letter of compliance with the firearm law was under review and that a determination on whether the bank is "a discriminating company" will be made by Aug. 25.

In a statement, Wells Fargo said it has been cooperating with the attorney general's office and continues to affirm its standing letter. 

Citigroup, the only other target of a review, was barred in January from participating in muni deals after the bank's commercial firearms policy was determined to be discriminatory.

Meanwhile, BofA and JP Morgan have been seeking to clarify their standing as underwriters under the laws passed by the state legislature as Senate Bills 13 and 19. Both laws require companies to submit written verifications for state and local government contracts valued at $100,000 or more.

In letters to the attorney general's office sent on their behalf by a Foley & Lardner attorney, JP Morgan in May 2022 and BofA this May contended they can provide written verification they are not engaged in fossil fuel boycotts or firearm discrimination, according to documents obtained by The Bond Buyer through freedom of information requests. 

Standing verifications submitted by JP Morgan, BofA, and Wells Fargo are posted on the Municipal Advisory Council of Texas website.

After ranking in the top five for underwriting muni debt in Texas in 2021, JP Morgan fell to 22nd place and BofA was not in the top 25 last year, according to Refinitiv data.

Both banks, along with Citigroup, are in the Texas authority's current underwriter pool, which has been in place since Sept. 1, 2019. JP Morgan is a co-manager in the authority's upcoming $366.3 million state of Texas general obligation and refunding taxable bond sale.

Besides Citigroup, the only other bank to be publicly banned from muni deals is UBS after its placement last August on the Texas comptroller's list of fossil fuel boycotters.

UBS and Citigroup were dropped as co-managers from a $3.5 billion Texas Natural Gas Securitization Finance Corporation customer rate relief taxable bond issue that priced in March. In May, UBS agreed to pay an $850,000 settlement to a school district over a competitive bond sale it won that was rejected by the Texas Attorney General.

Other firms selected for the authority's pool for the fiscal 2024-25 biennium that begins Sept. 1 are Academy Securities, Baird Public Finance, Bancroft Capital, Barclays, Blaylock Van LLC, BOK Financial Securities, Cabrera Capital Markets, Frost Bank, Hilltop Securities, Jefferies, Loop Capital, Mesirow Public Finance, Morgan Stanley, Piper Sandler, Ramirez & Co., Raymond James, SAMCO Capital Markets, Siebert Williams Shank & Co., Stern Brothers,  and Stifel Public Finance.

"The selected firms may serve in the capacities of senior manager, co-manager, or commercial paper dealer," Lee Deviney, TPFA's executive director, said in an email.

A request for proposals from financial advisors was posted July 21 with responses due by Aug. 17. https://www.tpfa.state.tx.us/rfp.aspx

Deviney said an RFP for bond counsel will be issued in the near future.