W.H. Newbold s Son & Co., a Philadelphia firm founded in 1844, trades and underwrites municipal bonds for its parent company, Fahnestock & Co., a full service brokerage firm.
With seven branch locations in Philadelphia, Pittsburgh, Carlisle, Wormleysburg, Doylestown, Jenkintown and Pottsville, W.H. Newbold claims a strong retail presence in Pennsylvania, as well as throughout New England and the Middle Atlantic states.
The firms 125 employees and 80 registered representatives service high and middle net worth investors who reside in the Pennsylvania, New York, New Jersey and Florida areas. The firm aims to win clients with a no-high pressure philosophy according to which bond professionals explain the advantages and disadvantages of a product in an informative manner. Customer preferences noted by the firm s sales managers include high quality general obligation bonds as well as non-rated essential service transactions including water, sewer, and parking authority bonds under $10 million dollars.
Fahnestock & Co. has $7 billion dollars in client assets in custody and $1.7 billion in invested advisory assets. A downsizing in 1995 made the firm more profitable than the prior year. However revenue from bond sales dropped from 1994, the firm s managers said. Closing a few deals this year, said a senior staff professional, would make 1996 a decent year.
Patricia Stevenson, Municipal Retail Sales Liaison
The low spreads on new issues brought to the retail municipal market in the past year have been the biggest problem W.H. Newbold s Son & Co. Division of Fahnestock & Co. has faced, according to Patricia Stevenson, the firm s municipal retail sales liaison.
It s not difficult to get the customer to make an investment, said Stevenson. It s difficult to get a salesman to sell the product.
We tell our brokers if their customers are going to buy municipal bonds, then they should sell them because if they don t buy them from us, they ll get them from another firm. But it is very difficult to ask a retail salesman to work for an eighth or a quarter.
In Stevenson s opinion, the trend of low spreads is due to an intensely competitive marketplace where too many firms are chasing too few trades. Last month, W.H. Newbold s Son & Co., as part of a selling group, participated in a deal brought by Janney Montgomery Scott Inc. The issue was high grade, said Stevenson, but the takedown was a quarter point total.
When this is what your competition is, you almost can t make money on it. But there are alternatives, according to Stevenson. Buying bonds in the secondary market and marking them up a point or two is a feasible way a firm can make money. In addition, firms can investigate opportunities with non-rated bonds. In the past year, the public finance department of W.H. Newbold has managed several non-rated transactions in Pennsylvania, Stevenson said.
The non-rated deals sell well - you don t have much competition, the market is not as volatile, and there s more spread, she added. However most of the firm s buyers, according to Stevenson, prefer triple-A rated, plain-vanilla par bonds that are predominantly long-term. Recently, Stevenson has advised her customers to invest on the shorter end of the yield curve. I felt comfortable encouraging them to do not because I feared a flat tax, but because interest rates were low for a 10 to 15 year span, said Stevenson. Professional: 1991 - Present, W.H. Newbold s Son & Co. Division of Fahnestock & Co., Municipal Retail Sales Liaison 1969 - 1991, Hopper Soliday & Co., Retail Sales Liaison, Manager of the Unit Investment Trust Department 1964 - 1969, Whitweld & Co., Administrative in the Municipal Bond Department
Richard Grobman, Senior Vice President and Branch Manager of W.H. Newbold s Son & Co. Philadelphia office
The current lack of issuance is making it difficult for investors to reinvest the money they receive back from bond redemptions, according to Richard Grobman, senior vice president and branch manager of the W.H. Newbold s Son & Co. division of Fahnestock & Co. in Philadelphia. When the bond gets called in, investors want to reinvest their money. But there s not another school district bond available, explained Grobman, referring to one of his clients most popular types of investment. So the investor has to look for another bond to invest in. The problem gets worse if other issuers have redeemed bonds as well. There s a real burden on the investor to find another bond that s equally as lucrative and hope that these other issuers haven t refinanced, said Grobman.
Although the decreased supply in bonds in the marketplace has affected W.H. Newbold, Grobman currently sees an overwhelming demand for quality non-rated bonds. The firms high net worth buyers, he believed, like the higher yields and are becoming more secure with municipals, given the likelihood of a flat tax is diminishing. To to maximize current income and minimize market fluctuations, Grobman believes the laddered approach is the best strategy for the retail investor, staggering the maturities and equally weighting them so the investor receives a steady stream of income over a selected period of time. Low interest rates, predicts Grobman, may persuade brokers and customers to turn to other investment options in 1996.
Brokers are going to have to realize they re going to have to work harder to make the same money, said Grobman. I m afraid that too many individual clients will step away from the discipline that s proven over time and throw their hat into another investment vehicle and then inevitably get caught. Professional: 1990 - Present, W.H. Newbold s Son & Co., Senior Vice President and Branch Manager 1988 - 1990, Senior Vice President and Investment Adviser 1985 - 1988, Retail Broker Education: 1983, University of Florida, B.S. in Business Administration 1985, Drexel University, M.B.A.
Michael P. Judge, Senior Vice President and Head of Public Finance Changing the type of deal to go after has turned out to be an effective way to drum up municipal bond business in an increasingly competitive market, according to Michael P. Judge, senior vice president and head of public finance in the Lancaster, Pa. office of the W.H. Newbold s Son & Co. division of Fahnestock & Co.
Two years ago, I used to do a lot of insured transactions that competed with (dealers) with more political clout than I did, said Judge, so I purposely changed the kind of deal I went after to pursue the non- rated essential service bonds. There s more money in it. Judge, who solicits underwriting work for W.H. Newbold, operates on what he believes is a more entrepreneurial level than his counterparts at the more established firms. Bond issues he acquires, he said, are considered projects that he has entire control over. Such a system allows him greater flexibility.
The flexibility I have helps the issuer form a more cost-effective financing, said Judge. My cost of overhead is low since I do my own accounting and legal work. I also have the flexibility to sell the bonds to whomever I want. Popular bonds for his firms clients, primarily high-net-worth individual investors in the Northeast and Florida, have been general obligation and water and sewer bonds. According to Judge, recent deals include the Scranton, Pa., Parking Authority for $7.6 million dollars and the Lackawanna, Pa., Junior College for $4Zx million dollars. The higher yields on non-rated essential service bonds have gotten the attention of customers who ordinarily would stick to triple-A insured deals, he said. Judge foresees 1996 to be a good year for business, anticipating many 1995 deals to close this year. He also predicts the Securities and Exchange Commission will enforce on a larger scale the G-37 rule designed to halt pay-to-play political contributions by bond underwriters to candidates running for state and local elections. The Lackawanna Junior College is not a real strong financial institution, but their bonds went out very aggressively and they were done pretty quickly, said Judge. The yields were attractive to our clients. Professional: 1992 - Present, W.H. Newbold s Son & Co., Senior Vice President and Head of Public Finance 1987 - 1992, PNC Securities, Vice President 1983 - 1987, First Eastern Bank, Vice President, Public Finance Group 1981 - 1984, J.M. Revie, Assistant Vice President in Public and Corporate Finance Department Education: 1978, Wilkes University, B.A. in Economics
