Nuveen Had ‘Zero Tolerance’ for Banks Dealing With Bond Rival
John Miller speaks during an interview. (Photographer: Jin Lee/Bloomberg)

Nuveen Had ‘Zero Tolerance’ for Banks Dealing With Bond Rival

(Bloomberg) -- Nuveen LLC created a “zero-tolerance policy’’ for doing business with banks or bond traders who signed deals with rival Preston Hollow Capital LLC, according to unsealed transcripts of calls Nuveen employees made to those financial institutions.

Preston Hollow Capital said audio recordings it got as part of a lawsuit show Nuveen used its market power as one of the biggest buyers of U.S. state and local government bonds to organize a boycott of the Dallas-based lender, whose role in financing risky projects posed a competitive threat.

John Miller, co-head of Nuveen’s fixed income unit, is “going to every single major bank and broker-dealer that we do business with and telling them, ‘If you choose to do business with Preston Hollow, we will not be conducting business with you,” an unidentified Nuveen employee said in an undated transcript.

The documents were made public in Delaware Chancery Court, where Preston Hollow filed a complaint in March accusing Chicago-based Nuveen of running an intimidation campaign to keep the smaller rival from competing with it for debt deals. Nuveen manages more than $140 billion of municipal bonds.

Preston Hollow alleged that Miller and his staff threatened to use their power to pull tens of millions of dollars in business from banks that underwrote limited offerings with Preston Hollow and financed the loans.

Nuveen is accused in the suit of violating antitrust laws by organizing the boycott and pressuring big banks, such as Wells Fargo & Co., JPMorgan Chase & Co., Goldman Sachs Group Inc. and Citigroup Inc. to shun the Texas bond fund. Preston Hollow has loaned $2 billion to finance hospitals, real estate developments and student housing.

‘Distorted View’

“The selected passages from the transcripts, as presented, offer a distorted view of how we engage with broker-dealers on a day-to-day basis and therefore don’t reflect our overall approach to the municipal bond market on behalf of our clients and all investors,” Stewart Lewack, a Nuveen spokesman, said Monday in an emailed statement.

“Nothing about these recordings changes Nuveen’s view of the case,’’ Lewack added. “Nuveen continues to maintain the claims have no merit and will vigorously defend itself.’’

Nuveen, which had almost $1 trillion in assets under management as of March 31, is the investment manager of TIAA, which is known for offering financial products to teachers.

In transcripts of Nuveen’s calls unsealed June 28, Nuveen accused Preston Hollow of misleading investors about the bond firm’s practices and charging exorbitant rates for deals that don’t “pass the sniff test.’’ Officials also said Preston Hollow engaged in “predatory lending.”

That prompted the Nuveen to launch its unprecedented effort to get the rest of the bond market to ostracize Preston Hollow, according to the transcripts. “It’s a business policy shift for us to do this,” one Nuveen executive said on a call, according to a transcript of the conversation.

Preston Hollow quotes Miller as saying he had obtained agreements from 90% of major Wall Street dealers and banks to stop working with Preston Hollow and was working on 100%. “I feel my chances are pretty good at getting there,” according to the transcripts.

A long-time colleague of Miller’s said in a call with officials of Deutsche Bank AG –- which provided financing to Preston Hollow -- that he’d never seen the executive “so serious about anything. I mean, nothing gets him more upset than these Preston Hollow deals that pull supply away.”

Miller’s pique centered on Curtis Erickson, the head of capital markets at Preston Hollow who allegedly told an unidentified issuer that Nuveen wouldn’t agree to certain bond covenants and “would rather put you through bankruptcy,” according to the transcript.

The Nuveen executive also claimed in the transcript that Erickson had said the same thing about Nuveen when he worked at Mesirow Financial Inc., a Chicago-based bond dealer.

“Nothing makes John madder to know that this guy is still out there doing that," an unidentified Nuveen employee said, according to the transcripts. “When Wells Fargo told us exactly what Preston Hollow said, it just set him off." Erickson declined to comment Monday on the allegations.

Wells Fargo worked with Preston Hollow to underwrite a private placement for a project in Chicago. After the deal closed, Preston Hollow marked up the bonds and attempted to sell the securities to Nuveen, according to the transcripts made public in Delaware.

While Preston Hollow accuses its rival of leaning on Deutsche Bank to yank Preston Hollow’s financing, Nuveen counters it was trying to protect the bond market rather than kill a competitor.

‘Consistent Stance’

“This is not about penalizing Deutsche Bank,’’ the unidentified Nuveen official said in an undated call. “This is about a consistent stance about certain market practices that we think are harmful to not only Nuveen, but the market as a whole.”

In that call, a Deutsche Bank employee noted Nuveen’s blackballing of Preston Hollow was “devastating news.” Another official complained the effort to put the competing bond firm on the shelf had more immediate adverse consequences for the Frankfurt-based bank than other financial institutions.

“We’re getting the bigger punch in the stomach rather than Wells Fargo or BAML or Morgan Stanley,” the female employee said, according to the transcript. “We’re losing business, ongoing, you know.”

“The recordings demonstrate Nuveen was not just pressuring broker dealers to supply Nuveen with bonds rather than’’ Preston Hollow, according to court filings. “Nuveen was trying to choke off PHC’s liquidity from Deutsche Bank and any other sources of liquidity that Nuveen could identify.’’

The case is Preston Hollow Capital LLC v. Nuveen LLC, 2019-0169, Delaware Court of Chancery (Georgetown).

©2019 Bloomberg L.P.

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