BofA Looks to Link Up Bond Issuers With Minority-Run Banks
(Bloomberg) -- Bank of America Corp. held a conference last week to connect minority-run banks with companies that borrow in bond markets in an effort to increase diversity in debt underwriting.
The Charlotte, North Carolina-based lender -- consistently one of the largest underwriters of U.S. investment-grade corporate bond sales over the last two decades -- is also looking to increase the proportion of fees that companies direct to minority-owned dealers that join its syndicates for bond sales, said Andrew Karp, the bank’s head of investment-grade capital markets. He declined to provide specific figures.
Last week’s event included more than 200 companies and 27 banks run by minorities, women and veterans.
“It’s important for us to do our part to increase diversity, inclusion and equality in the financial sector and we take that seriously,” Karp said. “There is a broader goal here and a bigger picture perspective that expands beyond just thinking about the last dollar in revenue, even if it means earning less on a transaction.”
Bank of America has taken steps to improve its outreach to minority communities and help foster equality, including pledging $1.25 billion over the next five years to address racial and economic inequality. CtW Investment Group, which does shareholder activism on behalf of union pensions, has filed a shareholder resolution to force the bank to do a racial equity audit. Bank of America told shareholders to vote against the measure, and said any audit is unnecessary because of the progress the firm has made on racial equality.
Firms owned by minorities, women and veterans have been winning more business since George Floyd was killed by police last year, igniting a greater racial reckoning in the U.S. Companies like Verizon Communications Inc., Allstate Corp. and State Street Corp., which all spoke at the event, have led prominent bond offerings run in part by minority-owned banks. The firms are working on more transactions, and are often hired in more significant roles, responsible for selling more notes and earning more fees in the process.
“It’s a self-fulfilling vote of confidence for banks to be out front in the conversation,” said Annie Seelaus, chief executive officer of R. Seelaus & Co., a women-owned broker dealer.
But progress has been slow, and although minority firms have been in the corporate bond market for decades, their share of corporate bond underwriting was just 2% to 3% as of 2020.
Financial companies, some of the most frequent sellers of bonds, have been making their syndicate groups more diverse. Citigroup Inc. worked solely with Black-owned firms to distribute $2.5 billion of bonds in January, while Deutsche Bank AG paid one of the largest fee shares ever to minority underwriters on a bond sale last month. Bank of America has worked with the firms in its own offerings as well, including a $2 billion bond in September whose proceeds will be used to try to advance racial equality through activities such as mortgage lending and financing businesses in Black and Latino communities.
Big banks have paid minority firms about $17.8 million in fees this year through the middle of last week for helping to underwrite bonds issued by the dealers in the U.S. That’s close to the $23.8 million they paid for the whole of last year, according to data compiled by Bloomberg.
Even outside of the banking industry, more companies are embracing diversity in their debt deals, a trend that Bank of America’s Karp expects to continue.
In its last two U.S. dollar-denominated bond sales, Verizon has appointed one of the lead underwriters to make sure there was enough focus on taking orders from diversity firms and that there are fair allocations, especially if the deal is oversubscribed. Last month’s $25 billion offering drew $109 billion of demand at its peak.
“We are going to be looking at our large banking partners to embrace that role,” said Scott Krohn, the company’s treasurer. “And if you don’t, it could mean less opportunities in doing business with Verizon.”
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