Texas ban on ‘woke’ banks opens door for smaller firms

The political conflict over socially conscious finance is a boon for smaller investment banks in one contentious market: Texas. The clash over environmental, social and corporate-governance investing follows state restrictions passed in 2021 on government business with financial firms perceived as taking a stand against firearms or fossil fuels. Wall Street heavyweights such as Bank of America and Wells Fargo have pulled back in Texas, even as the state’s growth has made it the nation’s top issuer of state and local debt, with $42 billion last year. Even beyond Texas, big banks are in retreat in the $4 trillion municipal-bond market. Higher rates and depressed borrowing have dented profits, which weren’t that spectacular to begin with. Large firms are pulling back at varying rates as a result.

Citigroup’s recent restructuring axed the muni desk entirely. Long the biggest underwriter in Texas, Citi was locked out of most deals in the state over its policy of not doing business with retailers who sell guns to people under 21. State Attorney General Ken Paxton banned Barclays in January after identifying the firm as a potential “fossil fuel boycotter.” That is creating opportunity for firms that have managed to avoid the ire of Texas officials. Booming business in Texas helped land New York City-based Jefferies among the nation’s top three muni underwriters for the first time last year. Also benefiting are fast-growing smaller firms such as Memphis-based FHN Financial, the investment-banking arm of First Horizon Bank, which has historically focused on Texas local school bonds. Texas was the highest-grossing region for municipal bonds last year at Siebert Williams Shank, said president of infrastructure and public finance Gary Hall. The New York firm now has offices in Austin, Houston, Dallas and San Antonio.