Brad Winges, President and CEO of HilltopSecurities sits down with Mike Nicholas, CEO of The Bond Dealers of America

What’s your outlook for 2024 generally and more specifically how do you see municipals performing?

I believe 2024 is going to be a good year for the fixed income markets and public finance as the Fed signals they are near the end of raising rates. Historically, that environment tends to be positive for the bond markets, as clients move out of shorter duration assets into longer fixed rate assets. We are also very optimistic about the ongoing industry discussions to address the nation’s infrastructure needs. Infrastructure across the United States is in need of repair and upgrades and that drives municipal financing at the local level, where local leaders and financial professionals can develop the most effective structures and financing to meet their unique situations.

Muni issuance - due to rate levels - has been slow. What do you forecast for 2024?

I expect we will see from $375-400 billion in new municipal issuance in 2024. I believe issuance will trend higher in the second half of 2024 if interest rates begin to fall and issuers get back into the market at a more robust pace, leading to the industry reaching the $400bb issuance. With the tax-free nature of municipal bonds, the strong supporting tax base and the ability for investors to get an attractive risk adjusted return, municipals will continue to become more appealing to investors.

Two big announcements in 2023 - UBS exiting muni banking, and Citi exiting municipals all together. How do these developments impact Hilltop’s business?

The municipal banking industry is seeing a lot of change as broad based firms look to other parts of their business as a priority. Given that we remain completely committed to the municipal industry, HilltopSecurities will continue to benefit as peers in the industry exit the business. Our focus on municipals has not waivered in the past 76 years, and it will not waiver in the future. That commitment allows us the opportunity to selectively hire extremely talented and experienced professionals who want to join a full service municipal investment banking solution provider. We have a unique platform as a leading financial advisor and underwriter, with eight additional spoke businesses providing additional services—arbitrage rebate, swap advisory, continuing disclosure, asset management, government investment pools, money market products, insurance products, and pension investment products. With that extensive combination of complementary services, HilltopSecurities is a well-positioned firm to serve the financial needs of public entity clients across the U.S.

Could you talk about HilltopSecurities’ non muni businesses and where you see growth opportunities in 2024?

Wealth Management continues to expand nationwide as more people learn about the depth and breadth of our wealth offerings, our brand, and our expertise in public finance and fixed income products. Additionally, the flexibility we offer through both employee and independent channels on the same platform, via our Momentum Independent Network platform as well as our most recently expanded insurance products through Hilltop Securities Insurance.

The BDA in 2023 announced an Alliance of Universities to host annual events titled Innovations in Infrastructure. This four high-academic university Alliance includes The University of Chicago, The University of Texas, NYU, and the University of North Carolina.

In our view, there is a significant need to rebuild infrastructure across the U.S., and that effort will require a tremendous amount of innovation, thought leadership, and education, as well as effective partnerships between the business community and state and local governments. The needs are extensive – from electric grids and freeway systems to high-speed rail, and airport infrastructure.

Technology is moving very quickly and that is leading to rapid changes in the bond industry in terms of information flow, trading, settlements and how we offer advice to clients. Electronic trading, AI, and ChatGPT as well as Blockchain distributed ledger/ tokenization are still in their early stages across the industry. It’s important that the industry develop a robust understanding of each of these systems and ensure that clients’ needs are being met by working with an investment professional who understands these trends and how they can help them with their specific financial objectives.

The SEC has been especially active under Chair Gensler. Could you talk a little about bond market regulation and where it’s more acutely impacting not only HilltopSecurities’ businesses, but the US bond markets generally?

Certainly, the regulations have increased the past few years, specifically in the fixed income business as well as wealth business. From areas such as Regulation Best Interest, to increased disclosure, price transparency and an increasing request by regulators to see customer activity. I believe part of the regulatory change that has recently occurred can be attributed to COVID and the challenges of the remote work environment dynamic. I feel that regulators responded quickly to allow firms the needed flexibility to be remote to keep the financial markets open and active. Now, as the back to the office work environment continues to increase, it’s important to bring together technology standards with the regulatory framework of what is appropriate for a remote office versus a traditional office location. Similarly, new financial technologies and tools are impacting the bond market in trading, analytics and execution platforms for clients. The regulators are challenged with how to understand the benefits and the risks of these new tools and they need to continue to solicit advice from the industry. Additionally, as regulators are increasing their requests for customer data, it is important that the industry assure that the clients are aware of these third party requests and the clients understand the purpose. Industry trade associations like the Bond Dealers of America and the American Securities Association are both doing a great job working with regulators to discuss the various challenges and opportunities to use technology tools to improve the client experience and provide superior advice and best execution, as well as providing the regulators the appropriate data necessary to assure clients best interests are being met.

HilltopSecurities is and will continue to be a leading municipal investment bank and wealth advisory and clearing firm. Our goal is to ensure that municipal, fixed income, and wealth management clients understand our expertise, position in the industry, and unwavering commitment to them, regardless of the economic conditions. We will remain in growth mode, methodically growing in areas where we have expertise and not waver in our commitment to help society meet its municipal financing needs.

We generally close these discussions with one question - What keeps you up at night? What are you most concerned with related to the US bond markets, and where do you see the most opportunity?

As I mentioned earlier, changes in technology—whether Blockchain, AI, or ChatGPT—are happening faster than many anticipated, and it is vital that our industry effectively manage these changes and the potential accompanying risks. What keeps me up at night is thinking through how to ensure that we are up to date with these trends and using technology responsibly, partnered with regulators, so that we do not fall behind tech firms that might offer innovative financial solutions or products that are not backed by the sound financial guidance, regulatory framework and expertise of financial professionals. As a leading municipal investment bank and wealth management advisory firm, we have a responsibility to educate investors and protect their best interests while advising our debt issuing clients and offering them underwriting and other financial tools to meet their financial goals.