Hapoalim Securities is shutting down its U.S. fixed-income business, sources say

By Emma Trincal

New York, Jan. 12 – Hapoalim Securities is closing its fixed-income sales and trading operations in the U.S., according to several sellside sources.

Hapoalim Securities USA, Inc., is the U.S. brokerage arm of Bank Hapoalim B.M., Israel’s largest bank, with more than $60 billion in assets, according to the bank’s website. The brokerage specializes in debt instruments.

Sources said that other fixed-income desks have already been closed or are in the final stages of closing, citing emerging markets, preferred stocks, corporate bonds and municipal bonds.

The structured products unit, which is based in Los Angeles, is now shutting down as well, they said.

Fixed-income

“That’s terrible!” said a market participant who was not aware of the situation.

“I was just talking to them recently.”

“It’s been going on for at least two months,” a trader at another firm said.

“But they kept it quiet. The other areas are definitely gone. Munis, corporate, emerging markets ... They’re all gone.”

A sellsider said that Hapoalim Securities had been winding down its fixed-income operations for months.

“The situation has been going on for a while,” he said.

“They had about 50 people in capital markets in total.

“I’ve known it, because I have a lot of friends over there. I’ve tried to help some people. It’s a good team.”

Employees at Hapoalim Securities declined to comment, including chief executive Dennis Loudon, in New York and the compliance office.

An email to the investor relations office in Israel was not answered.

Others too

“I think they have about three people in structured CDs, all based in Los Angeles,” said the sellsider.

“Their emerging markets team has moved to Stifel.”

Stifel Financial Corp. announced late November the hiring of two Hapoalim veteran emerging market traders. John Birdsall and Chris Landon joined Stifel to head up teams within the emerging markets group.

The sellsider said that Hapoalim’s preferred stock business had already moved to Cabrera Capital Markets.

The structured product team was small but had a “very good reputation,” said the market participant.

“It’s a very dedicated and professional team. They were top tier in customer service and moving rates-like products. They were selling to high-net-worth individuals,” he said.

Hapoalim’s structured product activity revolved mostly around structured CDs, sources said.

“They may have done plain-vanilla CDs too. From what I understand, they only did new issues. But they supported the market. If you bought a new issue, they would make a secondary market to support it,” the trader said.

Slow

Whether sources heard the rumor several months ago or just recently, they agreed that the unwinding process had been slow and quiet.

“They probably decided to lay off their people in a gracious way,” said the trader.

“Maybe give them some time to find a job. Who knows? ‘We’re shutting down. No fault on your part. We’ll continue to pay you for a little while and you guys will look for a job.’ I don’t know really. But maybe it’s just a very genuine gesture on their part.”

The sellsider said the decision almost certainly was due to the bottom line.

“Like many firms obviously they decided to take a different direction.

“A lot are not getting what they need out of the business in terms of margins.

“They’re not alone. Guggenheim has recently exited the muni business.

“Other firms involved in new issues in structured products also see their margins getting tighter. They’re not getting what they anticipated.”

Guggenheim Securities closed its municipal bond desk in November.

Non-U.S. exit

For the market participant, regulatory constraints in the U.S. were mostly to blame as they induced greater compliance and legal costs.

“They’re probably concerned about regulatory issues. It’s getting very difficult for firms to operate in the U.S.

“It’s not the first time. Again, another example of distributors leaving the space. Look at Credit Suisse, Barclays, Deutsche Bank. All non-U.S. banks!”

Stifel bought Barclays’ U.S. wealth management operations in June. Credit Suisse closed its U.S. private bank in November. In December, Deutsche Bank sold its U.S. private client business to Raymond James.

“At least we know where those guys went to. With Hapoalim, we don’t know.”

Distribution countdown

The market participant said that he was concerned about an imbalance between issuance and distribution.

“It’s just another distributor out of the picture. It was small. But it was a distribution channel that could have grown,” he said.

“Non-U.S. players re exiting the structured note business and it’s all on the distribution side.

“Meanwhile issuers continue to grow.

“This is terrible. We’re adding more issuers and we’re not getting enough distribution.

The sellsider pointed to the market as a whole rather than industry-specific issues.

“I don’t think the problem is insufficient distribution. There are a lot of distributors, and they’re not getting enough,” he said.

“There’s not a lot of liquidity right now. The new issue market is very quiet. Primary dealers have continued to lay off.

“It’s a problem within fixed-income as a whole, not just with structured products. High-yield is in difficulty. Structured credit and mortgage are also having problems.

“It’s a very interesting environment to make a living.”

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.