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Turning bronze into gold, part 2

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Turning bronze into gold, part 2

A high-stakes game of musicalchairs is taking place in the depository investment banking space as a numberof companies have ramped up coverage by hiring talent from their competitors.For many, the goal is to rank third in market share behind bellwethers SandlerO'Neill & Partners and KBW.

This is the second article ina series on the state of the depository investment banking industry. Thefirst examined theprogress Piper Jaffray and Stephens have made since embarking on a rapidexpansion in 2015.

Someinvestment banks believe slow-and-steady growth is the best way to win thehighly competitive race to become the third-most active adviser in the bankM&A space.

, Hovde GroupLLC, FIG PartnersLLC and D.A. Davidson& Co. are taking that approach and are packed together aroundthe third spot in the depository financial adviser rankings based on number ofdeals. Raymond James and Hovde tied for third with 56 deals, followed by FIGPartners with 52 and D.A. Davidson with 48 in SNL's U.S. bank and thriftM&A number-of-deal rankings for the five-year period ended June 30.  

Thefour trailed Sandler O'Neill& Partners LP and Keefe Bruyette & Woods Inc. by a wide margin, butthose two i-banks have the most resources dedicated to the space. The fourcompetitors behind KBW and Sandler have been growing their depository coverage,albeit in piecemeal fashion.

Hovdefocused on M&A advisory before adding an equities business. FIG Partners and D.A.Davidson started off by gaining share in certain regions before expanding toother areas of the country.

RaymondJames acquiredHowe Barnes Hoefer & ArnettInc. in 2011, but has built its depository practice more graduallywhen compared to Piper JaffrayCos. and StephensInc., two i-banks that had little exposure to the space beforehiring several senior i-bankers.

Rapidbuilds like those undertaken by Piper and Stephens can offer instantcredibility across the U.S., but others believe the deliberate approach sends amessage of staying power to clients and recruits.

"Whatwe will like to tell people is we've been covering banks for over twodecades," said Rory McKinney, D.A. Davidson's co-head of investmentbanking.

Otherscan make similar claims. FIG Partners, founded in 2003, and Hovde, founded in1987, each solely focus on the bank and thrift industry. Raymond Jamesstarted building upits financial institutions group around 2000.

Atone time, D.A. Davidson's depository investment banking activity was moreconcentrated in the West, but the company's focus widened to the Midwest andSouthwest after the 2012 hires of Stephen Nelson and Eugene Katz. During thefive-year period ended June 30, all of D.A. Davidson's bank M&A advisoryengagements have come in the Midwest, Southwest and West. Only KBW and Sandlerhave landed more deals than D.A. Davidson in those regions during that time frame.

"We'renot trying to become a Keefe or a Sandler, but someone that could be third orfourth or top 5 in the league table on number of transactions," McKinneysaid. "That's good business for us."

InMay, D.A. Davidson announcedan expansion of depository coverage to the East by hiring Edward Losty and JayJunior, who will lead efforts in the mid-Atlantic and Northeast.

McKinneynoted that D.A. Davidson plans to cover depositories throughout the U.S., withthe Southeast being a possible area of future expansion. He added that thecompany could consider an acquisition to fill gaps, but "hiring one or twogood bankers at a time" is his preferred building method.

FIGPartners and Hovde are following similar models. FIG Partners primarily landsdeals in the Midwest, Southeast and West but recently Sloan Deerin, whose coverageincludes the mid-Atlantic. Hovde primarily lands deals in the Midwest, Southeast,Southwest and West. It also recently added Jason Blumberg to focus on the mid-Atlantic andNortheast.

Hovdemay expand beyond depositories and into other related areas, such as financialtechnology, insurance and real estate, according to President, COO and generalcounsel David Magli. He said Hovde will remain focused on banks and thrifts,but the company would like to deepen the pipeline of opportunities it can offerdepositories that may have interest in adding complementary businesses such asmortgage finance or insurance.

IfHovde did expand, Magli expects the company to execute the plan through hiring."We'd rather wait and be selective and hire one or two producers than hirefive guys on the hope that one hits," he said.

Asidefrom its deal for Howe Barnes, Raymond James has mostly relied on hiring tobuild its depository team. While Raymond James has not announced the hiring ofa single depository i-banker in 2016, the company is seeing the benefits of ahire from last year, Robert Toma, who is a listed adviser on at least six ofRaymond James' 17 U.S. bank and thrift M&A financial advisory deals fromJuly 1, 2015, through June 30, 2016.

Muchof Raymond James' depository M&A market share is concentrated in theSoutheast and Midwest, but parent Raymond James Financial Inc. has the wherewithal toexpand the depository coverage. Vice Chairman of Investment Banking RichardDurkes said his company plans to do that.

"[We'rebuilding] not just to become No. 3, but become competitive with one andtwo," he said, referring to Sandler O'Neill and KBW. "It will take awhile because they have a lot of boots on the ground."