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HomeMy WebLinkAboutFirst Tennessee Bank as a BrokeriL C CITY OF PALM DESERT OFFICE OF THE CITY TREASURER STAFF REPORT REQUEST: Authorize First Tennessee Bank as a broker for the City of Palm Desert. APPLICANT: N/A CASE NOS. N/A DATE: Thursday, October 12, 2006 CONTENTS: Exhibit "A": First Tennessee Bank Application Recommendation: By Minute Motion: That the City Council approve First Tennessee Bank as an authorized securities broker for the City of Palm Desert. Background: City of Palm Desert ("City") policy requires that all authorized brokers submit an annual certification to the City as a condition precedent for continuing to do business with it. Morgan Stanley refused to do so for 2006. The City accordingly terminated Morgan Stanley as an authorized broker, pursuant to Palm Desert Treasury Policy No. 7, Section 1.0, Subsection 1.12. First Tennessee Bank ("First Tennessee") has filed an application to replace Morgan Stanley as an authorized broker. The City Audit, Investment, and Finance Committee has voted unanimously to recommend this application for approval. Staff concurs. First Tennessee Bank, founded in 1864 and headquartered in Memphis, Tennessee, is one of the 30 largest bank holding companies in the U.S. It has $37 billion in assets; 13,000 employees; and operations in 46 states. First Tennessee offers a diversified range of financial services, including commercial banking, mortgage banking, insurance, credit card, and capital markets. The bank's return on capital is 15 percent (the second -highest in the banking industry Staff Report Approval of First Tennessee Bank as a Broker Thursday, October 12, 2006 Page 2 of 3 according to Forbes), and it has not missed a quarterly dividend in 107 years. First Tennessee is listed on the New York Stock Exchange. First Tennessee's business reputation is excellent. It has been named one of the "100 Best Corporate Citizens" by Business Ethics Maaazine for the third consecutive year; one of the "100 Best Companies To Work For in America" by Fortune Maaazine for eight consecutive years; and one of the "Best Banking Companies in the U.S." by Forbes Magazine for seven consecutive years. Staff can find no hint of scandal, past or present, that is associated with the firm. FTN Financial Capital Markets ("FTN"), the bank's capital markets division, has been selling investment -grade bonds to institutional investors for over 80 years. It is a major underwriter in the new issue market for U.S. Agency securities. In 2002, FTN was ranked as the leading underwriter of callable U.S. Agency debt. FTN traders, supported by total capital of $1.8 billion, make secondary markets in agencies, money markets, municipal bonds, mortgages, and U.S. Treasuries. FTN meets the City's criteria for inclusion on the Approved Broker List as a secondary broker. Since FTN is a division of a national bank, it shares the bank's capital position, and is regulated by the Office of the Comptroller of the Currency. FTN is exempt from brokerage registration in California (national bank exemption). FTN has an office in Manhattan Beach. FTN's California client list includes the cities of San Diego, Riverside, San Bernardino, and Carlsbad. Staff has contacted these cities for references. All four cities offered similar comments: > "excellent to do business with" > "have a long-term relationship with them" > `offers a large inventory of U.S. Treasury and Agency securities at competitive prices" > "does business in a low-key, professional manner" > "good at trade execution" Given the current credit weakness in the U.S. corporate debt market, the City will be buying more U.S. Government Agency securities -- First Tennessee's area of strength. First Tennessee would be a valuable complement to the City's other two secondary brokers, Wells Fargo Bank, and Zions Bank. The FTN employee who would be assigned to the City's account, Bruce Patteson, Vice President, has been attending California Municipal Treasurers' Association annual conferences for the last 10 years, and is known to Staff. Staff Report Approval of First Tennessee Bank as a Broker Thursday, October 12, 2006 Page 3 of 3 Submitted By: Paul S. Gibson, CCMT, City Treasurer Approved By: Carlos L. Ortega, y Manager CITY OF PALM DESERT PRIMARY DEALER APPLICATION PREPARED BY THE CITY'S TREASURER'S OFFICE Thomas W. Jeffrey, J.D., M.B.A. Deputy City Treasurer REVIEWED AND APPROVED BY Paul S. Gibson, C.C.M.T. City Treasurer APPLICANT: FTN Financial Capital Markets City of Palm Desert Primary Dealer Application Page 2of8 The ➢ City of Palm Desert; ➢ Palm Desert Redevelopment Agency; ➢ Palm Desert Housing Authority; ➢ Palm Desert Financing Authority; and ➢ City of Palm Desert Golf Course Facilities Corporation (hereafter referred to collectively as the "City") are local governmental agencies that operate under the laws of the State of California. The Palm Desert City Treasurer's Office manages an investment portfolio with a combined book value of approximately $312 million. The City has adopted a written "Statement of Investment Policy ("SOIP")" that governs the operation of this investment program. A copy of the SOIP is enclosed. When the City wishes to fill a vacant broker position, it will accept applications only from the institutional sales departments of primary securities dealers. The City Finance and Investment Committee and the City Council will then review and render a final decision on the submitted applications. The City Treasurer's Office will then notify each applicant, in writing, on whether its application has been approved, denied, or rejected. The only exception to the foregoing shall be that the City Finance and Investment Committee and the City Council may, at their discretion, accept, review, and approve, deny, or reject applications from secondary brokers that: 1. Have a net capital position in excess of $100 million; 2. Have been in existence for more than five years; 3. Are currently licensed as a broker by the State of California; and 4. Are headquartered or have a branch office in the State of California. If a broker's application is missing, incomplete, late (submitted after the Citv's specified deadline), or contains false or misleading information, or if the broker has not submitted all of the documents that the Citv requires as part of the application process, then the Citv shall automatically reiect that broker's application, and the broker shall not be elioible to submit another application to the Citv for three vears. The City shall not transact business with an approved securities firm until all of the documentation that both parties require, has been executed and delivered. SECTION II: APPLICATION DEADLINE AND REQUIRED DOCUMENTS City of Palm Desert Primary Dealer Application Page 3of8 The City must receive the following documents from the interested applicant by no later than 12:00 Noon on Monday, September 18, 2006: 1. A completed "Primary Dealer Request For Information". Attached 2. A copy of the firm's most recent Annual Report and SEC Form 10-K or 20-F. Attached 3. A copy of the firm's NASD Form BD — Uniform Application for Broker -Dealer Registration or, in the case of a commercial bank, SEC Form MSD. NASD Form BD not applicable. Form MSD is confidential, and we do not release to public. 4. A copy of the firm's most recent NASD Form BD Status Report. N/A 5. A copy of the NASD Form U-4 — Uniform Application for Securities Industry N/A Reaistration or Transfer for each employee with whom the City would be trading. 6. A copy of the most recent NASD Form U-4 Status Report on each firm employee with whom the City would be trading. N/A 7. A copy of the firm's most recent SEC Form X-17 A-5 filing or, in the case of a trading department within a commercial bank, Consolidated Reports of Condition and Income for A Bank With Domestic and Foreian Offices — FFIEC 031 filing. Attached 8. A resume on each of the firm's employees who might be trading with the City. Attached 9. An executed corporate resolution that identifies the firm's employees who are authorized to trade and who might be trading with the City. In the process of updating the corporate resolution, will be sent at a later date. 10.A copy of the firm's wiring and delivery instructions. Attached 11.A sample of the firm's trade confirmation and monthly client account statements. Confirmation Sample Attached / Monthly Client Statements Not Applicable These documents may be delivered in person, by post, or by courier to: City of Palm Desert Attention: Thomas W. Jeffrey Deputy City Treasurer 73-510 Fred Waring Drive Palm Desert, CA 92260-2578 City of Palm Desert Primary Dealer Application Page 4of8 If you have any questions about this application, then please call Mr. Jeffrey at 760.776.6383 (direct). SECTION III: REQUEST FOR GENERAL INFORMATION 1. Firm Name: FTN Financial Capital Markets 2. Contact Address: 845 Crossover Lane, Suite 160 Memphis, TN 38117 3. Contact Personnel: Sales Representative Name: Bruce Patteson Title: VP TEL: (901) 435-8988 TEL: (800) 934-8988 Supervising Manager Name: Mat Parker Title: EVP TEL: (901) 435-8726 TEL: (800) 456-5460 4. Please describe any formal program of supervision that your firm has established for the sales representative who is listed in Question 3. All sales representatives are trained annually on sales practices, rules and regulations applicable to the firm's business. All representatives report to a designated principal of the firm. 5. Please identify all personnel who would be trading with or quoting securities prices to the City. # of Years in # of Years Name Title Institutional Sales with Firm Telephone Bruce Patteson SVP 14 14 (901) 435-8988 Please provide information on the history, details, and status or disposition of any disciplinary actions or complaints, arbitration, or litigation involving the above personnel. 6. Do the personnel who are listed in Question 5 work exclusively with institutional clients in a department that is exclusively dedicated to institutional sales? ® Yes ❑ No City of Palm Desert Primary Dealer Application Page 5of8 7. Which of the personnel who are listed in Question 5 have read the City's "Statement of Investment Policy', as amended October 28, 2004? Bruce Patteson 8. Please provide four references from public sector clients (preferably in California) that have established relationships with the sales representative who is listed in Question 3. Indicate: (a) name of governmental agency; (b) contact person; (c) address; (d) telephone number; and (e) length of relationship. See Attached List 9. Does your firm regularly report to the Market Reports Division of the Federal Reserve Bank of New York as a "primary dealer"? (check one) ❑ Yes ® No If yes, how long has your firm been a primary dealer? 10. Please answer the following questions only if your firm IS NOT a primary dealer. a. Does your firm have a net capital position in excess of $100 million? (check one) FTN Financial Capital Markets is a bank dealer and a division of First Tennessee Bank, N.A. First Tennessee Bank has over 2.9 billion in capital. ❑ Yes ® No b. Has your firm been inexistence for more than five years? (check one) ® Yes ❑ No c. Is your firm currently licensed as a broker by the State of California? (check one) FTN Financial Capital Markets is a division of First Tennessee Bank, N.A. and is exempt (national banking exemption) from CA state registration. ❑ Yes ® No d. Is your firm headquartered or does it have a branch office in the State of California? (check one) Branch Office located at: 1230 Rosecrans Ave Suite 690 ® Yes ❑ No Manhattan Beach, CA 11. Is your firm a member of the National Association of Securities Dealers? (check one) FTN Financial Capital Markets is a division of First Tennessee Bank, N.A. and is regulated by the OCC. ❑ Yes ® Nolf "no", why not? City of Palm Desert Primary Dealer Application Page 6 of 8 12. Which of the following entities has the authority to oversee the operation of your firm, in terms of examinations, rules, and regulations? (check appropriate choices) ❑ FDIC ❑ SEC ❑ NYSE ® Comptroller of Currency ❑ Federal Reserve System ❑ NASD ❑ Other (example: state regulatory agency) (g2qcif) Multistate firms please note: It is not necessary to include regulatory agencies that do not have jurisdiction over the your firm's activities in California. 13. Is your firm owned by a holding company? (check one) ® Yes ❑ Nolf "yes", what is the holding company's name and its net capitalization? 2.9 billion in capital First Tennessee Bank N.A. / First Horizon National Corporation 14. Has your firm consistently complied with the Federal Reserve Bank's capital adequacy guidelines? (check one) ® Yes ❑ Nolf "no", please explain. 15. What was your firm's total trading volume in Federal Agency securities, corporate medium -term notes, and commercial paper last year? (Not tracked by security type) Firm -Wide: $ over $16 billion # of Transactions: not tracked Your Office: $ not tracked # of Transactions: not tracked 16. Which of the following instruments are regularly offered by your trading desk? (check appropriate choices) ® T-Bills ® T-Notes ® T-Strips ❑ Repurchase Agreements ❑ Money Market Funds ® Bankers's Acceptances (Domestic) ❑ Bankers's Acceptances (Foreign) ® Certificates of Deposit ® Unsecured Commercial Paper ❑ Corporate Medium -Term Notes City of Palm Desert Primary Dealer Application Page 7 of 8 ® Asset -Backed Commercial Paper ® Federal Agencies (specify) FNMA, FHLMC, FFCB, and FHLB 17. Which of the financial instruments that are described in Question 16 does your firm specialize in marketing? US Government Agencies, US treasuries, MBS's, and Municipals 18. Is your firm a member of the Securities Investor Protection Corporation ("SIPC")? (check one) ❑ Yes ® No 19. If "No" to Question 18, does your firm participate in any program that provides securities insurance coverage for a public sector client which buys the financial instruments that are listed in Question 16, on a delivery -versus -payment ("DVP") basis? (check one) See attached ® Yes ❑ Nolf "yes", please explain. 20. If "no" to Question 19, please explain why your firm does not carry any securities insurance coverage for its customers. 21. Please indicate a percentage breakdown of your firm's client base by portfolio size. Not available. 22. How many and what percentage of your securities transactions failed last month? Last year? Not available. 23. What precautions does your firm take to protect the interests of the public when dealing with public sector clients as investors? We perform independent daily and monthly suitability reviews. Each rep must read the client's investment policy and agree to abide by the policy. 24. What makes your firm the best broker/dealer for the City? What advantage would the City gain by trading with your firm? Experience, Products, and Knowledge. Bruce Patteson has almost 14 years of fixed income sales experience. FTN Financial is a leading underwriter for US government agencies (FNMA, FHLMC, FHLB, and FFCB). FTN Financial provides customers with weekly, monthly and annual reports on the market and economy. City of Palm Desert Primary Dealer Application Page 8of8 SECTION IV: REQUEST FOR DISCLOSURE 25. Have any of your firm's public sector clients sustained a loss on a securities transaction within the last five years, arising from a misunderstanding or misrepresentation of the risk characteristics of a financial instrument that was recommended by and purchased through your firm? (check one) ❑ Yes ® Nolf "yes", please describe each matter briefly. 26. Have any of your firm's public sector clients claimed, in writing, within the last five years, that your firm was responsible for any investment losses? (check one) ❑ Yes ® Nolf "yes", please describe each matter briefly. 27. Has your firm been subject to any litigation, arbitration. or reaulatory proceedinas, either pending, adjudicated, or settled, within the last five years, that involved allegations of improper, fraudulent, disreputable or unfair activities related to the sale of securities to or the purchase of securities from institutional clients? (check one) ❑ Yes ® Nolf "yes", please describe each matter briefly. 28. Has your firm been subject to a regulatory, state, or federal agency investigation, within the last five years, for alleged improper, fraudulent, disreputable, or unfair activities related to the purchase or sale of securities? (check one) ❑ Yes ® Nolf "yes", please describe each matter briefly. FTN FINANCIAL Account Representative Profile William Bruce Patteson Vice President Birth bate February 9,1961 Education Bachelor of Science - Management University of Tennessee Knoxville, Tennessee Work Exv_ erience 1992 to Present: FTN Financial Capital Markets Investment Banking Securities Licenses Series 7 Series 52 Series 63 Note: This data will provide the information necessary for you to comply with recent regulatory guidelines on making appropriate inquiries into the background and experience of your sales representative. For additional information, please feel free to call Kristin Runnels at 1.800.456.5460.