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A Thomson Financial study released in January found that Memphis-based Morgan Keegan and Co. was the lead underwriter of $1.6 billion of municipal bonds issued in Tennessee in 2005, tops for the 13th straight year in the south central region.

Clearly, the bond business remains alive and profitable in Memphis, and a vital part of the business scene, adding almost $300 million to Memphis’ payroll each year.

Though many Tennesseans don’t realize it, Memphis is the second largest center of bond trading in the country—trailing only New York. Memphis firms First Tennessee, Morgan Keegan, SunTrust and Vining Sparks underwrite 27% of the FNMAs or other government agency bonds that finance the nation’s housing. Wunderlich Securities and Duncan Williams are also major players.

And the business is respectable— which is why the Memphis bond trading community would prefer that everyone forget the excesses of the “bond daddies,” which peaked in the 1970s.

Bond daddies got their start when Union Planters Bank was willing to finance their inventory with very little cash up front. Dozens of companies got their start, all competing to sell bonds to the banks that needed them. Back then, a bond was kind of like a used car because its value (read: price) was difficult to determine, affected by the amount of “chrome” and the persuasive ability of the salesperson. That allowed disreputable firms to charge a little extra, and it meant that bond daddies could live like kings. Stories about the opulent lifestyles of bond daddies “are true, though probably understated,” says Jim Vining of Vining Sparks.

But the “good” times came to a halt in 1975. Regulators told Union Planters to account for the bond inventory as a risk. As a result, it called in the loans, and most of the bond houses evaporated.

By then, Memphis had a tradition, but the old rules wouldn’t work any longer. So the bond business adapted. Professionals with degrees in finance or computer science replaced the glad-handing salesperson. “We changed the business from whiskey pouring, back slapping and golf outings to analytics,” Vining says.

One thing remains the same, though. The bond business in Memphis is still profitable. There is the underwriting side of the business, which has always had fat margins. But simply finding a home for a bond in a bank also pays very well. And the tradition is now something for which Memphis, and all of Tennessee, can be proud.

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