Money Talks 

Two years after the financial markets’ near-collapse, broker Duncan Williams talks stocks, bonds, capital, and the prospects for recovery.

The name "Duncan Williams" has been part of the southeastern financial scene for more than 40 years.

Duncan-Williams Inc. was founded in Memphis by A. Duncan Williams in 1969, a time when Memphis was notorious for high-living, hard-charging, super-selling "bond daddies" who sold municipal bonds to small-town banks.

After regulators cracked down and drove the bond daddies to other states, Duncan-Williams was one of the survivors. Mr. Williams died in 1989, and the company was taken over by his wife, Carolyn, who is still the major stockholder and co-chairman of one of the largest female-owned broker-dealer firms in the country.

The CEO is their son, Duncan F. Williams, who jokes that "I still get my allowance from my mom."

Williams, 42, is a graduate of the University of Alabama. He and his wife, Abbie, have three young children. Under his leadership, the company has moved into stocks and capital markets and embarked on a "500 by 50" expansion aimed at producing $500 million in annual revenues by 2019, when the firm will be 50 years old. It currently has about 170 employees and offices in New York, Chicago, Los Angeles, Charlotte, Seattle, Cleveland, Atlanta, and other cities. A few weeks ago, the firm was ranked by Inc. Magazine as one of the 5,000 Fastest Growing Private Companies in the U.S. Duncan-Williams' revenue grew by 183 percent from 2006 to 2009, making it one of the hottest investment banking firms in the country.

The stock market gets the headlines, but the bond market is much bigger. Civilizations are built on debt. Whether it's an aqueduct in Rome or an arena in Memphis or a school in Itawamba County, Mississippi, some government, agency, or corporation is always building something and borrowing money to pay for it.

Duncan-Williams is one of the companies that buys and sells that debt — a broker-dealer in the trade talk. Its headquarters are in the Forum, a glass office building on Poplar Avenue in the suburban heart of the business and financial center of Memphis. The nerve center is the trading floor, where the jargon and acronyms that most people only hear on the news or see in their mortgage statement come to life each morning. This is the world of Fannie and Freddie, taxables and munis, calls and spreads and basis points, GNMAs and junk bonds.

It's an arcane world that pays well. Not the seven-figure bonuses of the Wall Street firms but $200,000 to $400,000 a year for a good salesman. Most of the salesmen are men; the sales assistants and a few of the traders are women. There is a custom of cutting a salesman's tie in half after he makes his first sale, and the corridor outside the trading room is lined with framed neckties and photographs of their owners.

Low rates, high rates, rising rates, falling rates. Business goes on. As a trader told me as I looked over her shoulder at the rows and columns of numbers flashing on her Bloomberg computer, everything is supply and demand. There is a market for everything. It's morning somewhere, and the market's open.

Q&A »

Flyer: In your opinion, as someone who deals with markets every day, are we over the bad economy?

Duncan Williams: I'm a guy who sees the glass as three-quarters full all the time. But I'm worried about where we are as a country. It's a scary time. We're not over this thing yet. Find me one person who in the last three months has not had a friend laid off. Until you find that person who has three friends getting hired instead, then we're not over it. Until companies show growth by hiring and spending money instead of by cutting expenses, then we're not over it.

Why is Memphis a bond center?

It goes back to the late 1960s and First National Bank. Municipal bonds came on the scene about that time. There were at least 50 firms in this city in the 1970s. Of those firms, there are really two left: Carty & Company and Duncan-Williams. The municipal bond world in those days was amazing. They were carrying what are called bearer bonds or coupon bonds in the trunk of their car and would go to these banks and sell them literally right out of their trunk.

But why Memphis?

My guess would be that First National was doing it, and other companies got into it because people were making a lot of money. Then what happened was, regulation came along and a lot of people moved to Little Rock, Texas, and south Florida. The term "bond daddy" is not one we use about ourselves. It's one from a long time ago that's not really a compliment. But the term came from the Memphis fixed-income people.

Many of our readers probably are not familiar with your business. What do bond traders do all day?

They're talking to either other companies or other firms that are selling bonds. People talk more about the stock market, and it's easy to understand that the Dow is up or down. But the bond market is probably 100 times the size of the stock market as far as money.

Do you deal with the debt of Memphis and Shelby County?

We do. We're pretty much part of all the deals one way or another.

Should people be worried about the amount of city and county debt?

What we need to be worried about more is, for the city to grow and become a 21st-century leader, they have got to issue debt. Every road, sewer, school, MLGW deal, FedExForum, you name it, that's all done through bond deals. The only way you're going to fix infrastructure is through issuing debt. So the worry to me is not issuing debt, the worry is keeping people in Memphis from the tax-base standpoint. If we keep losing people, it puts the tax burden on the people who still live here. We have to keep the companies we have. Pinnacle Airlines is being recruited by north Mississippi. We better be able to answer it. We can't afford to lose those companies. We have to be able to recruit young people here and keep them here. So I don't worry as much about the debt as I do about this.

Both Memphis and Shelby County have AA bond ratings. Should people sleep well because of that?

I think so. We're strong, because we have reserve funds built up. The city is fine. [Politicians] just have to quit worrying about being elected and start worrying about what's right for the city and county.

Should people have confidence in those ratings?

Rating agencies have gotten beaten up, and they should have been, the way they rated all that mortgage stuff. From a municipal standpoint, though, their numbers are pretty accurate.

Are you in favor of consolidation of city and county government?

I've been on some of the committees, and I believe consolidation is good for the city. It cuts out some of the red tape and makes it easier to recruit industries to this city.

Did you see the subprime mortgage problems coming?

I can't say I did. In July 2007, we had a $150 million inventory. I'm no genius, but I had a bad feeling and I said I want this down to $30 or $40 million in the next 30 days. That doesn't make traders happy. But I just felt something wasn't right, and I didn't know what it was. Most of our stuff was not what you would call subprime-level loans.

Did you see Stanford Financial's problems coming before their office was raided here in Memphis last year?

I had good friends who worked there. The way Stanford came to Memphis and the money they spent was great for the city, but it made no sense. You can't pay the interest rate they were paying to people. As an industry, we all knew that.

What about Morgan Keegan? Did you foresee their problems with the SEC over their bond funds?

No, not at all. The Kelsoe funds ... I have known Jim Kelsoe, and he is a stand-up guy in my opinion. Morgan Keegan has done so many great things for this city. And the way we're trying to grow is almost a copy of how Morgan Keegan grew. Their senior management has been nothing but nice to me personally. It's a hard situation.

All these things add up to an opportunity for your company to grow, don't they?

Yes. Things are going to change. The brokerage world will continue to change, and we have to be in position to take advantage of it.

Are the stories about your dad firing the bottom 10 producers in the company each year true?

I have heard different stories at different times. I know there were definitely months when the lowest producer of the month was let go, but there are probably some Paul Bunyan legends.

Are there times when this is still a cutthroat business?

Like every business, yes, but I would say it is more healthy competition than cutthroat. Some of the smartest numbers people in the world are in our industry. The average broker is well-educated. The professionalism of the people working at broker-dealers is so different than it was 25 years ago.

You were about 21 when your father died in 1989, right?

Yes, I had just finished my junior year at Alabama. I was a marketing major with a minor in finance. I had always planned to get into the bond business. My dad wanted me to go to New York and work for a Wall Street firm for 10 years, but I ended up going to Birmingham and working for a firm there for a friend of my dad. It was a great three years, and then I moved back here.

Duncan-Williams isn't just a bond firm now, though.

Until two years ago, we didn't really do anything in the equity business. We were a fixed-income shop. There's a lot of opportunity out there for firms like ours. We've added close to 120 employees in the last 18 months, bringing our total to about 170. It's becoming harder and harder to be a small firm in this business. There are probably 1,200 firms that fall into the size we would be interested in looking at. If you could add 4 or 5 percent of those firms in the next decade, you could build one heck of a company.

Why expand into stocks a couple of years ago when the stock market was way down?

Most of the time when you want to get into something the best time to do it is when everybody else is trying to get out. With the market crash, there were a lot of very talented people looking for jobs.

Local, national, or both?

It was mostly from other broker-dealers. Some of our equity research people came from the Wall Street firms. We're not a big aircraft carrier that takes half a day to turn around. We're more like a PT boat. When we need something done, we can do it quicker than most firms, because there is no red tape.

Are you on track for your "500 by 50" goal?

It's a number, but it's not something we are so infatuated with that it drives all our decisions. Our number-one guideline for growth is the ability to say no. We have been in talks with three different companies to buy them. And somewhere during the vetting process we decided it just wasn't the right fit. So instead of pulling the trigger to get those revenues it made more sense to say no.

You're 42. What is your experience in trying to recruit people from outside of Memphis?

It's a hard sell sometimes. We're harder on ourselves than we should be. I don't like turning on the local news and seeing the first eight minutes eaten up with yellow tape from crime scenes. But I feel safe in the city. Memphis has a true soul. It's not in any way a stuffy city. We have an intern program here in the summer where we take 13 kids from all over the country, drawn from over 80 applications. Every Friday they have to go do something out in the community. That's the best way to bring them here, to expose them to the best things in our community.

Is this mostly a man's business?

Yes, it is. We have two young ladies on our trading desk. But when it comes to the straight sales, 90 percent is probably male.


I don't know. It's a commission-based business, and many years ago it was even more of a man's business. The barriers have come down, but I will tell you that, of the resumes we get in, very few of them are from females. Maybe they're smarter. I don't know. It's a great question, but I can't answer it.

Do you think women are more risk-averse?

No, I don't. If you look at the statistics, the modern woman is taking over companies. Look at regulation: The FDIC is run by a woman. I don't think women are risk-averse. It just isn't a field they have jumped into, and I don't know why.

Where are the minorities?

In public finance or banking, you see a lot of African Americans. On the broker-dealer side, there is just not a lot of demand. We don't get a lot of resumes from African Americans who want to get in the business. Why that is I don't know.

Are these the lowest interest rates you have ever seen?

Oh yes. Even the guys who have been in the business a lot longer than I have will say that. It's crazy money out there right now. Basically what the government has done is give the banks and the major financial institutions free money, and they're pushing the rates down.

Can 3 percent interest rates on a 10-year bond last?

No. Either rates go up or we go bankrupt. You can't continue to give out free money and survive. You can't run a business the way we're running our country right now. You can't have that much debt and survive. It may not affect me and you, but it will come down on my three kids. And that scares me.

Should individual investors own municipal bonds?

Yes. The stock market has made a lot of people a lot of money over time, but it has also lost them a lot of money in the last two or three years. You can make wealth in the stock market, but you protect your wealth with municipal bonds because they're tax-free, you know what you're going to get in interest, and the default rate is very low. Municipal bonds are there to protect wealth. In the top tax bracket, it's a pretty big savings.

So they're for old people and rich people?

I don't think that's right. When you're 30 years old, you should probably have 70 percent of your money in the stock market and 30 percent in the bond market, and when you're 40, you should have 60 percent in stocks and 40 percent in bonds. That's a simple way of looking at how to ladder them.

We're seeing more flight of law firms and stockbrokers to East Memphis. Any chance of your company having a downtown office?

If we found the right situation, then we would definitely explore downtown. If we continue to grow at this rate, then I could definitely see downtown as a place of interest. We have to have a strong downtown to have a strong city.

Will the regional banks come back?

I hope so. Duncan-Williams has been in business 41 years, because we service all the smaller cities and counties and municipalities that New York firms are not going to mess with. I think regional banks do.

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