BOND BUYER: State Treasurer Martha Shoffner

  • BOND BUYER: State Treasurer Martha Shoffner

Interesting spread sheet here on State Treasurer Martha Shoffner’s investment of public funds in bonds purchased through private brokers.

Current bond purchases were made through 12 brokerage firms according to the latest report, but one firm got an extraordinary amount of the business — St. Bernard Financial Services, a small firm in Russellville, with Steele Stephens listed as the salesman of record. They made $533.8 million in sales of the current state bond inventory; more than three times the amount sold by the next largest dealer, Morgan Keegan with $170 million. Overall, St. Bernard has more than a third of about $1.48 billion in bond investments.

St. Bernard has sold the state a variety of bonds from federal agencies — Fannie Mae, Freddie Mac, the Federal Home Loan Bank. On a single day, Oct. 20, St. Bernard sold $100 million in Federal National Mortgage Corporation bonds to the state carrying a 1.13 percent rate. It got 1.25 percent interest the same day for $25 million in Federal Home Loan Bank bonds sold by Stephens Inc. Why the heavy use of St. Bernard over other brokers, who had access to the same inventory of bonds? Pricing wouldn’t appear to be a factor, at least on the surface of what I know so far.


Over two days, Shoffner has not returned my calls on these and other questions.

Securities industry veterans say the state generally buys new issue bonds from federal agencies. New government bond issues have a pre-set price and commission (typically $1 to $1.50 a $1,000 bond, or $100,000 to $150,000 in commissions on a $100 million sale). All registered brokers have access to the same inventory, so, on new issues, one broker can’t offer a better deal than another and the law prohibits price shaving on commissions on these issues. Bonds in the secondary market have more flexibility in pricing.


State investments in banks, bonds and other investments by the treasurer’s office have a rich political history. Financial institutions or related parties often provide the bulk of campaign contributions to candidates for treasurer. Shoffner benefitted heavily, for example, from thousands of dollars from New York lawyers who do work for the Arkansas Teacher Retirement System, as well as local financial institution contributions. Steele Stephens was listed as a host for a campaign fund-raiser for her in Sept. 2009, his contribution valued at $333, but she raised $44,000 in that quarter. It’s not clear how much came from the event he hosted. She enjoyed a campaign carryover of almost $60,000 that she’s spent for, among others, $900 a month for a car lease.

Over the years, as a general rule, treasurers have tried to spread the business around, though sometimes one or another firm has emerged as a first among equals. But several in the industry say the current gap in distribution of purchases for the state bond portfolio is unusual. The wide gap has become the subject of some discussion in the financial community, which eventually reached my ears.

St. Bernard is a small firm compared with such well-known firms as Stephens Inc. (no relation to Steele Stephens), Morgan Keegan and Crews and Associates. A firm’s capitalization is not an issue on the safety of the bonds, which are held by an independent bank after purchase by the state.