TEXAS ENERGY BANKS: PROBLEMS AND PROSPECTS

Because Texas banks were involved in financing the growth of the oil industry in the years 1975 through 1982, they have been involved in the decline the industry has experienced since 1982. The death of the energy boom has weakened Texas' energy banks.;The forces that shaped banking practices in the late 1970's and which fostered attempts by the banks to rapidly expand their markets are examined. Why, and to what extent, the Texas energy banks committed themselves to the oil industry in those years, as well as the effects of the oil industry's four-and-one-half year decline on the banks' financial strength is detailed. How banks structured loans to various energy borrowers and why these borrowers lost their ability to service their debts is analyzed. The changes that the Texas banks' painfully learned lessons will bring about in energy and other specialized lending is considered.;The banks' financial information was derived from their Annual Reports, information published in newspapers and periodicals, and, in some cases, the writer's conversations with other bankers. Crude oil and refined product price histories were obtained from Platt's Oil Price Handbooks for 1945-1985 and from Platt's OilGram, a daily newspaper, in 1986. Statistics on the refining and oilfield service industries are American Petroleum Institute data and counts by Hughes Tool Company and the Society of Exploration Geophysicists, published in the Oil and Gas Journal. The analysis begins with an overview of the energy lending problem, first recognized in 1982 when Penn Square Bank in Oklahoma City was closed by bank regulators. Penn Square's bad energy loans caused its closing. Writing off bad energy loans bought from Penn Square caused Continental Illinois, Chase Manhattan, and Seattle First National to post losses in the second quarter of 1982. The Federal Deposit Insurance Corporation's refusal to make good uninsured deposits in Penn Square caused uninsured depositors in all energy banks to move their funds at any hint of loan portfolio problems. This has resulted in expensive bank takeovers and bailouts.