Texas Banks Emerge From 1980s Oil Bust

BANKING in Texas is back in the black, attracting large out-of-state banks intent on nationwide expansion.

"Every key indicator ... is trending in the right direction," says Robert Harris, president of the Texas Bankers Association (TBA). "We've taken our licks, and now we're getting back to business as usual."

Beginning in the 1980s, the collapse of energy as the state's economic foundation toppled some 900 banks. Federal receivers purged the institutions' balance sheets and resold them, frequently to out-of-state holding companies.

In the third quarter of 1992, total assets held by Texas banks grew for the first time since 1986, reports Sheshunoff Information Services, which monitors the industry. In addition, profits for the first three quarters rose 61 percent from the same period in 1991, to $1.3 billion.

Texas is the only state where four of the 10 largest US banks compete. NationsBank is the largest banker in Texas, measured by assets. Texas Commerce Bancshares, a subsidiary of Chemical Banking Corporation, ranks slightly ahead of Bank One. And Bank of America Texas ranks fourth.

The failure last October of Houston-based First City Bancorporation of Texas, which had $9 billion in assets, marked the demise of the last of a handful of Texan-owned banking giants. The Federal Deposit Insurance Corporation (FDIC) announced at the time that liquidating First City would probably cost its Bank Insurance Fund $500 million. But unexpectedly, the FDIC last month revised its loss forecast to zero, based on larger-than-expected bids for First City's remnants.

"Most believe this ends the decade of problems for banks in Texas," says Marshall Tyndall, executive vice president of Texas Commerce, which acquired 73 percent of First City's assets.

Last week, BankAmerica Corporation completed its takeover of First Gibralter Federal Savings Bank. Larry McNabb, chairman of Bank of America Texas, says the parent company was attracted by the state's 17 million residents, 790,000 businesses, and an economy "on the way back."

The proposed North American Free Trade Agreement would benefit Texas banks because of the general increase in business activity, Harris notes. But the deal will permit few Texas banks to expand into Mexico. "The restrictions are so tight that only a few banks will make money."

The shakeout in Texas banking was paralleled by the even more famous savings and loan massacre. Although banks used to make business and consumer loans while S&Ls issued home loans, "most bankers would suggest that the distinctions between these two industries have blurred at minimum," Harris says. With the advent of branch banking in Texas in 1988, healthy thrifts bought ailing banks and vice versa. After 108 years of representing commercial banks only, the TBA last year began admitting savings and loan s as members.

Texas now has fewer than 1,100 banks. Some additional failures and numerous mergers will reduce that number to 750, the TBA forecasts. Harris says the organization retains a "very bullish" outlook for individual community banks.

Banking consultants Danielson Associates Inc. of Maryland last month published an industry analysis, using California's bank/population ratio as a benchmark, that suggested, that Texas should only have 310 banks (not counting branches).

"It's probably one of the most irresponsible analyses I've ever read," Harris contends. "It was obviously done by someone that doesn't have a clue about the Texas marketplace."

Mr. Tyndall notes that the result of bank consolidation will be larger, more-efficient institutions that rival foreign banks. Where US lenders once dominated the list of the world's top 25 banks, none make the list now. "Can we as a country sit back and reconcile ourselves to that?" Tyndall asks. "I think not."