Oklahoma Banks Attract Fewer Rescuers
On a recent Sunday morning in a hotel ballroom here, disciples of entrepreneur Dave Del Dotto preached with all the fury of an old-time faith healer to an audience of several hundred people.
The aim wasn’t to cure the blind or crippled, but to sell get-rich gospel in a region plagued by depressed oil prices. Using information available free of charge on how to buy goods from the government’s rising cache of repossessed property, Del Dotto’s staff was selling advice on buying homes, cars or other items now owned by banks or federal agencies.
“Life is not a series of problems,” is the pitch of Del Dotto, who is based in Modesto, Calif. “It’s a series of solutions.”
That philosophy brought another Californian into Oklahoma in July. First Interstate Bancorp. of Los Angeles, the nation’s ninth-largest bank company, bought First National Bank & Trust Co. of Oklahoma City in the aftermath of what was the nation’s second-largest bank failure. In exchange for saving the sick bank, First Interstate won permission to expand across state lines into Oklahoma.
Scores of companies and individuals have flocked to profit from the depressed economy of this and surrounding states.
“There are going to be lots of vultures,” said J. Ralph McCalmont, vice chairman of United Community Corp., which is affiliated with 40 Oklahoma banks. “Some may even bring us relief.”
In the last two years, Oklahoma has become home to the largest annual auction of aircraft owned by the Federal Deposit Insurance Corp., the federal agency that insures bank deposits up to $100,000 and sells off property acquired by the government when it closes or sells banks. Twice a month, the agency sells Mercedes, BMWs and other luxury cars at well-attended auctions.
Auctions Popular
Also popular are monthly auctions held to sell everything else, from toilet seat covers to cowboy boots. Ailing banks, too, have been sold or closed on an average of once a month this year, but the government hasn’t proved as lucky in attracting bidders for sick financial institutions. It’s a difficulty that could prove costly for the government and, ultimately, taxpayers.
Despite success in luring a deep-pocketed buyer such as First Interstate, bank industry leaders and regulators say they fear that the supply of out-of-state bidders for failed institutions may be dwindling in such places as Oklahoma, which even in the best of times are less attractive than fast-growth markets such as California, New York, Florida, Illinois and Washington.
Even Texas, which is considered a good long-term investment despite current woes, may find suitors for several of its major troubled banks much scarcer than they were earlier this year.
A push for interstate banking by institutions in financial centers such as New York and Los Angeles in many cases has supplied an adequate number of bidders during many major failures. That has saved the FDIC hundreds of millions of dollars because selling a bank and keeping it open is almost always cheaper for the government than shutting an institution and paying off depositors.
Now the strategy could become sapped of momentum.
Banking giants such as Citicorp and Chase Manhattan have tended to rush into states that score high in potential growth and provide a head start on competitors. But once a state opens a door to all, big banks that came knocking in the past suddenly may wait to enter. Instead of crowding less-than-booming markets, they may choose instead to focus on previous acquisitions in states where they have an exclusive franchise.
If true, Oklahoma’s recently passed law letting out-of-state banks enter may be too little, too late.
To resolve problem cases, the FDIC must resort to whatever remedy is least costly to the government. A scarcity of acceptable bids already has forced regulators to resort to novel means to solve some episodes in a growing crisis.
Recently, the FDIC reversed a longstanding policy against propping up banks by giving BancOklahoma Corp. $130 million in the hope the infusion will prevent an out-and-out failure. In exchange for the cash, the government acquired warrants entitling it to a 55% stake in BancOklahoma.
Practice May Spread
The practice, similar to much-criticized policies used by savings and loan regulators to prop up sick S&Ls;, could become more widespread as the problems of ailing banks grow.
Most FDIC techniques are far from novel, however, and end in the increasingly common sight of mergers or liquidation. A day before BancOklahoma got a cash infusion, Citizens National Bank & Trust Co. of Oklahoma City was closed for lack of bidders. In addition to the usual list of office furniture and oil rigs, the assets the FDIC could end up owning include a fine collection of Western art.
Liquidators at the FDIC already have their hands full with warehouses stuffed with property ranging from a bag of gold teeth from a dentist’s office to an eight-foot mechanical gorilla used to lure fishermen into bait stores, from yachts to stuffed toys in the shape of bananas.
The agency also owns the mortgage to the Waterford Hotel in Oklahoma City, which Oklahomans say was conceived when oil was selling near $40 a barrel and is the finest hotel in the state. An architect’s drawings of the hotel hang in the lobby of the FDIC offices in Oklahoma City as decoration.
To handle the growing list of repossessed goods, the FDIC has quadrupled its work force since 1984 to 450 workers. The growth worries agency officials, who want to avoid the situation in Midland, Tex., where the FDIC has become the area’s third-largest employer in less than two years.
“A bank failure hurts us all,” said James W. Bruce Jr., executive vice president of Liberty National, the largest bank in Oklahoma. “In the final analysis, banking is the biggest confidence game.”
Local business leaders frown on hawkers such as Del Dotto, who sell what citizens can get free from public agencies. Until a few months ago, when the oil crisis became particularly acute, they also frowned on out-of-state banks such as First Interstate as unwelcome competitors.
A few bankers still wonder if giving more and more of the region’s banking assets to fewer, larger banks could sow the seeds for a bigger crisis in energy lending in the years ahead. But most regard the trend toward interstate banking as inevitable, and, in the current crunch, necessary. Fresh capital, they reason, will spur the local economy and boost everyone’s profits.
Bankers and regulators agree that most of the banks that have failed so far are victims of bad managers who made loans that were too risky. “Anyone who just blames the economy doesn’t explain why one bank on one corner fails and the one across the street is OK,” said R. Y. Empie, Oklahoma’s bank commissioner.
“We all enjoyed the boom. It was insanity, but we all confess we enjoyed it. But now we’re really a little embarrassed at the excesses. It was a little shameful,” said McCalmont of United Community, referring to the entire banking industry.
Failures so far this year have averaged one a month in the state. In Texas the total is 15, in Louisiana, five. Nationwide, about 100 banks have failed, compared to 120 last year.
The Oklahoma Bankers Assn. says it expects the state’s 535 banks to shrink to 400 in the four years through mergers or failures. A similar scenario is likely to take place in the surrounding oil-producing states.
Regulators and bankers say that healthy banks will survive if oil prices don’t stay too low too long. That’s a big if.
Some fear that the downturn already may be threatening healthy banks, making the prospect for recovery more remote.
“The ripple effects going on in Oklahoma are beginning to hurt banks that are well run,” said William M. Isaac, former head of the FDIC and now a bank consultant in Washington.
Regulators say banks have written off most of their bad energy loans. The borrowing now being charged off as uncollectable comes from debtors who flooded the market with real estate to try to raise money, forcing down land values.
“We’ve recognized the big hits,” agreed James G. Cairns Jr., chairman of First National, now First Interstate. “The next wave will be from the smaller businesses, from the guy who isn’t selling as many stereos or suits or cars.”
Many bankers here still flaunt diamond rings, a touch that would make many a Wall Street banker wince. But the high-flying days of $40-a-barrel oil and drinking champagne from cowboy boots are gone, for now, and bankers say they hope they have learned a lesson.
Many local bankers are quick to see themselves in the humor of Oklahoma native Will Rogers, the cowboy philosopher and star rodeo roper, who quipped on his first radio program, “Swinging a rope is fun, if your neck ain’t in it.” Many also cite a popular bumper sticker that reads, “Oh Lord, give me another oil boom and I promise not to screw it up.”
