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S&P Places Six Texas Bank Holding Companies On Creditwatch

March 19, 1986

DALLAS (AP) _ Credit ratings of six major Texas bank holding companies are under review for a possible downgrading by a major Wall Street rating firm because of the effects of slumping oil prices on their loan portfolios.

Standard & Poor’s Corp. on Tuesday said it placed the debt ratings of Allied Bancshares of Houston, InterFirst Corp. of Dallas, MCorp. of Dallas, RepublicBank Corp. of Dallas, Texas American Bancshares of Fort Worth, and Texas Commerce Bancshares of Houston on ″creditwatch with negative implications.″

The action means that S&P will review the credit ratings of the six companies for possible revision. The firm said it expected to make minor rating downgrades.

Officials of several of the affected companies said they had expected the action, but still believed their institutions were sound.

Potentially affected by the review are credit ratings on about $1.4 billion in long-term debt and preferred stock, as well as debts backed by letters of credit issued by the six companies and their subsidiaries.

S&P said it took the action ″due to the precipitious drop in oil prices and the anticipated effect on energy and real estate lending, as well as the local economy.″

″It implies that we know that the oil price drop is going to have an effect on their loan quality,″ said Bob Grossman, assistant vice president of S&P. ″In order to react appropriately and not overreact, we put the companies on creditwatch, which indicates we are concerned about the oil price drop upon their credit quality.″

The sharp drop in world oil prices since late last year has prompted many U.S. banks with large oil-related loan portfolios to increase their reserves for losses on bad loans. A fall in oil prices can degrade the value of oil- related loans, which often are collateralized by oil reserves or expected revenue from oil sales, as well as a debtor’s ability to repay them.

A decision on whether to change the credit ratings of the bank holding companies will be made after S&P meets with the companies and further analyzes their status, Grossman said.

Jay Crager, chief executive officer of Allied Bancshares, declined to comment on the effects of S&P’s review. But, like the other bank executives, he said the development was ″very expected.″

MCORP vice president of corporate affairs George McCane said the creditwatch reflects ″continued weakness in the region’s economy as a result of significant declines″ oil and natural gas prices.

″As we said in our annual report, the implications of the energy situation, while unquantifiable, include the likelihood of increased pressure profitability,″ McCane said in a prepared statement.

MCORP’s non-lending activity strength, including its retail, trust and investment quality, should reduce the adverse effect of the region’s economy on the company’s performance, McCane said.

Ben Love, chief executive officer and chairman of Texas Commerce Bancshares, said the company remains a ″strong institution″ because its capital structure and funding base are above average among major Texas banks.

″Standard and Poor’s creditwatch notwithstanding, were Mark Twain on the scene today he might observe that the reported death of the Texas economy is slightly exaggerated,″ Love said in a prepared statement. ″Indeed, Texas Commerce’s equity capital (net worth) ratio to assets ranks number one among the nation’s 25 largest banks certifying that Texas Commerce is a bank for all seasons.″