Burying Mother

Oil woes break a Texas bank

Its borrowers fondly regarded the 93-year-old institution as Mother Midland, in tribute to its practice of sometimes extending credit on faith alone. It was known for "handshake" loans on long-shot oil and gas ventures. Says Texas Governor Mark White: "Midland helped a lot of people to make a lot of money." So last week when the troubled First National Bank of Midland was about to collapse under the burden of energy loans gone sour, the community staged a pep rally to stem a run on its deposits. About a thousand citizens gathered in Midland's Civic Center, many of them wearing lapel stickers that proclaimed I'M CONFIDENT. Oilman John Redfern Jr. told the crowd, "I hope you'll rake around, find some dough and put it in the bank tomorrow."

But First National's condition was too dire to be helped by such local remedies, even in a city known for its large population of oil multimillionaires. The next day, the Federal Deposit Insurance Corp. announced that the institution would probably have to be written off as a failure and merged with a healthier bank to keep the FDIC's losses to a minimum. The agency loaned First National $ 100 million to keep it alive while merger bids were sought. It was one of the largest FDIC loans ever made to a distressed bank.

By week's end the Government announced that the high bidder was Dallas' Republic Bank (deposits: $11.9 billion). Republic assumed the bank's estimated 76,400 accounts and planned to reopen its doors this week; the FDIC will collect First National's bad loans. The passing of the institution into the hands of out-of-towners left some Midland residents gloomy. Said Mayor Thane Akins: "I feel like hanging a black wreath on my door." The merger was one of the largest commercial bank failures in U.S. history, based on the institution's deposits of $622 million. The biggest bank to go under was New York City's Franklin National, in 1974 (deposits: $1.4 billion).

First National, which sits in the heart of the West Texas oil patch, made a fateful decision in early 1980 to tap the energy boom for all it was worth. The bank's management solicited big deposits from Wall Street investors and concentrated its loans in drilling and exploration ventures. By the end of 1981, First National had doubled its assets. But complications began to develop early in 1982, when oil prices started falling and energy companies slowed down their loan payments.

In September 1982, rumors of First National's shakiness started a yearlong drain on the bank in which customers, including many with large accounts from out of state, withdrew more than half of the bank's $1.4 billion in deposits. First National responded by tightening its loan policy, selling its headquarters for $75 million, and in July hiring a new president, Thomas Wageman, formerly president of Chicago's LaSalle National Bank. Its directors, who include some of Texas' wealthiest oilmen, pledged to pump in some $40 million. But First National had drilled itself too deep a hole. Its percentage of nonpaying loans (about 25% of assets) is the highest of any large bank in the U.S. By the time the FDIC stepped in last week, the Federal Reserve had already extended $664 million in emergency loans.

The oil-rush hangover has become a painfully familiar syndrome among Texas institutions. Earlier this month Dallas' InterFirst, the biggest bank-holding company in the state, reported a third-quarter deficit of $194 million, the largest quarterly banking loss in U.S. history. The same week, Houston's First City Bancorp, said it expects a profit drop of about 85%, to $5 million. The worst energy bust so far was the July 1982 failure of Oklahoma City's Penn Square (deposits: $390 million).

The number of failed U.S. banks this year already matches last year's total of 42, which was the worst since 1940. Last week Comptroller of the Currency C.T. Conover predicted that the toll will go beyond 50 before the end of the year. At a press conference, Federal Reserve Chairman Paul Volcker blamed the "residue of credit problems" from the recession for the continuing failures. Indeed, the FDIC'S list of troubled banks now totals 614, a 66% increase from the beginning of the year. This file is automatically generated by a robot program, so viewer discretion is required.