Could Texas oil slump provide opportunity for BB&T?
In 2009, BB&T entered Texas as part of its purchase of $20 billion in assets and $22 billion in loans from the failed Colonial Bank. The deal gave it a toehold in Dallas, which BB&T has since expanded to more than 120 Texas branches by opening its own offices and acquiring others from Citigroup and other lenders. The timing seemed shrewd as Texas, the second-largest state, led the nation in job growth and economic activity for much of the past decade, bolstered by soaring oil and gas production. Texas was, literally, the Next Big Thing for Winston-Salem-based BB&T.
As you may have noticed, though, energy prices have plummeted and Texans have lost a bit of that trademark swagger. Dozens of oil companies are scrambling to survive, houses aren’t selling as well in Houston, Midland and other energy-dominated cities and fears of a prolonged slump in prices and company valuations is creating concern throughout the state.
So how is BB&T faring in Texas? CEO Kelly King and other bank executives told analysts last week that there’s no reason for alarm over the company’s move into the oil patch. With $1.4 billion in loans to energy companies, “we have no delinquencies, no losses and no non-accruals.” King said.
It’s a pretty remarkable achievement, because it’s common for new banking entrants to make the poorest lending decisions because of a lack of experience or an effort to grow too fast. BB&T appears to have avoided that fate, so far. The bank has a 5% reserve in case some of those loans turn sour, CFO Daryl Bible said. King added that two-thirds of the loans are for “upstream” companies, namely those that explore and drill for oil and gas; 30% are for “midstream” companies that transport, store and market the product; and only 3% is with services companies, which repairs wells and other parts of the system. The latter companies are often the first to suffer when oil prices decline.
For those who have followed BB&T for decades, the Texas experience is consistent with the company’s methodical, conservative lending approach that has left it with the capital to pounce when rivals struggled. Much of its growth in the 1980s and ‘90s involved almost risk-free takeovers of failing savings and loans. More recently, it snapped up Colonial in a deal that appears as lucrative as Wells Fargo’s much larger 2008 purchase of Charlotte-based Wachovia Corp.
BB&T is now focusing on integrating its acquisitions of two Pennsylvania-based banks that extend its operations in slow-growing, stable mid-Atlantic markets. Those deals cost about $4.3 billion. The talk about much expansion in Texas has mostly died down.
But if the energy sector keeps stumbling, taking down some of Texas’ lenders in the process, it wouldn’t be surprising if BB&T saw an opening for a bigger step into the Lone Star State.
For a more in-depth, more skeptical look at BB&T, here’s bank analyst Josh Arnold’s explanation on why BB&T stock is trading at its lowest level since May 2013: http://seekingalpha.com/article/3833856-bb-and-ts-yield-enough-overlook-glaring-flaws.