Bank CEO gives Chamber ‘inside story’ on federal bail-out

Chamber members heard an inside story about the Federal Bail-Out program, at their monthly luncheon last Thursday, from Amegy Bank CEO Paul Murphy.

Murphy’s bank was one of 400 that have received so-called TARP money from the federal government, in the first phase of their “Bail-Out” program to save an economy that is on the midst of Recession and the verge of Depression. Murphy was speaking to the North Houston Greenspoint Chamber of Commerce, at the Crowne Plaza Hotel Greenspoint.

Murphy was discussing the federal TARP program, or Troubled Asset Repurchase Program, which the federal government has now allocated $250 million to, with another $350 million suppose to follow. Murphy said that in looking at last year 2008, it was clear that banks made too much credit available, and it was too easy to get. In addition, financial markets had little or no regulation in important transaction activity, leading to the collapse of confidence in the markets and the current crisis.

Murphy’s bank, Amegy, which is a part of the Utah Zion Bankshares, received $300 million at 25 basis points. Zion received a total of $1.4 billion of Bail-Out money for all their banks. This lending to banks has allowed the industry to stabilize, and have adequate capital to continue normal lending, he said. However, when the banks are receiving money at 5% interest, they must charge 7% or more to remain profitable. In addition, loans are now available, but at higher rates than last year. His own bank increased commercial loan activity by 16% over last year. The national average is also up, at 5.6%. Amegy actually had a profitable year in 2008, making $104 million.

Murphy said that banking is actually very difficult now, with the federal government controlling bank activity with three different agencies, that don’t always agree on rules. These are the Federal Reserve, the U.S.Treasury, and the federal Bank Examiners.

He cites examples where his bank wanted to loan money, or continue a non-peforming loan, but were told by banking authorities that they could not. However, Amegy is in a stronger position than some banks by not engaging in the SubPrime Lending market of other lenders. Murphy felt that many banks were now operating on rules of the past, and this was a good return to stability and common sense. These tightened regulations mean that a company might in the past get a $100,000 line of credit without substantial paperwork or collateral, based only on years in business and the creditworthiness of the principals. However, today, more documentation is required and that line of credit might only be $50,000 or less.

He cautioned that in a time of adverse financial situations, many companies found themselves victims of fraud, or theft. He said that much of this fraud was from internal sources, and that 92% was committed by first time thieves. He noted that Texas law protects the consumer and the bank, by giving only 60 days for a customer to report an error in a transaction.

Murphy noted that other regulations that accompany TARP funds make a bank sign an agreement to follow future rules that are not even defined today. He pointed out that President Obama has called for a cap on executive compensation of $500,000 to TARP banks with excessive needs, defined as asking for money more than once. He said that about 12 banks out of the 400 meet this criteria.

In the mortgage crisis area, many banks including Amegy are willing to refinance a loan and offer more favorable terms to help property owners. It is in the best interests of most banks to do this. He said that borrowers must be careful which bank they pick to do business with, however, because not all will be around in the future, and they may not honor contracts of defunct institutions.

Murphy’s summation was that in spite of today’s gloomy activity, we are going to be okay in the long term. “The U.S. is the Best Place to Live and Do Business in the World,” he said.