Houston’s Green Bank exits energy lending

At least one Houston bank has firmly put the energy business behind it.

Green Bank, a $3.9 billion lender in Houston, said it has cut its exposure to energy loans from 9.4 percent of its loan portfolio at the end of 2015 to 3.8 percent at the end of last year, and it plans to reduce this exposure further in the first quarter as part of a plan sell off hundreds of million of dollars in energy loans held by drillers and oil field service companies.

“Our energy exposure has largely been resolved and we can now finally return to the business of banking,” said Manuel Mehos, chairman and chief executive of Houston financial company Green Bancorp., the parent company of Green Bank., during a conference call with investors this week.

The bank said it has sold off or borrowers have paid off $157 million of its $250 million energy loans since late April, when it decided to unwind the business entirely. It has about $95.5 million in energy loans left on its books, 85 percent of which is debt held by oil field service firms. It has another $24 million in energy loans held for sale, and expects its energy exposure to decline to 3.1 percent in the first quarter.

Analysts say banks will likely be the last lenders to pour cash bank into the energy industry even as oil and gas companies benefit from rising crude prices. The two-year oil bust left banks and high-yield debt investors wary of the industry after scores of bankruptcies across North America.

“A number of these firms got burned,” said John Castellano, managing director at consultancy AlixPartners. Castellano noted oil companies have turned to public equity markets to raise more expensive capital from stock-market investors. Oil explorers have raised $48.6 billion from secondary stock offerings over the past two years, according to data collected by Bloomberg. “There is capital available (from public equity markets and private equity firms). But it’s a cautious recovery.”

Donald Pershbacher, Green Bank’s chief credit officer, noted the Texas economy has begun to improve as energy jobs begin to increase, particularly in the Permian Basin in West Texas. “That’s not to say that we’re going to be lending to energy,” he added.
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