Posted on 08/05/2015 10:43:59 AM PDT by thackney
Located in the rear of the Penn Square Mall in Oklahoma City, this quite small commercial bank made a name for itself in the high-risk energy loans in the late 1970s and early 1980s during the Oklahoma and Texas oil boom.
The bank's assets grew 15-fold (to $525 million) and its deposit base rose to $475 million from $25 million in the eight-year period ending 1982. On the latter point, most of the bank's deposits were derived from loans from other financial institutions funded by uninsured and high-interest-rate jumbo certificates of deposit. With more than $1 billion of syndication sales of energy loans, Penn Square became a leader in the loan participation business.
Irresponsible lending practices in connection with the sale of loan participations to other banks around the country led to Penn Square's bankruptcy in mid-1982. (The bank's chief energy-lending officer, Bill Patterson, was sentenced to two years in prison). Uninsured depositors suffered losses as no other bank was willing to assume Penn Square's deposits and an investigation by the FDIC uncovered more than 450 criminal violations.
The reverberations of Penn Square's failure was felt around the U.S. banking industry. The bank is often cited for being partially responsible for problems of the Continental Illinois National Bank and Trust Company of Chicago, which was forced to write off more than $400 million of loans purchased from Penn Square. Other large banks faced Penn Square-related losses including Seattle First National Bank, Michigan National Bank and Chase Manhattan Bank. (Seattle First and Continental Illinois were eventually forced to sell themselves to Bank of America.)
The oil glut and price decline in 1982-83 resulted in the failure of 140 Oklahoma banks following Penn Square's demise.
The Lesson of Penn Square Bank
http://realmoney.thestreet.com/articles/12/12/2014/lesson-penn-square-bank
I remember. Things were grim in Texas for most of the mid-80’s.
The so called oil & gas boom of the late 70’s and early 80’s was really more of a money boom as big banks searched for places to put their money as the rest of the economy was in the doldrums. They got carried away and pretty wreckless.
And as far as oil and gas it was more of a gas boom because the deregulation of deep gas. 15,000 ft or more as I recall. Pipelines were signing take or pay contracts if you would drill a well for as much as $10 mcf which they backed out of and the whole house of cards came tumbling down.
I lived in OKC at the time but didn’t work in the oil industry. However, everything else was touched by it so the whole area economy went in the dumper in a big way. I was just glad to keep a job. The interconnections among the banks and high finance types was a marker for what we all observed in 2008-9. A flimsy house of cards that is easily blown over.
I remember it well. I’m from OKC and still live here. I started in the oil and gas business in 1980. Retired from it in 2013. Managed to stay employed and in OKC all of that career. Was pretty blessed.
I remember this better than I would like to. July 5, 1982 was the beginning of the end for that season. We had seen the signs but this was a sharp demarcation day. The examiners came in over the weekend and closed the bank. Monday was a black day. My office was on Classen.
Congrats to you on managing to make a career in O&G across those years plus stay in OKC. You’re certainly a rarity. I’m in Tulsa now, left OKC in 2007.
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