Amegy Bank: Banking on Energy
Energy Executive Spotlight
Written by Eric Slack   
Friday, 29 February 2008
Amegy Bank: Banking on Energy - American Executive - RedCoat Publishing
Steve Kennedy describes this bank’s effort to provide financial solutions and support to the energy industry.
Premier Business Partners:

Kiodex
When you think about the energy industry, banking isn’t necessarily the first thing to leap to mind. But for energy companies, banking needs are one of the biggest concerns. This is where the energy group at Texas-based Amegy Bank comes in.

Amegy Bank: Banking on Energy - American Executive - RedCoat Publishing
Steve Kennedy, a Senior Vice President and Amegy’s Energy Group Manager
“Our client list runs the gamut from small independents borrowing $5 million to large publicly traded companies that might have a $1 billion line of credit,” said Steve Kennedy, a senior vice president and Amegy’s energy group manager. “We’re not doing the whole line of credit for the billion dollar publicly traded company, but we’re playing a significant role in those deals.”

Kennedy came to Amegy to form an energy group in January 1997. At the time, he was the lone member of the energy group. Kennedy convinced some of the area’s best energy bankers to join Amegy, and the group now includes 23 people working out of offices in Houston, Dallas, San Antonio, and Denver. An 18-month officer development program allows Amegy to supplement the energy group hires with internally trained talent. This is important, as the energy group has $2.3 billion in loan commitments, about $1.1 billion in loans outstanding, and around 200 energy customers.

The bank itself has changed immensely during the last decade. It was formed in 1990 and went public in 1997 as Southwest Bank of Texas. In early 2005, the company changed its name to Amegy (combining Energy and American) as part of a rebranding campaign, and in late 2005, Zions Bancorp of Utah acquired Amegy for $1.7 billion. The energy group’s status as a piece of a larger banking umbrella gives its clients access to all kinds of financial expertise.

Part of the reason the bank is involved so heavily in energy is its location in Texas, long the energy capital of the nation. The company succeeded in growing the energy group during the last decade through a diverse and unique set of offerings. Half of Amegy’s energy loans are in exploration and production, with about another 16% in mid-stream lending pipelines and gathering systems. The remaining percentage is in Amegy’s dedicated oilfield service lending group. According to Kennedy, this is an area where Amegy differentiates itself from competitors.
“Many energy banks that make loans to exploration and production companies do not also have a dedicated oilfield service lending group,” he said. “There may be five or six banks that do that business very well and in a dedicated fashion, and we’re one of those top banks.”

In addition to locations in the central hub of America’s energy universe, Kennedy believes it is Amegy’s ability to maintain relationships that helps it maintain and grow its energy division. The company tries to get face-to-face meetings with executives to get its message across and demonstrate its ability to follow through on service promises. The bank conducts annual service assesments through a third party, Greenwich and Associates, to gauge customer satisfaction. Kennedy maintains the surveys serve to reinforce what sector employees already know.

“We’re constantly communicating directly with our customers, and they’re not shy about telling us if there’s a problem. And we don’t want them to be,” said Kennedy. “Some of the systems and services we’ve developed over the last several years came about because customers identified a need or a problem, and we worked hard to resolve it—and in doing so we created a new or better service. Following feedback from our customers with action makes a big difference.”

The next steps
Although the energy industry is changing, Houston is likely to remain the focal point of Amegy’s energy business for the long term. Kennedy knows renewable sources of energy may become more prevalent, and Amegy is already working on some projects in that arena. Unfortunately, said Kennedy, most alternative energy technologies still have yet to prove economically viable.

“The problem with alternative energy technologies is that, often, they require government subsidies or tax assistance to be economically feasible,” he said. “We have financed a wind project and a biodiesel project that involves Chevron as one of the partners in the Galveston Bay area. Although that project is going well, it reminds us that it’s very difficult, even with terrific technology, to actually make these projects work economically.”

If the group expects to continue its growth, Kennedy knows investment banking services need to enter Amegy’s energy portfolio. This will allow the bank to continue doing business with large corporate customers in a profitable manner. Kennedy said Amegy is planning on building that capability during the next two years.

One step the bank already took was through the creation of its energy derivatives group. Kennedy believes many companies stayed with Amegy because of it, and he estimates that 20% of the groups’ income has been achieved because of the derivates group. By having their derivative with a bank, it allows them to avoid margin calls for energy derivatives today. Market volatility in terms of oil and gas prices has driven larger and more frequent margin calls by derivative counterparties, burning up credit, costing money, and creating liquidity problems.

“It’s important for oil and gas companies to avoid those margin calls, and the only way to do that is to do their derivatives with their bank counterparty instead of a non-bank counterparty,” Kennedy said. “We saw the writing on the wall a few years ago that this was coming, and we proactively formed our group. Now, many banks are trying to catch up, and it takes six months to a year to set one of these groups up.”

One of the hurdles the bank faced was creating an operating system to support the group that was also SAS 70 compliant. Kiodex, a SunGard company, helped Amegy set up a system in half the time and at a fraction of the cost. The system allows the bank to better serve its energy customers, while also providing security and transparency.

“After Société Générale’s $7 billion loss, it’s more important than ever to ensure trading systems provide the right protections and reporting for management to gauge its exposure and limit any risk to unauthorized trading,” Kennedy said. “Kiodex was a big factor in getting our derivatives group up and running quickly. If we’d had to build the system ourselves, it would have been prohibitively expensive and taken six to 10 months longer to get the group up and running.”
 
< Previous Story   Next Story >