MY FAVORITE TRAVEL TRIPS 99 My Favorite Travel Trips Go afield with a good attitude, with respect for the forest and fields in which you walk. Immerse yourself in the outdoor experience. It will cleanse your soul and make you a better person. —Fred Bear In a civilized and cultivated country wild animals only continue to exist at all when preserved by sportsmen. —Teddy Roosevelt Here are some of my favorite hu nt i ng , f ish i ng , a nd traveling trips I have enjoyed during my life. All these trips come with interesting stories that I hope I never forget. Many of these were with customers and significant in my quest to develop business. Often, I came back with lots of prospects. All these exciting adventures more than adequately replaced the fact that I was not a golfer until age 70. 1. Hundreds of trips to Mexico with customers, or taking customers, shooting birds for 25 years until it got dangerous. I only went to jail once. 2. A dozen trips to Argentina, Columbia, and Uruguay shooting birds. Again, I got to visit a Colombian jail.
100 AN AMAZING LIFE 3. A dozen or more trips to Costa Rica fishing on both coasts. 4. At least eight trips wade fishing in Florida through the 10,000 islands of the Everglades. 5. Numerous experiences fishing in Alaska, Canada, and the Arctic Circle. 6. For the past six years, floating and fishing different rivers in Montana. 7. A trip 600 miles up the Rio Negro of the Amazon fishing with Steve Stephens and customers. 8. A recent trip to Chile with Steve Stephens fly-fishing numerous rivers and lakes. 9. Twice canoeing the Rio Grande from Lajitas and through the Santa Elena Canyon in Big Bend, Texas. 10. Twice fly-fishing float trips on the Green River in Utah. 11. Twice fly-fishing float trips down the Black Canyon of the Gunnison National Park in Colorado. 12. Many fly fishing trips on the Upper Rio Grande and San Juan River in Colorado. 13. Ten years on my own boats as captain in the Bahamas. 14. Many diving trips in Mexico, Bahamas, Cayman Islands, and Belize. Quail hunting in West Texas with John Sturkie, customer, 2015 Banff, Canada With Steve Stephens in Chile on a fishing trip
MY FAVORITE TRAVEL TRIPS 101 15. Many fishing trips with customers and friends from our bay house up to a 150-mile destination for offshore fishing near Galveston, Texas. 16. Hundreds of hunting trips on ranches in West Texas and the edge of Big Bend National Park. 17. Hundreds of trips to Port Mansfield, Port O’Connor, Rockport, and other spots on the Texas coast. 18. About five years riding horses in the mountains of Colorado with the Durango Mountain Caballeros on five-day adventures, literally on every mountain near my home there. 19. Shooting trips in Scotland and England which was very challenging. We were shooting driven grouse and pheasants. Celebrating a successful fishing day in Chile Steve Stephens thinks he caught a big one! Ha Ha! (If his arms were longer it would look even bigger!) Riding horses with the Durango Mountain Caballeros on five-day adventure.
102 AN AMAZING LIFE Every one of these trips comes with interesting stories that I hope I never forget. Many of these involve customers and on many of them, I went with a customer and came back with a list of prospects. These trips were significant in my quest to develop business—and of course in all those years, I was not a golfer. Several of the float trips were five- to seven-day trips down rivers with guides who handled all the heavy lifting, such as setting up our camp each night. On a number of these trips Yvonne would join me and I have some really funny stories about her catching more fish than the expert fishermen we travelled with! She and I have enjoyed many float fishing trips with other couples in Durango, Colorado. Mountain climbing in Durango, 12,500 feet, 2019 A big rainbow trout in Chile, two weeks before the COVID-19 pandemic
MY FAVORITE TRAVEL TRIPS 103 Catching jack, offshore Galveston, 2020 Trophy elk on the Ray Hunt’s ranch in Utah, 2015 Walter and friends with catch-of-the-day, red snapper, Galveston, 2020
BOATING, HUNTING, AND FISHING 105 Boating, Hunting, and Fishing—An Awesome Way to Entertain Clients Our first retreat was on Lake Travis in Austin, a house we had bought in 1970. It was a wonderful place for spending quality time with our kids as well as entertaining customers and employees. We had 12 wonderful years there on the most beautiful lake in Texas. However, traffic increased significantly and in 1982 we abandoned Austin and purchased a house on Galveston Bay, just 30 minutes away from the Galleria. The Bay house represented a new phase in our lives. We used the Bay house for entertaining lots of customers, prospects, as well as employees, after I spent three years restoring the 65 year old home. Steve Stephens, Paul Murphy, David Stephenson, Kirk Wiggington and I also spent many weekends at Port Mansfield, Rock Port, and Port O’Connor, which is near Padre Island. We approached these places similarly. Most often, we would rent a house and do the same basic routine as we did at our Bay house. Outside of the United States, Cozumel, Mexico, was my favorite go-to locale for entertaining guests. Our customers loved it. My friend and customer, George Gartner, had a ten-room house and kept his 60-foot fishing boat there, so we absolutely had a blast every time we went there. Without a doubt, however, the most exotic trip Steve Stephens and I enjoyed was an Amazon River Trip in Brazil. We hosted a 14-person group (individually paid) on the Amazon Queen, 600 miles up the Amazon. We would also take groups hunting. Later, for example, we entertained hundreds of prospects and customers on the King Ranch. My friend, John Kelsey, had the lease, and at the early stages of our bank, our customers were prospects for him and his investment company. So, we would take them shooting. On King Ranch, we shot quail, dove, deer, and Nilgi (a big antelope from India), which was originally introduced to the King Ranch in the 1800s. We also went hunting abroad. We shot birds in Mexico, Columbia,
106 AN AMAZING LIFE Uruguay, and Argentina and Africa. On few occasions I put together fishing trips to the wilds of Alaska and Canada and invited really big prospects. You might be wondering why we went to the trouble. The answer is straightforward. In our part of the United States, I believe there is no better way to grow a business than hunting and fishing. And that was right down my alley! I realized this early on and took advantage of it. Make no mistake, we were not out wasting money. Our entertaining and marketing efforts produced incredible results. Our friends and customers would invite their friends, and it became contagious. Honestly, it was hard for us to keep up. We had billboards all over town. We had saturated the Houston Business Journal with ads. On all of this, we boasted about our progress. I think we were more in the public eye than maybe all Houston banks combined. We really spent a lot of money and pretty much ignored budgets when it came to business development. Of course, history proves our money was well spent. Yvonne and I continued selective entertaining on our 70-foot boat, named Aquarius, in the Bahamas. The Aquarius was our seventh boat and was a progression from 42’ to 46’ to 48’ to 56’ and finally to a 70-foot boat. That boat had three bedrooms and two baths. The Aquarius had an eight-foot dinghy and towed a 24-foot day boat with fishing outriggers, named Scorpio. Every trip, I believe, we had guests. 70-foot Viking yacht Aquarius with 24-foot tender Scorpio in the Bahamas.
BOATING, HUNTING, AND FISHING 107 Yvonne and I took care of everything. We never needed anyone else for help. I was Captain, and she named herself the “Admiral.” However, on the Aquarius, the Admiral handled the lines when docking or leaving. The Admiral also had to “swab the deck,” cook, make the beds, help wash the boat, and serve cocktails. But Yvonne did not care—because it was the title that counted. I am a licensed boat captain for vessels of 200 tons, and I went to a short diesel school to be able to manage the engines. As captain, I had to chart the course and navigate the route, which often took us 300 miles from the boat slip we owned on Paradise Island. One thing about a boat that bounces over the waves is if the captain cannot fix just about anything that breaks, then he had better not leave the docks. It was, no doubt, a challenge to keep all the necessary equipment running: • 2 – 1000 HP diesel Mann engines • 2 – water makers • 2 – generators • 2 – refrigerators • 2 – ice makers • 2 – commodes and transfer pumps • 2 – water pressure pumps • 5 – air conditioners Because of this, most big boats carry an engineer to keep everything running properly, but to me this was part of the challenge and the reward of owning the boat. I typically carried about $10,000 in parts for repairs, and some of the boats were equipped with a computer to diagnose engine problems. Entertaining, however, was probably the most energy zapping. It was, however, also a lot of fun. Yvonne and I spent some long days out there. On a typical day, we would wake up at 6:00 a.m. and load Scorpio, the 24-foot tender we pulled behind us, with drinks, lunch, fishing tackle, bait, ice, and snorkel gear. Then we would serve the guests breakfast at 9:00 a.m. and leave the Aquarius, which was basically our hotel, for the day on the Scorpio. We would spend the day in the islands, taking guest to our favorite beaches and snorkeling, and fishing spots. We ate fresh-caught fish every day. By this time, I did not need to hire guides. I acted as the fishing guide too. I would always let the guests catch our dinner, which was so much fun for them. We always caught all the fish we wanted. At the end of the day,
108 AN AMAZING LIFE upon returning to the Aquarius, the guests would shower and rest—but not the captain. Scorpio had to be cleaned, and the tackle and equipment needed to be washed and stowed away. Then the fish had to be cleaned, and cooked on my top deck grill. Finally, dinner would be served. By 8:00 p.m., the Captain and the Admiral could finally rest—although we often used this time to get prepared for the next day’s attack. It was definitely a lot of work. As a result, when I turned 70, I decided a home on a golf course in Durango, Colorado, would be a better life—for the next 30 years. So, we sold the boat and bought a three-acre mountain lot. Then we joined a 36-hole golf course and bought our first golf clubs. Like many things, we did not do golf halfway. We started taking lessons, knowing we had some catching up to do. Other people our age have been playing the game all their lives. In addition to playing golf, I also hiked all over. I actually still hike 50 to 75 miles a month. Come to think of it, entertaining is probably easier than playing golf! The rocket growth of our early years was unquestionably a result of our networking and entertaining. We had such a variety that we always had something a customer would like. Fly fishing in Montana
BOATING, HUNTING, AND FISHING 109 Our home in Durango, Colorado
A BOATING STORY—THE AQUARIUS 111 A Boating Story— The Aquarius A Disastrous Maiden Voyage Life is full of surprises; a wise leader expects and prepares for the unexpected… but it is never truer than for a boat captain. —WEJ One of my favorite pastimes is boating in the Gulf of Mexico and visiting the various islands in the Caribbean. Nothing relaxes me more than spending a few hours in the sun out on the water, stopping to watch the dolphins or just float lazily along. Over the years, I have had numerous big boats and have had pretty good luck with all of them save the last two—a 58-foot Sea Ray and a 70-foot Viking, although Yvonne and I loved our Viking. I have had numerous new Sea Ray boats over the years but the last one—a 58-footer—gave me nothing but problems. As a matter of fact, on its maiden voyage to the Bahamas, we stopped to see a bunch of dolphins playing and when I tried to restart the engine, it would not start. The throttle control sensor went dead and the boat would only idle. The dealer in Florida that I called on my satellite phone could not help me so they connected me to the factory technician who guided me (at $5 a minute) as I dismantled the throttle control unit, took it apart, and used my compressor to blow out all possible dust or other minute particles. Anchored on the edge of the Gulf Stream, laying on my back under the console for three hours while working over my head, I finally got it all back together and fortunately never had another problem, at least with that issue. But this proved to be only one of many, many problems with that boat. I do not remember leaving the dock without some sort of engine issue
112 AN AMAZING LIFE developing. I had to carry $10,000 worth of parts plus a computer onboard at all times. During its many engine failures, I would plug the computer into my engine to diagnose what was wrong. I think I spent more time in the engine room of that boat than I did on the deck. Ultimately, Caterpillar had to recall nearly 5,000 engines, including mine, and the dealer gave me my money back. The Aquarius I then bought a 70-foot Viking that was four years old. But even though it was used, it was still a very expensive boat. My main criteria in buying this boat was that I wanted an engine that was designed before all the technology and fault sensors that the new engines had. Yvonne and I spent a good bit of money on upgrades, and I was really excited to do my maiden voyage before I took the Aquarius to the boat slip I owned on Paradise Island in the Bahamas. The plan was to go from Fort Lauderdale, Florida to Key West, a distance of about 200 miles. It was roughly a six-hour trip and we would average about 30 mph. It is not good to handle that large a boat alone, so I hired a captain I knew to ride with me and be available in an emergency. We had an emergency all right, but I had enlisted the wrong captain! We were almost to Key West when I lost a transmission on one of my 1,000 horse-power engines. After that, my speed dropped to about 10 mph, so I had to turn around and head back to the shipyard in Fort Lauderdale. I was not expecting a nonstop 20-hour trip. Luck was not only against me, it dealt me a double blow. A Captain never knows what the day will bring the moment he leaves the dock. This may have been one of my worst days I ever had as a Captain! We had not been headed back for very long before a big storm developed in a hurry from the west. There were six- or seven-foot ocean waves hitting my boat broadside. It was not dangerous, but at such a slow speed, the boat would roll to the starboard about 45 degrees then the roll the same amount to the port side while the speed would drop to seven mph, thus making it a 30-hour journey. I was fighting every minute to manage the very difficult boat. My boat captain friend, who was 6’7” and 350 pounds—a former fullback for the Green Bay Packers—was overcome with seasickness for the next 30 hours, laying spread-eagle across the deck to keep himself from rolling off. I was standing at the console the entire time, driving the boat and hanging on for dear life! The crashing waves destroyed all the
A BOATING STORY—THE AQUARIUS 113 plastic windows and even though I was three stories up, the waves crashed over me and the console for at least 30 hours until I pulled into the Fort Lauderdale harbor! Lesson Learned: A captain, a leader, or any banker should never become complacent and not believe that disaster could be just around the corner! —WEJ Witness Hurricane Harvey that hit Houston and the coronavirus within 30 months! Harvey was a Category 4 hurricane that made landfall on Texas and Louisiana in August 2017, causing catastrophic flooding and over 100 fatalities. Hurricane Harvey inflicted $125 billion in damage, primarily due to the flooding in the Houston metro area and Southeast Texas. We had all become a little complacent since there had not been any hurricanes to make landfall since Wilma in 2005. Needless to say, it took us a little by surprise, just as this coronavirus has. A good banker and a good boat captain have one thing in common— always anticipate the unexpected.
RISKY FISHING ADVENTURE WITH COMICAL ENDING 115 Risky Fishing Adventure with Comical Ending A Steve Stephens’ Story The fishermen know that the sea is dangerous and the storm terrible, but they have never found these dangers sufficient reason for remaining ashore. —Vincent Van Gogh My first serious offshore boat provided pleasures that no sane person would pursue. The reason is that the boat was only 28-foot long, which is pretty darn small to be venturing out as much as 150 miles into the ocean. An ocean can be very dangerous. Waves can increase from nothing to 12-foot waves in a heartbeat, bouncing a small boat around like a cork. Many times, unpredicted storms can come from nowhere, with winds of 50 to 60 miles an hour. I knew that my boat, Aquarius No. 1, was incredibly seaworthy. It was hand-crafted in a small shop I visited in New Jersey, and was constructed by the Henrique family, a second generation of boat builders. When I arrived at the shop, the workers present were a father, son, son-in-law, daughter, and the father’s wife—all were Henriques. They only made about four boats a year. They told me the boats were designed to run offshore from New England marinas and then run to the deep water to fish in what they called The Canyons. These subsea canyons were formed when sea levels were hundreds of feet lower than today and great rivers carved vertical walls deep into what’s now continental shelf. Fishermen can hook huge blue marlins, white marlins, bigeye, yellowfin tuna, swordfish, and mayo—sometimes all in one trip. Aquarius No. 1 was not fancy, but it was nice. It had a V-berth where we
116 AN AMAZING LIFE would sleep in shifts usually with two people. It had two very dependable Volvo diesel engines. The fuel tanks, holding 200 gallons, were not, however, designed for the very far distances I ran. I would start with a bladder—a large, flexible container used to store liquids—on deck with 200 gallons of fuel in it. I designed a transfer pump and upon reaching my destination, I would refill the tanks and put the bladder below deck. Most often we would tie off to a drilling rig at night—the fishing was good because the lights attracted a lot of fish. It was not unusual to get stuck offshore, short of fuel. It could take 100 gallons to get home if the water was reasonably smooth. If the waves were mountains, I had to climb every five to seven minutes and it could take three times more fuel… and this has happened to me. So we would wait for the seas to settle. This story is about a time I took Steve Stephens with me about 125 miles south of Galveston to fish around the Tequila drilling rig. It takes about six hours to get there if the water is not too rough. We fished amongst the rigs all afternoon and, as I usually did, I tied off to a rig to fix dinner. I often grilled tuna or other fish we would catch, then we would spend the night there. As boat captain, I never got much sleep on my trips because all night long I had to check for a wind or a tide change that could wrap us around the legs of the huge floating drill ships. The waves could beat us against the big iron legs and literally destroy the boat. On this trip, we were in 4,000 feet of water. As soon as I got the dinner ready, a man on a huge loud air horn hollered, “Get away from this rig immediately! We are fixing to dump dry cement.” About four minutes later, here comes a cloud of dust and cement. I had to jerk the line loose that was holding the boat and back away quickly. Obviously, I was extremely pissed at him for treating me so badly—and I am still mad—but we got even! I told Steve and my other fishing buddy, Mark Switzer, that we would not tie off. The water was calm so we would just troll around the rig and fish all night. About the third cycle around the huge rig, and maybe a half-city-block away, Steve caught something really, really big and hard to land, or maybe I should say impossible to land. We knew it had to be a 500-pound grouper or even something bigger. Steve would pull and pull but just when we thought he was bringing something up, it would go dive down deep again. The climax of this story is that we all put on gloves and started pulling and finally we found Steve’s prize… it was a long line, a trot line as big as one’s finger and usually 20 miles long. The commercial fishermen set this
RISKY FISHING ADVENTURE WITH COMICAL ENDING 117 kind of line out to float, with baited hooks 50 feet apart and then checked them daily to gather their fish. In this case, the line must have gotten loose and wrapped around several rigs. We took the long line and tied it off to one of my boat cleats and used it like an anchor. Now we were close enough to the rig to almost hit it with a long cast. We sat in one spot, not affected by the wind, the tide, or the effects of the ugly worker on the rig. So here we were, 125 miles in the ocean in 4,000-feet deep water, and anchored. Steve solved our problem. Literally every time we looked at the rig, someone, or several individuals, were standing looking at us. No doubt the men on deck had many questions and guesses about how this little boat could be anchored in one exact spot regardless of the wind or the tide change. Just another terrrrrrific memory that I will take to the grave with me…
THE AMAZON ADVENTURE 119 The Amazon Adventure Many men go fishing all of their lives without knowing that it is not fish they are after. —Henry David Thoreau Most of the world is covered by water. A fisherman’s job is simple: Pick out the best parts. —Charles Waterman One of my favorite trips and adventures was when Southwest Bank of Texas was just a baby! In 1992, Steve Stephens and I escorted 14 new prospects and customers to Manaus, Brazil where we boarded the “African Queen Boat.” It had seven two-person tiny staterooms. After floating past the Port of Manaus, we traveled 24/7, 600 miles up Rio Negro, a major tributary of the Amazon River. Each morning, we would awake to find the boat anchored near shore. After a great breakfast, we would pick a partner and depart in a small 12-foot boat with a 40-horsepower outboard motor navigated by a young native guide. The guides spoke no English. Our goal was to catch trophy Peacock Bass. The black water rivers are home to over 2,500 species of fish but the most famous is the hard-fighting Peacock Bass, the largest member of the African Chichlid family of fish. In the past 10 years, 11 different species of Peacock Bass have been identified across South America. The Paca/Acu variety can weigh over 30 pounds; the Orinoco weighs over 16 pounds; the Rio Negro
120 AN AMAZING LIFE Butterfly Peacock may weigh over 10 pounds and the Popoca & Oscellris can weigh up to four pounds. These powerful fighters are extremely aggressive and strong. On the boat, we often commented that they hit like a freight train. The normal set up for landing as many as 20 or more Peacocks a day on the Rio Negro is to use 60- to 80-lb. test Kevlar braided line and a heavy rod. My group of fishermen were in it, not for the number of fish we can boat in a day, but rather the sport of fishing. We never used more than 20-lb. test (I even use that for most ocean fishing) and a medium-weight rod that will really bend to the point of almost breaking with a big fish. The downside of light tackle is you really cannot “horse the fish;” he will drag the line and lure into the roots of the Mangroves. The lures we used, however, were amazing. They were mostly 12-inch with big hooks and a propeller on the front and the back. If you jerk them as hard as possible, they throw a big splash and emit a loud “swoosh” that seems to antagonize the bass. Our light tackle is nimbler and more accurate to throw but fight more and land less—but that is the sport of it. You do not catch these Peacocks sitting down. Instead, fishing for this fish involves standing 10 or 12 hours a day and casting 3,000 times in a week. By the third day, I had a hard time getting anyone to partner with me because I was the first one to leave in the mornings and the last one to return in the evening. Our day consisted of navigating small streams through the jungle, often getting out and pushing or dragging our boat. Other times, we would go from one jungle-surrounded pond to the next, helping the guide use a machete to chop the 30- to 50-foot-tall cane so we could get out to small lakes no larger the Walter Johnson conference room in Amegy Tower. When the day was over, our guide would miraculously find the river, then race upstream for a few hours until we would find our mother ship chugging upstream. I will never ever forget our evenings on the fantail deck of the boat, having our celebration drink for the day and watching the sky. And as you might suspect, there is no pollution, smog or anything else to obscure the stars in the sky, Another thing I think about every time I see the amazing replica of my Peacock Bass that Carey Grey carved me is how really dangerous this trip was. I had my very finest officer with me, Steve Stephens as well as 12 guest prospects and customers off in a jungle with a young guide, a small boat. I knew nothing about the maintenance of our floating motel moving
THE AMAZON ADVENTURE 121 miles away upstream, carrying hundreds of gallons of gasoline on its deck. If anyone had a medical issue or got lost, I expect they would still be there living with natives! This was at a time when we had no satellite phones. Now I have two and I do not venture out anymore without one. We had no way to communicate and never saw another person that could speak English except for our scatter headed boat captain (and he may be the subject of a future story). The water was full of Piranhas. Often, we would land a bass with three to five Piranhas attached. And speaking of scatter heads—I had Steve Stephens with me and he had to show off and go skiing on the river with the Piranhas! So, the question is, what motivates successful, seemingly intelligent men to take risks like this? I think it was because we are entrepreneurs, and you have to be a risk taker to be one. You have to have a passion to navigate uncharted waters. You have to like living on the edge and see what is on the other side. You have to have an innate desire to be competitive on the forefront and try new things that maybe others would be scared to try. You have to believe that you will persevere in an emergency. I am only 84 and still like to do new things while I am still strong, healthy and somewhat agile. I am still trying to believe that I am a long way from old age! I will not accept that I am not on the eve of having an adventurous life. Steve, my risk taker, and I recently returned from a fly-fishing trip in Chile. Our last day there, we rose early and hiked a mountain about four miles round trip. Then our guide picked us up at around 11 a.m. and by noon, we were on a glacial lake with such magnificent views that a camera could never capture its beauty. There was a forecast of strong wind and rain which turned out to be a gross understatement. But not to worry because we had a 7-foot rubber boat! Actually, we should have paid attention to the forecast—but we would have gone anyway. Fortunately, our little raft was able to handle the waves that were no more than three feet high and our rain jackets protected us somewhat from a driving rain that was swept sideways by a cold wind that was surely no stronger than 50 mph! I know my keeper Steve was worried about me, as evidenced by 200 questions he kept asking to determine if I was OK. So, it was a perfect ending to a week’s fishing—gale force winds, a little cold, very wet, and an experience we will take to the grave with us. But hopefully not sooner than our next adventure! Bring it on!
Part V Pre-Amegy
THE BEGINNING OF A CAREER—FROM JANUARY 1958 125 The Beginning of a Career— From January 1958 An opportunity with no risk is a rare thing. —WEJ When you see you have made a mistake, cut your losses and move on. —WEJ He who hesitates is often lost! —WEJ If you find yourself in a bottomless ditch then stop digging and start another ditch… but move to higher ground. —WEJ When I was finishing college, I did a good bit of interviewing and seriously considered going to work for American General Life Insurance as a salesman. I did not know exactly what I wanted to do, but I did know that I wanted to be in sales. At the time, I was making nearly $800 a month with Typewriter Supply, but I ultimately accepted a job with Texas Electric Company, selling heat-pumps, which had just been invented. This was an air-conditioner that also converted to heat in the wintertime. They are still popular today. In any case, the job only paid about $500 a month. The difference, however, was that I would have a pension, life insurance, and stability—a job where no one ever got fired. My Dad, of course, had the same job with Hobbs Trailers for nearly 50 years. Being a Depression Baby, I thought I would get me something stable too, something along those lines. This one, I told myself, offered maximum security, great benefits, and a long, secure future. The only caveat: we had
126 AN AMAZING LIFE to move. So, I talked to Yvonne, and, in the end, we figured, “Why not?” They sent us to Odessa, Texas, paying all my moving expenses. Neither of us had so much as seen Odessa until we pulled into town and started looking around for a non-existent apartment. Housing, at the time, was hard to come by. We were in the heart of the Permian Basin in the middle of the Oil Boom. The town was experiencing its Golden Age. Consequently, apartments were not easy to come by. In any case, after an extensive search, we found a sleazy apartment on the second f loor with no view whatsoever. (Ou r neig hbor’s apartment was where a prostitute lived. The walls were thin and the stream of visitors was interesting, but not as interesting as the noises we heard regularly!) The complex was so depressing that we immediately contracted to build ourselves a house in a new development, which would only take three months to finish. The house was 900 square feet and only cost $9,900. It had three bedrooms and one and a half baths, vinyl floors and vinyl cabinet tops, and a car-port. At the time, we thought it was a mansion. I remember tel l i ng Yvon ne, “Seriously, why would we ever want anything nicer than this?” I could not even imagine something more opulent. The house was far superior Demonstrating heat pumps, 1958. Odessa, Texas Looking for heat pump prospects, Odessa, Texas, 1958
THE BEGINNING OF A CAREER—FROM JANUARY 1958 127 to anything our parents or any relatives had owned. In my first year at Texas Electric, I sold more heat-pumps in Odessa, Texas, than company salesmen sold from Dallas to El Paso. No exaggeration. The peers that I worked with were basically deadbeats. They had no energy, no imagination, no work ethic, and none did a decent day’s work. I found out why. At the end of the year, everyone in the company received the same 2% bonus, including me. I realized that I had made a big mistake. I was too ambitious for this job. After putting myself through college by selling on commission, I did not belong in this company. I felt like I was a government employee, a bureaucrat. So, at the end of my first year, I gave notice that I would be leaving. Shortly after that, I got a call from the husband of a lady that I had sold an electric typewriter to. She had come into the store to simply buy a $15 typewriter ribbon and walked out with a brand-new typewriter. When opportunity knocks, you had better be listening. —WEJ Factoring Business The man’s name was M.J. Neeley. She had told him the story of this incident a few years earlier, and for whatever reason, he remembered me. As it turns out, Mr. Neeley also owned Hobbs Trailers where my Dad worked. He was an entrepreneur with many businesses from Fort Worth. (The Business School at TCU was named after him, as were several buildings.) Most importantly, he owned a factoring company in Midland, Texas, just 20 miles east of Odessa, and was looking for a salesman. He had called Dean Harrison of TCU to tell him he was looking for a salesman in west Texas and wanted to know where he could find Walter Johnson. How Dean Harrison knew my location, I cannot imagine. I certainly was not an outstanding student at TCU. In any case, I decided to join Mr. Neeley, so Yvonne and I quickly sold our house and moved to Midland, Texas. While we were in Odessa and Midland, we attended Odessa Junior College. I took some math and accounting courses. I really liked working for the factoring company, which is very similar to banking except you do not have all the banking rules. What we did was to purchase accounts receivables from companies whose financials were too poor for them to get bank financing. The company gave me a beautiful, red Plymouth Fury because my territory was all of West Texas and New
128 AN AMAZING LIFE Mexico. It was a great learning experience and one of the most important things I learned was about fraud. Lesson Learned: Just assume you cannot trust a borrower when he is backed into a corner! The nicest individuals in the world that you have a relationship with are subject to cheating when their backs are to the wall. When a borrower is about to lose his or her business, income, and the total support for family, this person may lose integrity as well. It is as simple as that. In most cases, borrowers do not start out being crooked, but they feel that if they can sell you a few fraudulent invoices today, they will be able to make it up very quickly. “The bank,” they tell themselves, “will never know the difference.” This is a lesson that I have never forgotten. I do not mean to sound hardened, but experience teaches you to be skeptical. Another lesson I learned while living in Midland centers on the importance of doing all your documentation correctly. Paperwork is full of minutiae and boring, generally, but the consequences of not being meticulous can be disaster. —WEJ In 1957, I was involved in the biggest crime scandal in Texas history. Billie Sol Estes became the biggest crook in the United States. He owed my factoring company several hundred thousand dollars, which was a lot of money then. We were secured by invoices on liquid fertilizer tanks that he had purchased and then leased to farmers. That works well for the lender, but for Billie, it worked better when he duplicated the documentation and borrowed on the same equipment from ten different banks. At Southwest Bank, Houston, in the 1960s
THE BEGINNING OF A CAREER—FROM JANUARY 1958 129 The day that I picked up the newspaper and saw his picture on the front page, then read the story about how he had defrauded all his lenders, I was in panic. It really ruined my day. But low and behold, we had all the original documents, and we had properly filed them with the Secretary of State when we made our money advances to Billie. It seems that he was so charismatic that some bankers simply had accepted his word. Their paperwork and timing were sloppy and dated behind what we had done. Consequently, we were his only lender that collected 100% of our money. Always have a curious mind: How can we do better? Where is a better market? How can I overcome these handicaps? —WEJ In 1960, I told Mr. Neeley that our company, Petroleum Factors, was in the wrong city. The oil patch had collapsed, and business was depressive. We needed to be in Houston, Texas. Mr. Neeley gave me a look and asked, “Why Houston?” I gave him my answer, namely, how Houston was going to be the center of the universe. Mr. Neeley laughed, thinking I was kidding. “So why don’t you move to Houston?” I replied, “I would, if I could still work for you.” “Well,” Mr. Neeley said. “Fine. I mean, go to Houston. Open an office there.” I was 24 years old and about to start my own company. Next, Yvonne and I and our one baby moved to Houston, and I started a company named Factoring Services because I wanted to escape the stigma of Petroleum Factors. In the end, this proved to be a good move. Houston, of course, was a much better market. From this, I learned the importance of diversification. I learned to concentrate on small entrepreneurs in growth situations. They were exciting, growing, under-capitalized, and the banks could not accommodate them. There were many opportunities for factoring in Houston, Texas. Then and now. I set up my accounts with Bank of the Southwest. The senior lending officer was Weyman Horadam. He became enchanted with me and gave me a $50,000 personal credit line, which I used to factor invoices on the side. Our company had a minimum of $10,000 per invoice, and Mr. Neeley agreed that anything smaller I could do personally. Often someone would
130 AN AMAZING LIFE want to factor a $500 or $5,000 invoice, and I would use my credit line. Not too long after the company came to Houston, Mr. Neeley got ill and decided to sell the company to Doyle Kelley, who also had a factoring company. Keep your eyes wide open and be ready for opportunities when the door opens. —WEJ Banking After this, Doyle wanted me to join him, but Mr. Horadam had heard the news and convinced me to come with Bank of the Southwest as a trainee and manage accounts receivable at the same time. Mr. Horadam was impressed, I believe, that I was so entrepreneurial, also going to University of Houston in the evenings to take accounting and English courses. I remember him telling me that if I accomplished what he believed I could, someday I would make $1,000 a month. I called my Dad to tell him that. The bank, however, had never done an audit of receivables and was really clueless whether they had receivables. Mr. Horadam did not know it, and I suspected a problem. I started as a credit analyst. The credit manager was Dale Gosnell, a CPA who had the personality of a brick wall. He was the most critical person I ever worked for, but he was good and fair. Charles, Garrett, and I were trainees. It did not matter how many times we turned in a ten-page analysis of a credit, Dale would return it to us full of red ink. We would do it again and again. At the time, our training program was a three-year process, much longer than our young people will tolerate today. When a bank or banker becomes complacent, there is always someone who will take advantage of it. —WEJ Auditing accounts receivable for the bank was very interesting. The very first audit I did was total fraud. I made a cold call on a photographer that had $100,000 in receivables pledged. When I told him why I was there, he was very nice and said no problem. He told me, “I am currently working on some negatives and can’t quit. Wait in the lobby, and I will be with you shortly.” Thirty minutes later, however, I was still waiting. I started looking for him but realized I was in the office all by myself. I called Mr. Horadam
THE BEGINNING OF A CAREER—FROM JANUARY 1958 131 and told him that this guy had disappeared, and Mr. Horadam replied, “Oh, Walter, I’m sorry. I should have had someone call you to tell you that he is in my office now pledging the cash value of his life insurance after admitting that he had no receivables.” It was there and then Mr. Horadam (as the senior lender) realized that I had some real value. After nine years, I was Assistant Manager of the International Department and making regular presentations to the Board of Directors. That is when I met Joe Albritton. The beginning of my real professional education started after I graduated from TCU. I try to impress on Amegy’s young people the fact that their education is not over upon graduation. It is just getting started! —WEJ All those years in Houston, I went to night school. I often ask myself, “Why was I so infatuated with education? After all, I was not the smartest kid on the block.” Curiosity, I realized, is something valuable. In any case, I took 21 hours of accounting at the University of Houston. I remember an English Lab course that I took that was two nights a week for two years. One night, I turned in a long composition that had been assigned, and the next night I got it back with every grammar and punctuation error you could think of highlighted. I did it again and again. And this went on several years. I think it probably was a most critical part of my education. When I began my banking career, the industry had its own college called American Institute of Banking. It took me about five years, three nights a week, to finish all the programs—courses such as bank management, accounting, analyzing financial statements, credit administration, security analysts, and many others. I took them all. I also competed for five years on a debate team against schools from all over the USA. I actually ended up teaching a few of the courses, which were all taught by bankers. It was here that I met several the future bank presidents, like Ernie Deal and Joe Bailey. Years down the road, they would be calling me to ask me to join their companies. The most important course I remember taking was security analysis taught by Deane Kanaly, who was head of a Trust Department at Bank of the Southwest. The course is just as the name implies; it is analyzing securities that you might purchase for your investment portfolio. It also
132 AN AMAZING LIFE served as a great foundation for analyzing financial statements and other aspects of companies of all sizes, but mostly very large institutions. In 1969, I was still Vice President—we did not hand out titles then like bankers do today. I also was Assistant Manager of the International Department. I was getting calls regularly from John Hazard, who was the President of the International Bank, owned by Vince Kickerillo. This was a $30 million bank, but they basically offered to double my salary, which was too tempting, so I joined them. Their location was right in the middle of the International Arena where all the freight forwarders and custom brokers were located. The contacts I made there served me very well then and in future years of my banking career. I had not been with International Bank more than a year, however, when Joe Albritton started calling me wanting me to come to work for him to run Houston Bank and Trust that he had recently purchased. Being a Director of Bank of the Southwest, he could not have hired me then, but now that I had left, I was fair game as far as he was concerned. Joe needed me desperately. Frankly, he had no clue what he was doing, so he offered to double my salary again. His bank was ten times larger than the International Bank. This appeared to be a great opportunity. So, I joined Joe. I left International Bank and Vince on good terms. Today he is a best friend and a major Amegy customer. Of note, I have written a specific chapter later on in this book about Joe Albritton, a must read! I quickly learned then that one year was enough of Joe Albritton. I left Joe after a year and went to work at Bank of Texas, which had $100 million in assets. The primary owner and originator was George Butler of Butler Binion, a very famous law firm in Houston. Jack Lander was Chairman, and John Hazard had joined the bank recently as President. They asked me to come in with the idea of becoming President soon. About a year after joining Bank of Texas, however, we merged with Walter Mischer’s Bank, The Continental Bank. Now we were known as Continental Bank of Texas with assets totaling $200 million. I became President and CEO of the merged company. For the next 18 years, I considered Walter Mischer my boss. He was one of the greatest people that Houston has ever seen. He was heavily engaged in politics throughout the state and was considered the power broker of power brokers. Walter was extremely wealthy, a self-made man. He had started out
THE BEGINNING OF A CAREER—FROM JANUARY 1958 133 many years earlier when he had bought his first bulldozer and drove it himself. Then he escalated that into land development and, untimely, into banking. Because of who Walter was, people were calling him all the time asking for money from the bank. To his credit, Walter told everybody go see Walter Johnson. The Bank moved into the One Shell Plaza, the newest and most beautiful—not to mention the largest building—in Houston. We changed our name to Allied Bank of Texas, then recruited Kent Anderson to become President/CEO of Allied Bancshares, a multi-bank holding company. It ultimately had 50 branches that equaled $5 billion while my bank, the “mother bank,” had $5 billion. Combined, we grew to $10 billion, the third largest bank in the city. We had started our acquisition and branch bank development after it was permitted by the state. During the 70s and 80s a lot of big shots would come to see me, like John Connelly and Ben Barnes, both were really famous. Connelly was a former Governor of Texas and US Secretary of the Treasury. In 1980, he had run for President of the United States. In any case, he quit his job at Vince and Elkins, where I believe he was making $6 million a year, and joined Ben Barnes in land development. When they came into see me, like everyone else, they said Walter Mischer suggested they come and see me because Mischer thought they had a loan request that would be good for the bank. After hearing Connelly’s proposals, they presented their financial statements, and I saw that the two of them owed $200 million. To make matters worse, they had no equity. I told John that there was no way I could make a loan like this with all their leverage. John replied, “But we personally guarantee it.” I kept a straight face. “Sure,” I said, “You will, but how are you going to pay back $200 million if the economy fails?” Sad to say, but ultimately John went broke and all his personal treasures were sold at public auction. I declined the loan much to their chagrin. The key part of this story is that in 18 years of working for Walter Mischer and getting many, many requests from his friends to lend them money, Walter Mischer never called to ask me to please make a loan, or to meet with the borrower again and see if I could work something out. Unlike Joe Albritton, he respected my ability as a banker and never second guessed me. If you ask me, one of the most interesting periods of Texas Banking history was in the 1980’s. It was definitely not an easy time. By 1988, every bank in Houston had failed except for two, and mine was one of the two.
134 AN AMAZING LIFE They failed because the drilling rig count in a 90-day period declined from 5,700 rigs in Texas to less than 500 rigs. Two hundred fifty thousand people were out of jobs. Two hundred fifty thousand families were suffering badly. The reason my bank survived was because I saw the crash coming several years beforehand. The other bank that survived (even though we both had to sell) was Texas Commerce Bank, run by Ben Love. He was a great banker and extremely conservative. They sold to Chemical Bank, which today is JP Morgan. My bank, Allied, sold to First Interstate of California, which is now Wells Fargo. During the crisis, Star of Hope Women and Children’s Shelter also was formed. I helped Carlos Morris raise money to start this organization in 1986. The best leader will stick to his convictions and make decisions others may fear to make. —WEJ When you know disaster is at your doorstep, act bravely, regardless of what competition is doing. —WEJ The hardest decision to make is to retrench when, at the same time, all others are rushing forward. —WEJ The Crash The huge question, however, is “How did I see the crash coming?” In all honesty, I owe a lot of my foresight to a man named Jim Lymburner. He was an economist from Canada, a real nerd, but brilliant. I met him after he had made a presentation to the YPO (Young Presidents Organization) that I belonged to. We got better acquainted, and he gave me so much information about the economy, the oil industry, about consumption, production, and all kinds of information. He convinced me that we were headed for a crash. I was so thoroughly convinced that he was right that I invited him to have a meeting in the bank’s boardroom. I also invited all the oil people that I knew, including many of our customers and my Board of Directors. On the board, for example, was Michael Halbouty, one of the most famous oil people in the State of Texas.
THE BEGINNING OF A CAREER—FROM JANUARY 1958 135 Jim made his presentation with a lot of detailed charts, but he did not scare anyone but me. Following the meeting, Mike Halbouty told me that he was going to do everything he could to get me fired. He was so embarrassed to have invited all his friends to hear this presentation—only to be told that they were all going to go broke. It takes a lot of guts to be the pioneer and leading the charge when everyone is going in the other direction. —WEJ Very shortly after Jim’s presentation, we had a loan presented by one of our officers that was almost conclusive proof that things were going to go badly. In this case, a borrower wanted $6 million to make a down payment on 12 drilling rigs, which sell for $5 to $10 million each. There was a year’s waiting list in order to get rigs. They were selling faster than they could be built because the oil patch was hotter than a pistol. I asked the loan officer if this person was in the oil business and the answer was no. I asked, “What is he going to do with the rigs? And how was he going to pay for them when they were delivered? We really do not have enough money in the bank to pay for all those rigs.” The officer replied, “It is not a problem because he was not going to take possession of the rigs, but would instead sell his position to companies needing rigs shortly before the rigs were delivered.” The officer further explained what a huge demand there was, how manufacturing companies were expanding their output of rigs, and there was a huge shortage. As such, there would be no problem selling his position and making a lot of money. Putting two and two together, it was obvious how much speculation was going on in the industry. Further studies I did showed that it was not just in rigs. It was in everything connected with the oil patch. The sector was one huge speculation. I was thoroughly convinced that a disaster was on the horizon. I still remember a friend and customer, Dieter Scherfenberg, coming to me wanting to borrow money to buy a $6 million drilling rig. I begged him not to do it, and fortunately he listened to me and did not do it. Another borrower came to see me, Joe Imperato, who wanted to buy two rigs that would be $16 million in total when they were delivered a year later. I told Joe that we did not finance rigs and never had, and that we certainly were not going to start now. Joe assured me that I would finance it because he
136 AN AMAZING LIFE had nearly $40 million in the Bank, and it was just a matter of how much I would finance. Joe was right. I loaned $4 million on a $16 million cost. When the rigs arrived a year later, Joe was broke. He did not have $40 million in the bank, and we were the proud owners of two brand new drilling rigs costing $16 million. Joe made a $12 million down payment in advance. Unfortunately, there were no buyers, so we stored the rigs in an airplane hangar in Midland, Texas because there was no humidity in Midland and the rigs would store very well. We set up all the motors and everything, so that they could be started monthly and not deteriorate from lack of use. It took about two years, but we did sell the rigs to a Chinese company and made a very nice profit. I told all our lending officers that we were getting out of the energy business. Chris O’Conner of O’Conner and Young, was our largest energy service customer. We had about $15 million in credit and almost that much in balances. Chris came to see me during this time and said that he was going to double the size of his well service fleet and purchase drilling rigs. He wanted us to finance it or put together a syndication of banks to do it. I did my best to talk Chris out of doing this. I explained to him that the industry was going to crash. He, however, did not agree. I told him we would not have any part of it, and he would be violating his loan agreement with us if he took on that much leverage. At the end of the story, Chris got his money from Continental Illinois Bank, which was big in the energy patch and ultimately went bankrupt. Then Continental came to me and said if we would make $1 million of the $50 million credit, we could keep all the balances. I explained to them that there was no way in the world I would take a $1 million new credit on drilling rigs. Ultimately, First City took it, and about two years later, Chris filed Chapter 11. The banks took a huge loss as they did on every other energy credit. Obviously, it was not just the oil patch that crashed. When 250,000 people in one city lose jobs, it affects every aspect of bank lending. It could be said that disaster was the cause of OPEC, which was the cartel of energy producers in the Middle East that restricted output to drive prices ridiculously high; therefore, there was a huge demand for domestic drilling to produce oil at big profits and to feed the economy. We were all in the middle of it. Then OPEC flooded the world with oil, causing a crash. A 250,000 job-loss affected houses, real estate, sub-divisions, raw land, office buildings, and everything. Texas was in shambles.
THE BEGINNING OF A CAREER—FROM JANUARY 1958 137 Because the team I led was so successful in building the bank from $200 million to $5 billion, I was a superhero and was consistently getting huge stock options and stock grants. When you get a stock grant, for example, of $100,000, you must pay taxes immediately because it is a gift. Obviously, I did not have that kind of money laying around, over and over. But I could borrow money and pledge the stock. However, I was caught in a trap because back then it was seriously frowned on for a CEO to be selling stock in his company when the company was public, which we were. The only recourse was to consistently borrow money. Fortunately, again, I saw the crash coming, so I sold my home, some apartments I owned, a few townhouses I had accumulated and paid off all of my debt. The only thing I had left was my bay house and a 1400 square-foot townhouse on Sugar Hill. I also sold all my stock to pay off my debts and basically walked away with nothing. A far cry from my former $10 million net worth. Yvonne and I moved into the townhouse on Sugar Hill. I spent my nights refurbishing it because we had been using it as a rent property for quite some time. In 1988, Allied Bancshares sold to First Interstate of California, and they immediately began to change the bank. Linnet Deily moved to Houston to become President of Allied. She was with First Interstate in California and running, I believe, over 500 branches. She was a great banker. Her task was to convert Allied from a business bank into a retail company, which she successfully did. Ben Love, after selling his company to Chemical Bank, stayed on, but I decided it was time for me to leave. All the banks in Dallas had failed, and all the banks in Houston had failed except Texas Commerce and Allied. Texas businesses were now being financed by names that people did not recognize, like Bank of America and First Interstate, NCNB, and many others. Upon observation that Allied was becoming a retail bank instead of a commercial bank, I saw an opportunity. In the meantime, many customers were calling, begging me to do something to help them. My officers also were begging me to go start a bank, so they could join me. This was the most difficult time in the history of Houston. At an age of 54, I decided to start over from scratch. The rest of the story is a Cinderella story! If you never take a risk, you will probably miss an opportunity. —WEJ
CLOSE TO DISASTER—PRIME RATE AT 21% 139 Close to Disaster— Prime Rate at 21% By three methods we may learn wisdom: first, by reflection, which is noblest; second, by imitation, which is easiest; and third by experience, which is the bitterest. —Confucius It is most often false economics to select the cheapest bank, vendor, and especially, contractor. —WEJ There is no better experience than a personal one to teach you to be conservative. —WEJ Many at the bank have absolutely no idea how personal stories have helped me to become a solid, conservative loan officer. I have always believed life has taught me the most important lessons. No doubt, not learning from experience is foolish. As Bruce Lee said, “Life is your teacher, and you are always in a state of constant learning.” I agree. Only fools refuse to adapt. However, I also think it is even wiser to learn from others’ mistakes, so you do not have to suffer through more painful “teaching moments” than you have to. This is my excuse for telling these stories so often to my officers. I have always wanted them to understand the importance of making loans that can withstand trauma. One incredibly valuable lesson learned occurred the time I could not close on a 30-year loan because the cheap contractor had not performed. Interest rates had skyrocketed to 18.5% for mortgages, and the prime rate had reached a brutal 21%. I am proud to say I weathered this “teaching moment,” but the experience probably added ten years to my life in a matter
140 AN AMAZING LIFE of a few weeks. It did, however, teach me that it is usually false economics to select the cheapest bank, vendor—or contractor. When the perfect storm arrives, investors go broke, projects default, and the banks take a hit. Who is to blame? —WEJ Flashback to 1978. At the time, I was the money partner for my best friend, Joe Laughlin, in what was a wonderful investment. Joe had convinced Pettibone Equipment to let us build to suit a $1 million office warehouse for them on the Gulf Freeway at Ellington. In 1978, this amount would equate to approximately $4 million today. Teachers Credit Union agreed to give us a 30-year loan at 5% interest. The problem started with how hard Pettibone negotiated with us regarding what they would agree to pay. The margin between what Pettibone was going to pay us monthly and what Joe and I would pay to Teacher Credit Union would give each of us about $3,000 a month for 30 years. This amount might not sound like much now but based on what has happened to inflation and our dollar, this would be like making $12,000 today. This caused us to select the cheapest contractor we could find that was reputable. So, I checked out the contractor, and he had a good reputation—even though my analysis of his financials proved he was pretty weak. Therefore, to protect ourselves, we made him furnish a performance and completion bond for the job, which was provided by American General. So, this was a solid deal that would look bankable today. Only this particular contractor had taken on too many jobs at one time, and he dragged out our job. Even though we had a 120-day contingency between scheduled completion of the project and the deadline to close our loan, we were rapidly running out of time. When we asked for an extension on our loan, it was denied. In the end, the contractor turned the project over to us with only 10 days before our loan commitment expired. He had not done his punch list of the small odds and ends that needed to be done, but we convinced Pettibone that we would do them even though we had to close now. Luckily, they agreed. Pettibone made approval subject to them putting their equipment on this brand-new three-acre equipment yard. Only, when they rolled their big cranes and various pieces of heavy equipment onto this beautiful lay-down yard, said equipment proceeded
CLOSE TO DISASTER—PRIME RATE AT 21% 141 to sink. In fact, some sank to the point that they had to be pulled out. It was a nightmare. Obviously, Pettibone refused to accept the project until this was completed correctly. However, we only had about six days left. In the meantime, Federal Reserve Chairman Paul Volcker had doubled the Fed Funds Rate to a world record of 18.5% in March 1980. This, no exaggeration, was nearly a disaster that would have busted Joe and me. We had a contract with Pettibone for about $1.2 million with payments of about $5,500 a month. However, now the interim loan was due. If we did not close on our 5% loan and refinanced it, our payments would be over $40,000 a month. Back then, this was about what Joe and I made combined in six months. Obviously, such a situation would mean bankruptcy for us both. Murphy said it. I will second it. What can go wrong, will go wrong. Plan on it. —WEJ We told the dirt subcontractor that he had to totally rebuild our yard in five days. Instead, he went straight to the bankruptcy courts. Luckily, a wonderful customer and good friend came to my rescue, and his team worked 72 hours straight, totally rebuilding the yard. Then Pettibone successfully put their equipment on it, and we closed one day prior to the drop-dead date. Meanwhile, Joe Peck, my attorney with Butler and Binion, and I went to see American General, the bonding company, and explained the situation. Joe advised them that we still owed the contractor about $75,000, which we would not be paying because it had taken that and more to correct the contractor’s mistakes. I learned over the years, in most cases, a Payment and Performance bond is basically a right to a lawsuit, as it was in this case. The bond reads that in a default, the bonding company is responsible for completing the contract. However, if I had not ignored that and let them figure out a solution, put it out to bid with two or three contractors, then let them get mobilized, the job very easily could have taken two months. And that would have killed us. Luckily, when it was all said and done, we did not suffer much more than a tremendous amount of needless stress.
142 AN AMAZING LIFE Lesson learned at an early age: Never bet more than you can afford to lose. —WEJ Now if this sounds wild, read the rest of this bizarre story! Six months after Pettitbone moved in, a hurricane dumped 36 inches of rain on the site in a few hours and the building got five feet of water in it. I still remember the three-inch headlines in the Houston Chronicle calling it a 500-year flood. We sent all the articles to the company and they understood and had the insurance company refurbish the building. But our luck did not improve! Before the summer was over, there was another storm just like it and the exact same thing happened again. How is it possible that Harris County covers about 1,800 square miles and yet we have two 36-inch rains in one summer—localized on my building! Pettibone was obviously furious and the amazing headlines did not help. They took their insurance money again but this time they used it to buy Joe and me out. This was a scary, but valuable lesson. If I were to guess, I would say I have built more than 40 acres of truck lots and road-equipment lots since then, but because of this experience, I have never had another near-failure. Suffice it to say, I will never let that mistake happen again. Since then, I build all my buildings out of cash flow. I am less likely to get hurt if I have no debt. When you read this story, like a few others in my book, it is easy to see how fragile investing can be due to external factors over which no one has control. Again, witness the destruction of Hurricane Harvey; the economic repercussions of the Coronavirus; or a Fed Chairman raising the prime rate to 21% and the Federal Funds Rate to 18.5%. No telling how many investors and contractors went broke—many through no fault of their own! The reader would have absolutely no idea how these personal stories affected my ability to be a solid, conservative loan officer. I have told these stories many times to my officers so they understand the importance of making loans that can withstand trauma.
HOUSTON’S HISTORIC CRASH DUE TO OIL GLUT 143 Houston’s Historic Crash Due to Oil Glut Some see the lifestyle and want it, yet they don’t see the struggle that comes with it. —Unknown Increased Dependence on “Cheap” Foreign Oil I n the post-World War II era, oil began to replace coal as the preferred fuel source. It was used to heat homes, generate electricity as well as fuel automobiles and airplanes. At the same time, however, US oilfields were not able to meet the increasing demand, even though US production had increased throughout the 1940s. By the late 1950s, the US was importing 350 million barrels per year, mostly from Venezuela and Canada. The costs of producing oil in the Middle East, though, were low enough that companies could turn a profit, even though the US government had a tariff on oil imports. Domestic oil producers in places like Texas and Oklahoma now had to compete with cheap oil from the Persian Gulf region. President Dwight D. Eisenhower imposed quotas on this “cheap” foreign oil that would remain in place from 1959 until 1973 but American oil production continued to decline, leading to inflation at a steadily rising consumer price index. Between 1963 and 1970, US surplus production capacity had declined from 4 million bpd to around 1 million bpd. When Richard Nixon took office in 1969, he imposed a price ceiling on oil in 1971 as demand for oil was increasing and production was declining. This further increased US dependence on foreign oil while encouraging increased consumption by keeping prices artificially low. Between 1970 and 1973, US imports of crude oil nearly doubled, reaching 6.2 million barrels per day. An abundance of oil supply kept the market price low. Nixon finally ended the quota system in 1973 but by this time, US oil production only accounted for 16.5% of global output.
144 AN AMAZING LIFE The Rising Power of OPEC I n September 1960, five oil producing countries—Venezuela, Iraq, Saudi Arabia, Iran and Kuwait—founded the Organization of Petroleum Exporting Countries (OPEC) in Baghdad. The purpose of this intergovernmental organization was to try to secure the best price available from the major oil corporations. More nations soon joined—Qatar, Indonesia, Libya, United Arab Emirates, Algeria, Nigeria and Ecuador. By the early 1970s, OPEC’s membership accounted for more than half of worldwide oil production with half of the members coming from the Middle East. The Arab-dominated OPEC announced a decision to punish the US by imposing an embargo, drastically reducing oil exports to the US and a few other countries that had provided aid to Israel in the 1967 Arab-Israeli War. They raised the price of oil four times to nearly $12 (about $95 today adjusted for inflation). 1973 Energy Crisis OPEC continued to put pressure on the US, gradually reducing production so that by December, production had been cut to 25% of its September levels. The embargo lasted until March 1974. It created a serious energy crisis and the US did not have enough oil to produce gasoline. The average US retail price of a gallon of regular gasoline rose 43% from 38.5 cents in May 1973 to 55.1 cents in June 1974. There were calls for gasoline rationing, and Nixon asked retailers to voluntarily not sell gas on Saturday nights or Sundays. This produced long lines of motorists wanting to fill up their cars while they still could. Price controls and rationing would exacerbate the crisis. The price of “old” oil was limited while newly discovered oil could be sold at higher price. This was supposed to promote oil exploration and encourage investment, but it just took the old oil out of the market, creating more scarcity. The scarcity was addressed with more rationing. Motorists faced long lines at gas stations beginning in the summer of 1972 and increasing by the summer of 1973. There were legitimate concerns that OPEC could literally shut down the US or bankrupt our nation as a result of their energy dominance. I remember it well. Yvonne and I tried to go Lake Travis to visit our home there. We ran out of gas and could not find any station with gas. The crisis lasted a long time. I bought a diesel Cadillac and put a 200-gallon diesel tank in the trunk. It had a range of 1,000 miles. Sounded good, but then stations limited sales to 10 gallons!
HOUSTON’S HISTORIC CRASH DUE TO OIL GLUT 145 In 1974, to help reduce consumption, a national maximum speed limit of 55 mph was imposed, something that would remain in effect until President Bill Clinton ended it in November 1995. Year-round daylight savings time was implemented from January 6, 1974 to October 27, 1975, returning again on February 23, 1975. The prior rules would be restored in 1976. The Advertising Council created a “Don’t Be Fuelish” campaign and the automobile industry began to offer more fuel-efficient cars. Henry Kissinger finally negotiated a truce with Saudi Arabia, and it helped increase fuel supply. But the Saudis then drove oil prices up to 10x what they had been in 1973. The 1980s Oil Glut Crude oil prices stayed high as OPEC controlled production to keep supplies tight. In the summer of 1981, import oil prices averaged at a peak of $39 a barrel—or more than $106 in 2016 dollars.1 These prices were killing our industry, so we had to do something. American industry does not sit still, and soon responded with one of the biggest industrial efforts since World War II. Energy companies went wild with growth and borrowed billions, coupled with billions from investors, and private equity. With sky-high oil prices, it was an amazing opportunity, and US drilling went through the roof! Our drilling rig count went to nearly 6,000 rigs. Houston, in the center of the frenzy, experienced an economic boom as a result of record crude oil prices that followed the 1973 embargo and again after the Iranian Revolution of 1979 when the Shah was overthrown and replaced with a theocracy run by the Ayatollah Ruhollah Khomeini. The signs of prosperity were everywhere from the expensive company cars to the corporate jets standing at the airport ready to take oil company executives anywhere in the world. Country club memberships were booming as was the commercial and residential construction industry.2 The Crash Oil prices began to fall in March 1982 amid a decline in oil demand as the US, Europe and other nations went through an economic slump, 1 Collin Eaton, “1980s Oil Bust Left a Lasting Mark,” Houston Chronicle, August 31, 2016. 2 Ibid.
146 AN AMAZING LIFE accelerating over the next several years.3 In the mid-1980s, OPEC doublecrossed us again, substantially increased production and flooded us with cheap oil. The result was a six-year decline in oil prices, with prices falling by 50% in 1986 alone. From January to June 1986, crude prices fell to about $27 a barrel in 2016 dollars. The price drop accelerated as Saudi Arabia pushed its crude production higher. The US oil rig count fell from a peak of more than 4,500 in late 1981 to a low of 663 in July 1986. Sales of oil field equipment plunged from $40 billion to $9 billion over the same period. Drilling rigs were torn apart and sold for scrap. Even the Offshore Technology Conference, one of the energy industry’s biggest events, saw attendance drop from 100,000 attendees in 1982 to only 25,000 by 1987.4 The 1986 oil crash drove many of our energy companies to bankruptcy, and Texas banks crashed as well. Houston lost more than 250,000 jobs, about one in eight, and the unemployment rate climbed over nine percent. Laid off oil workers were living in tents in oil towns like Midland, Texas. Office vacancies soared and office rental rates plunged. Construction ground to a halt with more than 200,000 homes standing vacant. Half-built apartment complexes as well as unfinished office complexes were everywhere. Loan payments to banks were soon in default. Risky commercial real estate and energy loans went bad and hundreds of banks failed.5 Every single large bank in Dallas and Houston was taken over by the Feds, except for two, Texas Commerce and Allied Bank of Texas. They were both strong enough to sell. Texas Commerce became Chemical, and ultimately JP Morgan. Allied became First Interstate and then Wells Fargo. The oil industry felt the effects of the 1980s oil bust for years. A generation of young petroleum engineers left the industry and never returned, leaving a talent gap that has persisted into recent years. Political, business, and civic leaders learned a powerful lesson that a local economy should not rest on one industry. Local leadership has tried to rebuild by creating a diverse economy.6 3 Ibid. 4 Ibid. 5 Ibid. 6 Ibid.
HOUSTON’S HISTORIC CRASH DUE TO OIL GLUT 147 If these historic events were not scary enough, witness what is happening as I am creating this book. Fortunately, American ingenuity finally was able to create a solution to our dependence on foreign oil with horizonal drilling in the shale play. The US today is now the major oil and gas exporter in the world. But just as we were getting comfortable that our shale drilling had assured us of energy independence, the sky started falling again. Energy is in crisis again today. The Saudis have dropped energy prices incredibly low, by about 75%, and the result may well again bankrupt the American energy sector. Saudi Arabia claims they are punishing Russia, but I believe they are really trying to again destroy America’s independence. I cannot think of any example that better illustrates the fact that banking is a risky business. If these examples are not proof enough, we have further evidence today. We are in the midst of a pandemic from coronavirus that came to us from China. Everyone should take comfort in the way Harris Simmons and Scott McLean will manage the next unknown for the bank. I love Zions Bank. Its leadership is conservative, risk adverse and believes in strong capital. Anyone wanting a career as a banker would find a promising future with this bank. China—Batteries, Rare Earth Minerals and Microchips... Buyers Remorse I t is my opinion that the US is in a very precarious position today and is guilty of letting China dominate the key resources that affect literally every business, every industry, and most scary of all… our military. Without a very rapid and expensive ramp up of production and investment, we will be in an extremely precarious position which will be much worse than what the Oil Cartel did to America in the 1970s and 1980s. Batteries historically have been made with a mined commodity called cobalt, and most of the world’s cobalt comes from the Congo in Africa. They Rare earth mineral mine use child labor and the US
148 AN AMAZING LIFE has severed relations years ago. China stepped in to support their mines, and have created many of their own. Consequently China controls over 80% of the world’s cobalt, and thus battery production. A lot of advances are being made in new types of batteries, but school is still out if it can be done and done in a timely manner. Rare earth minerals are more important than almost anyone realizes. Without some of them there could be no cell phones, computers, automobiles, satellites, and most of our military equipment. Production is expensive, and very detrimental to our environment. We have basically given up while China has grown to dominate the industry with as much as 90% of the world’s production—in an economic marketplace in which demand is growing exponentially. Microchips are even in worse shape. Just recently a number of the world’s largest automobile manufacturing companies have announced substantial cutbacks in production due to the lack of exotic microchips. In the world there are only three producers of these; two are in China and one is in Taiwan—none in the USA! This is extremely SCARY! Isn’t it amazing that these issues are not in all the media headlines? They should be called national emergencies. We will regret we did not subsidize production of minerals, batteries, and chips instead of solar and wind power and electric automobiles. Only in the last few days, Bloomberg published an article entitled “China has a Secret Weapon in the Race to Dominate Electric Cars.” With all the smart people in this world, why is it a secret that China dominates cobalt, rare earth minerals and microchips? Again, in my opinion, our administration has the “cart ahead of the horse” in rushing our country into electric vehicles without considering production of the basic items that make them work. I urge my readers to do online searches for “rare earth minerals,” “cobalt,” and “microchips,” and also “lithium”… and recognize China’s domination of them all. China is not our friend, and they have the ability to make the Oil Cartel’s treatment of us look like child’s play. I fear we are on a critical path and no one is paying attention.