First City Bancorporation's sale of 54mln dlrs in oil loans to Prudential-Bache should significantly
reduce its energy problems, but the bank's losses are still
virtually guaranteed to continue, analysts said.
    The package of energy loans was sold at book value, so
First City did not to show a gain or loss, said bank spokesman
James Day. He added it was possible First City would sell more
of the bank's remaining 1.4 billion dlrs in oil-related loans
to raise cash.
    The loans had been made by First City to oil producers and
to oilfield service and supply companies. Day said some had
already been classified as nonperforming, or charged off as a
loss, but he could not identify how many were included in those
categories.
    The loans were purchased by Prudential Bache's Energy
Growth Fund, a limited partnership created last month with 90
mln dlrs in funding to invest in oil and gas properties.
    First City, the big Texas bank hit hardest by the downturn
in oil prices, lost a record 402 mln dlrs in fiscal year 1986
and has said it is seeking a merger partner or some other
capital assistance. The Houston-based bank's nonperforming
assets totaled 897.1 mln dlrs at yearend, up from 563.1 mln
dlrs at the end of 1985
    Analysts have said no buyer is likely to be interested in
the troubled bank unless government assistance is available.
    "Their problems are not just limited to energy. They have a
substantial portfolio in real estate. This sale in and of
itself won't make the company look better to a potential
buyer," said Ray Archibold, a banking analyst with McCarthy,
Crisanti and Maffei Inc.
    "It does reduce the bank's exposure in energy loans and 54
mln dlrs is a substantial amount," Archibold said, "but the
deal represents only about four pct of their energy loans."
    Of First City's total loan portfolio of 9.9 mln dlrs, about
14 pct or 1.4 billion dlrs were made to energy producers or
suppliers, analysts said. Its record losses have been caused by
its past status as one of the nation's top lenders to oil and
gas producers and suppliers during the boom days of the late
1970s and early 1980s.
    First City said about half of the loans sold to Prudential
came from its Energy Finance Co., an entity formed in 1982 to
loan money to "more venturesome" oil borrowers that promised a
higher potential return. The other half of the loans were from
First City's lead bank in Houston.
    Chris Kotowski, an analyst with Oppenheimer and Co., said
the sale of the package of energy loans was the first
encouraging news from First City in months.
    "It's not going to solve all of First City's problems but
it's a good transaction for them. It may be possible for them
to sell additional loans," Kotowski said. "Prudential can fund
these things more cheaply than First City and there's an
incentive to invest in troubled energy companies right now as
values are depressed"
    In a statement, First City chairman J.A. Elkins said the
bank's strategy was to reduce the proportion of energy loans to
total loans. "This move, which we believe is the first
transaction of its kind, helps us further, and we were able to
make it without suffering a loss."
 Reuter
