As the U.S. economy continues
to struggle, certainly companies
across the country must be less willing to take risks. Not necessarily. In
cities, such as Houston, that are in the
heart of the oil industry, there are many
companies that continue to grow and
expand.
“Our economy is oil-driven, so businesses are definitely expanding right
now because we have so many people in
the oil field tool business,” says Amy
Buck, developmental officer for Wells
Fargo Bank in Houston. “And in the oil-side sector of the equation, businesses
are still developing their companies and
moving forward, especially in the
Houston market.”
Smart Business talked to Buck about
the effects of the U.S. economy on the
Texas economy.
Is development still strong in cities all
across Texas or just in Houston?
I think we’re starting to see a slowdown in cities like Dallas and Austin as
far as development goes. Austin is slowing down a little because it grew too fast.
It had a big influx of people into the market from California, and once that influx
slowed down, due in large part to the
California economy, it slowed Austin’s
growth. But if you look at the Texas
numbers in business banking in Houston
last year and this year, we are still going
strong.
Are businesses taking the same types of
risks today as they did when the economy
was stronger?
It is a different process today. I think
businesses are thinking their projects
through much more extensively now and
not taking on unnecessary risks. The typical developers that take on those projects are streamlining them back to, say,
one or two projects a year as opposed to
four or five that they would have taken
on simultaneously a couple of years ago.
They are more cautious now and not taking on as much at the same time.
Are the same companies taking the risks or
have new ones emerged?
The companies that are taking the risks
are the oil companies. They’re the ones
that are building and expanding their
manufacturing plants. They’re also having to bring on more equipment to satisfy the increased demand. It’s similar to
what we went through in the ’80s except
that the people in the business today
who were in the business back then are
being very cautious as far as overex-tending themselves. So a drilling manufacturing company maybe 10 years ago
would have financed all of the expansion
for a project; today, that same company
is going to put down more of its own
money on the project in order to avoid
putting a lot of debt on the company.
What about interest rates?
We’re seeing the rates go up, and that’s
due to a tightening of the market. The
suppliers and some of the smaller banks
are feeling the pinch from that. They
don’t want to have as much money out to
an individual client. As a result, some of
the bigger banks are getting an opportunity to work on some of the bigger projects. There’s a tightening of money that’s
also driving up the interest rates because
of the tightening of the supply chain.
Interest rates today are between 7 and
7.5 percent, and that’s not bad money.
I’ve been in the banking business for 30
years and I saw 16 percent rates in the
’80s, and we haven’t gotten close to that
yet. In 1978, the prime interest rate was
15 percent, so we’re not in that inflationary area, but I think rates are going up
now. People want longer-term financing,
which at between 6.5 and 7.5 percent is
still as good as it was three or four years
ago. People want that long-term fixed
rate because they think we’ve hit rock
bottom and that we’re going into an
inflationary period.
Are we?
Yes. In the oil industry, supplies and
materials for manufacturing and steel
for parts has risen in cost by 40 to 60 percent, just in the last month. You’re seeing
it at the gas pumps and in the grocery
stores as it costs more to get the goods
to market. I think the Fed will probably
start turning around the interest rates
some time around August. We’re at the
bottom of where the cycle is going
before it starts to head back up.
Personally, I don’t see the price of gas
going down in the next 18 months. We’re
at $4 a gallon, yet, in Europe, they’re paying $12 a gallon. Americans are understandably upset with the economy, but
many really don’t know the effect of
where it could be.
AMY BUCK is a developmental officer for Wells Fargo Bank in Houston. Reach her at (713) 209-6548 or [email protected].