The Year of Living Prosperously

THE ECONOMIC RECOVERY of 1983 took hold like spring after a bad winter. Some companies found the year to be one for pruning down to the stump-or sometimes further. The freeze, they found, was selective. While it blighted one place, it left other spots untouched. For instance, after a two year slowdown, much of the oil business still has yet to bud.

But the rest of the economy is sprouting all over. Public confidence boosted consumption. Retailers ordered, manufacturers cranked up their assembly lines, builders borrowed and broke ground. Layoffs ended, and executives dug back in their files for postponed projects. For some ambitious employees, it wasn’t soon enough.

As in other recoveries, entrepreneurs appeared early. Their corporations couldn’t move quickly enough for them. Still pinched by the recession, managements nixed proposals and postponed compensation bonuses. So the employees cut loose to find money to start their own businesses and try their ideas out themselves. For the well-connected, the conscientious or the just plain lucky, there were several eager sources for expansion cash ready to meet them. And just in time, the stagnant stock markets roared back like a sonic boom to provide more than enough capital for growth in the right ventures.

The year was ripe for entrepreneurs. Federal courts, agencies and Congress continued an enthusiastic spring cleaning to throw out volumes of regulations on banking, telephones, computers and airlines. For once, Dallas’ moderately growth-oriented economy drubbed that of its unfettered, expansion-minded neighbor to the south in several categories. In home building, the Dallas/Fort Worth area put up more than 30,000 single-family homes, ahead of Houston for the first time in four years. Unemployment in Dallas shrank at the year’s end to a healthy 5.3 percent, down from 5.7 the year before. Meanwhile, Houston’s jobless rate rose from 6.1 percent in 1982 to 9.2 percent last year.

Enough on the generalities. The real story is about the individuals-prominent or obscure, corporate loyalists or rebels-and the companies that played a part in making the economic turnaround a reality for Dallas. A big slice of their story was money.

Money is to business as air is to mammals. That may be trite, but not to the small, cash-strapped business with more enthusiasm than performance record and more familiarity with a product or service than with bankers’ favorite watering holes. The overriding problem with cash in a small business is where to get it. The money sources always boil down to two kinds: the ones you pay interest for and the ones you give up part of your company for. The first, debt, is fairly straightforward, although with prime rates in the teens, rather dear. The second-trading part of your equity for money-has intriguing possibilities, and the recent recovery has revived Dallas’ interest in venture capital. Once the province of proper Boston, New York and San Francisco gray-suiters, venture capital is entering the hurly-burly world of Texas entrepreneurship. Ven-caps (in the vernacular) supply money in exchange for part ownership in promising new companies. They examine and bet on a small company’s ability to make the big time-either by growing enough to go public, to sell out to a large corporation or just to remain a good private investment.

In past years, half of the 400 vencaps and three-quarters of the $l-billion-plus that the United States puts into new companies comes from the West Coast and the Pacific Northwest. But that’s changing. In 1983, a half dozen West Coast or Eastern vencaps opened branches in Texas. One-Dougery, Jones & Wilder of San Francisco-bought out Financial Trend, the Dallas-based financial weekly for the Southwest. Locally, another half dozen have started up. Toward the end of the year, Dallas hosted two of the first vencap seminars in the area, where companies seeking investors could put their cases before prominent venture capitalists.

But the big news in 1983 was the booming stock market and the opportunity it afforded emerging companies to take advantage of some very attractive financing. Take fledgling Pinetree Computer Systems of Irving, for example. This manufacturer of handheld computers was working on a sales year of $200,000-plus to top names in the computer business. But selling and research costs were four times that. Pinetree sold its products to the likes of IBM and Datapoint, but those cautious giants of high-tech were hard sells. What Pinetree wanted was a dealer network to peddle to small and medium businesses, but it would cost more than three times the firm’s annual income to set one up. Banks were charging interest in the teens, and the investing public was sour on exotic financial creatures like research and development partnerships.

Enter the stock market boom. Stock market behavior is usually unpredictable, but in 1983, it followed the general economic rebound, and the stock exchanges set new trading records. Lured by the sudden interest in stocks, dozens of financially strapped young firms raised millions by going public. At least 30 Metroplex firms went public in 1983, up from a mere dozen in the previous vear. Amone them was Pinetree.

Pinetree chairman John Manry, a 23-year veteran of IBM says, “When the market took off, it was like going off the scope.” Seeing a solution to his problems, he signed on in February with an Oregon investment banker to handle a public offering over the counter. The OTC market peaked in late February, and Manry started sweating. But the offering went through as planned on July 27, and Manry and Pinetree president Gene Kalwetter flew to Oregon for a celebratory dinner and picked up a check for a cool $3 million.

Since then, Pinetree has signed on almost 20 dealers, closed a big sale to the giant NCR Corp. and debuted a brand-new handheld computer.



THE RISING TIDE of economic and stock market prosperity did miss some vessels, especially in the industry that provides debt finance. Last year was an unusual one for the financial institutions. Bankers are usually aggressive profit leaders during a boom and are as wary as, well, bankers during a slowdown. But last year, most Texas bankers took the brunt of the lingering recession on the chin. Savings and loan institutions, once the poor cousins of finance, however, generally came on strong throughout the year, playing the money markets well and leading the lending parade for home builders as well as many commercial projects.

The banks’ problem could be summed up in five words: “Oil at $29 a barrel.” Neither the peso devaluation nor the general recession played much of a part in creating big loan losses for many and the near-collapse of several Texas banks. The culprit was energy. In Dallas, the results were mixed. Interfirst Bancorporation announced the largest quarterly loss in banking history and overall losses of $172 million for the year. The blame was placed squarely on oil loans gone bad (“non-performing” in banker parlance). Other Dallas bank holding companies were able to acquire banks in trouble: RepublicBank took over First National Bank of Midland, and Mercantile latched onto Abilene National Bank.

Consolidation happened in a big way, too, when Interfirst wrapped up its acquisition of First United Bancorporation, and Mercantile announced a merger with Houston’s Southwest Bancshares.

If finance were a poker game, First Texas Savings Association played three very good hands in 1983. When and if the planned deals go through, First Texas will be the largest S&L in the state and the proprietor of the largest string of electronic teller machines in the country. More than any other indicator, First Texas showed how far an S&L could go if it wanted. The industry used to be derisively called a 3-6-3 industry: Take savings deposits at 3 percent, loan it to home buyers at 6 percent, and be on the golf course by 3 that afternoon. When interest rates rose in 1980, home building shut down, and associations found themselves with those 3 percent mortgage and savings customers demanding 5 percent interest.

In First Texas’ case, it meant $20 million in losses in 1982, and its owners unloaded the hapless S&L to a group headed by a Houston investor. The association cleaned up its act in 1983, began charging fees for banking services and built up its deposits with new branches, aggressive marketing and a heavy investment in expanding its network of “Moneymaker” automatic teller machines. Instead of making standard residential mortgage loans, the firm emphasized investment in projects such as the elite Bent Tree subdivision off Preston Road in Far North Dallas.

The first sign that the S&L had talent at the gambling table was its announced purchase agreement last May of the state’s largest savings association, Houston’s $4- billion Gibraltar Savings Association. (The merger is still sitting in the “in” basket of the Federal Home Loan Bank Board in Washington. Approval has been delayed for over six months, says First Texas chairman Mike Cornwall, but if the deal goes through, it will give First Texas/Gibraltar more than 600,000 Texas households as customers.)

Not content to sit on its laurels, First Texas got aggressive in a big way with its “Moneymaker” ATMs. Late last year, First Texas announced a plan with Southland Corp. to install Moneymaker ATMs in 1,000 of Southland’s 7-Eleven stores in Texas, making it the largest such network in the nation.



THE OIL BUSINESS today is clearly troubled. It’s the only segment of the economy that hasn’t bounced back. Apologists for the industry point out that it’s unfair to compare 1983 and 1982 (when oil was priced at less than $30 a barrel) with the boom year of 1981, when crude was rising toward $40 a barrel. Nevertheless, that’s small consolation for firms such as Halliburton, the oilfield services company that in past years ranked as Dallas’ largest company. When the giant’s total revenues last year were down 24 percent to $5.5 billion, it was knocked off the top rung by Southland Corp.’s $8.5 billion. Halliburton did turn a profit of $276 million, down from almost $500 million the year before. In even worse shape was LTV Corp., which actually lost $180 million (one-third of which was spent trying to prop up its drilling rig division when nobody was buying equipment).

There have always been plenty of known, profitable oil finds around. The problem is that few companies in 1983 and 1984 have the money to go get it; most are having to sell what they’ve already found at bargain rates to stay afloat. But in the understated words of Scott Campbell, executive vice president for Dallas’ Natural Resources Management (NRM), “Where there’s turmoil, there’s opportunity.”

NRM raises money from small investors to buy both producing properties and oil yet to be drilled for. In 1983, the company took in $288 million. Along the way, it acquired Strata Energy, a Houston oil company started by Armco Steel. “Armco put in around $180 million to develop the firm,” Campbell says. “We picked it up for less than $60 million.”

This year, NRM projects $500 million in investments. Despite the views of some analysts that the oil properties are not to be found and that the market is one of too much money chasing too few deals, Campbell says he sees more property becoming available in 1984 than last year. Many companies are selling off prospects and consolidating their holdings. “We’ve basically never been high-stakes players [going after risky drilling prospects],” Campbell says. “Now there are so many deals around that we don’t even have to. Wildcats are a lot of fun, but we don’t need them.”