A group of banks are losing out on deals or biding time on the sidelines, as they wait for clarity on a Texas law that seeks to exclude banks that have policies considered unfriendly to the energy industry from municipal bond deals, Bloomberg reported on Monday.
The law, known as Senate Bill 13, requires that any public contract valued at or above $100K have a provision that states the company does not and will not boycott energy companies.
Wells Fargo (NYSE:WFC) and Morgan Stanley (MS) have already been replaced in some muni deals, according to the report. Some municipalities are averse to using banks that might be put on a list of banks being drawn up by Texas Comptroller Glenn Hegar in his effort to protect the state’s oil and gas industry.
“The issuer is not sure who they’re going to be able to do business with from start to finish,” Derrick Mitchell, head of Holland & Knight’s public finance team in Texas, told Bloomberg.
The Republican comptroller sent out more than 150 letters in March and April to financial firms, seeking information on their fossil fuel policies. Richardson Independent School District removed Wells Fargo (WFC) as senior manager on a $192M bond sale earlier in May and replaced the bank with Piper Sandler. Likewise, a Texas agency removed Morgan Stanley (MS) and two other banks from a bond deal due to uncertainty about the law.
About three dozen financial firms have filed standing letters with the Texas Attorney General’s office saying they’re in compliance with Senate Bill 13 and another law that bars municipalities from doing business with banks that don’t do business with the firearms industry. The comptroller’s inquiry has brought those letters into question, and that puts the standing letters under review.
Due to the uncertainty over whether the bank will ultimately be allowed to act as a manager in the deal, some Texas municipalities and agencies are playing it safe by not using the banks in question for deals in the near term.
For example, the Texas Department of Housing and Community Affairs removed Barclays (BCS), Morgan Stanley (MS), and Royal Bank of Canada (RY) from a $190M bond deal in May, a spokesperson for the agency told Bloomberg.
“Provided the firms respond affirmatively to the comptroller and are not added to any restricted list, they may be included in future transactions,” the spokesperson said.
The last of the responses to the comptroller are due back by June 10. Then the comptroller will decide which firms are considered to be boycotting energy.
In August 2020, Wells Fargo (WFC) CEO Charles Scharf told investor’s the bank’s exposure to the gun industry is minimal.
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