A “War Against Fossil Fuel” Bank Has Been Declared by Texas. It Might Cost $22 Billion to The Government!
CNS News– In 2022, the Normangee Independent School District had to find money to fix up its old schools. The school needed more classrooms in the middle school, work to be done on the cafeteria, and a new playground for the elementary school that could handle students with disabilities.
On May 7, 2022, voters in the small town in the middle of Houston and Waco passed a bond measure worth $18.6 million. The district was so happy that they asked some of the biggest banks in the world to bid on the money. A lot of the time, school districts, cities, states, and other types of government ask people if they can take on debt.
They sell bonds to banks, which then sell them to investors. Investors like these bonds because they are usually paid back. Banks try to get your business by having the lowest interest rate. Rates can be lowered by bigger banks that issue more loans. The winning bid came from UBS Group, a global investment bank based in Zurich.
Their interest rate was 4.0808433%. There is a lot of competition, and the last number can make a difference, especially if you look back 30 years. The school district thought everything was fine until Sept. 2, 2022, when Texas Attorney General Ken Paxton stopped the process, according to papers that were made public.
Texas started a war against ‘anti-fossil fuel’ banks. It could cost taxpayers $22 billion. https://t.co/0KGRDaNDVj
— Houston Chronicle (@HoustonChron) February 21, 2024
Eleven days ago, Texas Comptroller Glenn Hegar put one of the biggest banks in the world on a “blacklist,” which meant it could not do business with any Texas state or city government. Soon after, Paxton’s office sent UBS a letter demanding that they pay the school district almost $1.8 million in damages for lying in a signed statement.
Texas fired the first shot in its war against companies that offer ways to invest money that don’t include oil and gas businesses. Big names on Wall Street were being shut out of the state’s $50 billion-a-year debt market because they agreed to fight climate change.
The Texas Legislature passed Senate Bill 13 across party lines a year ago to push back against banks that said they would stop doing business with fossil fuel companies. The law, which was written by Republican state Sen. Bryan Birdwell, says that state agencies can’t put money into financial firms that don’t do business with energy companies or that don’t follow climate policies that are required by law.
In a speech this month at an investor meeting, Lt. Gov. Dan Patrick said, “We made this blacklist of companies we didn’t think were friendly toward fossil fuel.” We will not do business with you if you are against fossil fuels and want to make sure that companies follow certain rules before lending them money. That’s the rule we made to safeguard our oil and gas business.
Under SB13, lenders had to say that they don’t avoid doing business with energy companies. UBS did this. “UBS does not prohibit banking, consumption, financing, investment, underwriting, or related activity on fossil fuel-based energy and fossil fuel-based energy companies,” the company said in an answer to a questionnaire.
Hegar, whose job it is to keep the blacklist up to date, didn’t believe UBS’s story. The lawyers for UBS were confused. They didn’t know why they were banned by the new law that was made to punish companies that make investment choices based on ESG (environmental, social, and governance) issues.
When the comptroller’s office asked more questions, UBS talked about how it works closely with fossil fuel businesses. Energy companies can still get investment banking services from UBS. The company said it had finished 72 capital markets and M&A (merger and acquisition) deals for clients in the oil and gas sector between January 1, 2020, and June 30, 2022.
“About $33.5 billion worth of assets were under management by UBS Global Wealth Management with direct investments in oil and gas companies as of June 30, 2022,” the company said. But UBS said that it had promised to cut down on the company’s carbon impact, so that wasn’t a boycott.
Hegar didn’t change his mind and put UBS and 14 other banks on the first listing. Others were BlackRock, BNP Paribas, HSBC Holdings, and Credit Agricole, all of which are well-known companies around the world. When Normangee tried to sell bonds, Paxton’s office stopped them because UBS was appealing the comptroller’s ruling. Then the attorney general asked for payment.
If our client goes with the current underwriter instead of your client, they will lose extra interest over the life of the bond. They will also lose interest because they didn’t get the funds deposited when they were supposed to close with your client, according to a letter from the attorney general’s office on October 5, 2022. It was settled by UBS in May 2023 for $850,000, which was half of the difference.
The extra interest was paid for by Normangee ISD’s taxes. But economists from the Wharton School and the Federal Reserve of Chicago have found that putting the world’s biggest bond dealers on a “blacklist” lets the rest of the dealers charge Texans 0.41 percentage points more in interest.
The 2022 paper said, “Texas issuers will pay an extra $300 million to $500 million in interest on the $31.8 billion they borrowed in the first eight months after the law was passed.” The law says that taxpayers will have to pay an extra $22.5 billion in interest over 30 years if that trend stays the same.
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How did some of the biggest banks in the world end up on a list of bad banks? How does Texas Comptroller Glenn Hegar decide who to put on his “blacklist”? After that, what happened? Part 2 of this three-column story shows how UBS and BlackRock tried to stay off the list.