DALLAS - Houston City Council members say their resentment over the firing of a former manager of Banc One Capital Markets municipals group spurred their decision Wednesday to replace the firm with Wells Fargo Bank as trustee on a $3 million bond deal scheduled for next week, as well as block the firm's participation in future city deals.
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Some council members said they resent Banc One officials for firing Barry Smitherman in April, four days after an op-ed article he co-authored with council members Mark Ellis and Michael Berry appeared in the Houston Chronicle. Banc One officials have said the op-ed piece, which suggested mechanisms to help the city boost its credit ratings, was not approved by company executives, as mandated by Banc One policy.
The council pushed out Banc One as trustee on the $3 million sale of tax-exempt revenue bonds by the Houston Industrial Development Corp., a city conduit issuer, on behalf of Perot Development Houston. Perot is developing a complex on behalf of United Parcel Service, allowing that company to move its shipping operations in Houston from Ellington Field to George Bush Intercontinental Airport. That deal is scheduled to close Aug. 6.
In addition, several council members have said they will block any future participation by Banc One in bond deals by the city or any of its conduits, including a $425 million swap of water and sewer debt that could take place in the next 60 days. The firm was named, along with UBS PaineWebber Inc. and Goldman Sachs & Co., as the three firms that would be allowed by the city to compete to manage the swap.
"It was Barry's creative ideas that got the swap on the table in the first place -- there was nobody at the city who knew how to do a swap," said Councilman Bert Keller. "Without him, I think they'll just be taken off the list to compete for that deal. I would imagine they won't be considered for others that might come up."
Ellis said without Smitherman, he has no confidence in Banc One.
"When I heard that Barry was being fired, I went to Houston Bank One president Charlie O'Connell and kind of had a 'come to Jesus' meeting with him," Ellis said. "I told him that Smitherman was very instrumental in saving the city about $100 million over the last several years. There are plenty of banks around this city. We don't have to do business with Banc One."
However, city director of finance and administration Phil Scheps said the firm remains in good standing with the city.
"They're still on our 'A' list," he said. "I think this dispute is between the firm and a couple of council members."
Charlie O'Connell, president of Banc One's Houston operations, said he believes his firm's long-standing relationship with the city is sound.
"Banc One regards very highly its relationship with the city of Houston," he said. "It's our intention to work closely and in cooperation with the city's administration and City Council to further that relationship in future years."
However, Smitherman said he wonders if the city's trust in Banc One is marred beyond repair.
"It seems pretty clear to me that a number of the members of City Council are simply not inclined to do business with Banc One," he said. "To them, I was Banc One. I was the person with whom they had a lot of trust, and they don't have that any more."
Smitherman, who has not yet taken a position with another, said he is uncertain what his future holds.
"I remain unemployed, though I am exploring a number of options," he said. "I have retained an attorney -- Philip Hilder, in Houston -- and we are looking at the possibility of a lawsuit against Banc One, though we've not filed anything yet."
As for the $3 million deal, Pat Perot, the developer of the UPS facility, and his financial adviser Tom Harrow said the trustee switch didn't make their bond deal any more difficult.
"In addition to the 20-year lease with UPS that backs the bonds, we also have a 40-year ground lease with the city of Houston," Perot said. "This is a really strong deal."
"The rating would have been too expensive on this small a deal, when put in the context of the 6% interest rates we've won from underwriter Robert W. Baird & Co. ," said Harrow, president of the Connecticut-based Harrow & Co.
Despite the problems in Houston, a decision by officials at the Indiana Bond Bank to remove Banc One as one of its managers was not related to Smitherman's termination by the firm.
Banc One acted as lead manager on the Indiana Bond Bank's mid-year offering of $20 million of tax anticipation warrants, but was not chosen for the 2003 program. Normally, the firm that serves as the lead on the bond bank's earlier warrant sale, in January, serves on the smaller mid-year deal, said Dan Huge, the executive director at the bond bank.
The bond bank interviewed six firms at the end of May and in June chose a team for the 2003 sale, Huge said. They chose J.P. Morgan Chase & Co. for the lead manager on that sale, he said. That choice was based on the growth in the program, he said.
"I think any time you see a program that has had the growth in it ... to a certain extent you want to investigate what else is out there to help you market the program," Huge said. Banc One had been the lead on the program since 1996, he said.
"Barry Smitherman's departure had nothing do with this," Huge said. "We would have probably gone through this interview process no matter what, just based on the growth in the program."
Though Smitherman had worked with the bond bank on the warrant program, Huge said they worked more closely with the bank's Columbus office.
