Texas had already banned various big Wall Street banks from its municipal bond market for espousing policies deemed unfriendly to private gun ownership. Now Texas is expanding the program, banning entities from investing if they are in any way involved in environmental policies deemed unfriendly to the state’s oil and gas industry.
Banks like Morgan Stanley and Wells Fargo & Co. are finding out they have been banned from transactions because of uncertainty regarding Texas Comptroller Glenn Hegar’s implementation of the new law, which is meant to combat the advance of liberal environmental, social and governance standards.
Derrick Mitchell, head of Holland & Knight’s public finance team in Texas said, “The issuer is not sure who they’re going to be able to do business with from start to finish.”
The Republican comptroller sent out over 150 letters in March and April, to financial institutions, requesting information on their fossil fuel policies. Now issuers have become cautious when dealing with banks that received letters out of fear the letters were presaging further restrictions that would derail agreements.
Richardson Independent School District, eliminated Wells Fargo as senior manager on a $192 million bond sale earlier this month. They replaced the company with Piper Sandler & Co., said David Pate, the district’s chief financial officer. The District feared there would be a problem with the deal closing if Wells Fargo remained as the lead manager. “I didn’t want to take that risk. The laws have created more challenges for me as an issuer and I’m asking questions that I haven’t had to ask in the past.”
Similarly, a Texas government agency removed Morgan Stanley and two other banks from a bond deal amid uncertainty over the law.
The new law, Senate Bill 13, comes amid increased targeting by conservatives of Wall Street policies deemed intrusive or threatening to industries such a firearms, gas, and oil.
The new law mimics legislation passed last year that restricts governments from dealing with companies that “discriminate” against the gun industry.
The Comptroller began their inquiry in March, with a second round of clarification letters on April 11.
Final responses are due back by June 10 and the comptroller will make decisions on what firms it considers to be problematic.
