After the collapse of IndyMac (IMB), everyone naturally wanted to know which bank was next. Outspoken Ladenburg analyst Dick Bove crunched some numbers and determined that BankAtlantic (BBX) might be next (among others). His opinion knocked BBX down by 25%.
And now BankAtlantic is striking back. It is suing Bove for defamation and negligence after a report he wrote entired “Who’s Next?” speculated that BankAtlantic, among others, might be the next bank to fail after IndyMac.
Companies love to trash analysts who trash them. Complaining about analysts, moreover, is also often a promising sign that a company is headed for the gutter. In this case, however, it sounds as though Bove may have made some methodological errors. We’ve asked for comment and look forward to his response.
Alan B. Levan, BankAtlantic’s chairman, issued the following statement:
In the wake of the highly publicized failure of IndyMac, breathless television reporters filled the airwaves with the repeated question on the minds of an anxious public: “who is next?”
Of course, if there is anyone who knows “who is next,” it would be the folks at the FDIC with mountains of detailed financial information about every institution enjoying deposit insurance. They, however, keep what they know to themselves – for good reason. Thus, without an official answer based on real information, some members of the media, anxious to fill the gap of knowledge caused by the FDIC’s silence turned to what seemed to be the next best thing: a supposed expert who said he knew the answer and was willing to share it with an anxious national audience – Richard X. Bove and Ladenburg, his employer.
The problem is that, while Bove’s report purports to consider which banks might fail, he failed to examine the health of the banks and thrifts in his report. Instead, he only examined holding company data which, in at least our case, is meaningless information. This is simply shocking.
Although we do not know how many errors appear in the Bove “analysis,” we do know about BankAtlantic. Had Mr. Bove examined the financial condition of BankAtlantic, the FDIC insured institution, he would have discovered the following:
(i) in every measurable category, BankAtlantic is “well capitalised;”
(ii) BankAtlantic’s ratio of non-performing loans to total loans is, in this market, an enviable 1.25%;
(iii) BankAtlantic’s ratio of non-performing loans to its capital and reserves is 12.5%; and,
(iv) Bove’s “Danger Zone” was above 5% of non-performing loans to total loans and above 40% of non-performing loans to total common equity plus reserves. BankAtlantic’s numbers are not even close. (While this information was as of March 31, 2008, the information as of June 30, 2008, will not be significantly different.)
These are not opinions. They are facts. And these are just some of the many measurable criteria that any knowledgeable person acting in good faith would use to determine where BankAtlantic should sit on the fear index – the answer is, of course, nowhere. Based on these facts – indeed, undisputed facts – no one would ever conclude that BankAtlantic belongs to any list of “next.”
Notwithstanding these undisputed facts, on July 13, 2008, Richard X. Bove and Ladenburg published a report with a title that turned the question on the minds of many into an answer: “Who Is Next.” In it, Bove and Ladenburg identified two “methodologies” that, according to them, could be used to determine whether a “bank or thrift” was in or near what they called “the danger zone.” He then took data provided by a research firm on bank and thrift holding companies, asserted and implied that holding company data represented the financial condition of insured subsidiaries, and undertook to specifically identify “institutions” that, according to him, were in or near the “danger zone.”
In the case of BankAtlantic, the financial statements of its two holding companies do not mirror the banking subsidiary, even if such a methodology made sense. BankAtlantic’s two holding Companies, BankAtlantic Bancorp and BFC Financial Corporation contain other assets and business lines which make the comparison nonsensical. Simply by way of example of the gross errors in this “analysis,” Bove compared the non-performing loans of BankAtlantic with the capital of BFC Financial Corporation, a public company that owns 23% of BankAtlantic Bancorp that in turn owns BankAtlantic and other business lines. The so-called analysis itself was totally false and the impression it created foreseeable.
The problem we face is that the indisputable facts are now buried in the sensational headlines Bove and Ladenburg have falsely created – and, for whatever reason, have refused to retract. Literally dozens of other analysts and commentators have picked up on the Bove “analysis,” assumed its legitimacy, and passed it on to a growing audience on the Internet. Soon, the falsehood will be presumed true and the truth false, leading us to regretfully conclude that the only way BankAtlantic can clear its name from this irresponsible defamation – and that is what it is – is in the courthouse.
While we work through this process, we also want everyone to know that, before publishing or republishing the Bove Report, or providing him an audience to repeat it, one should do what the Bove Report did not do – look at the publicly available financial information which makes clear that BankAtlantic is financially strong and well positioned to serve its customers and the community.
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