Carson Block just announced a massive new short and the stock is tanking

Carson Block of the Muddy Waters Research just announced a huge new short at the Sohn Conference.

Block said that he is short Bank of the Ozarks due to its exploding construction loan business.

Block said that he does not believe in Santa Claus, 7% GDP growth in China, and the Bank of the Ozarks business model.

The biggest issue for Block is the unfunded off-balance sheet loans.

Essentially, Block is of the opinion that the bank is lending out more money than they can support in off balance sheet construction.

The bank goes out to builders offers them loans for the future, which secures funding for the builder and also allows the bank to deploy capital it has through deposits.

“This is pretty easy, why don’t we go out. That’s easy we’ll go out and acquire banks, sell off the assets, and then we can use the deposits,” said Block. This works well when you’re a growth stock, but when it slows down then you have a problem.

This is the latest of Block’s shorts which include his recent target German media company Ströer and most famously Chinese firm Sino Forest in 2011.

More to come…

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