essays pieces of the puzzle
Friday, January 27th, 2012
bad marks

A few days ago, the SEC charged Alan Levan, the head of BankAtlantic Bancorp (BBX), with misleading investors as things were coming unwound in 2007.

It will be interesting to see how this comes out.  There are a lot of levers for the CEO of a financial firm to pull to make the numbers, which makes analyzing them difficult.  (If you’ll recall, I think that how investment firms approach the financials now is one tremendous tell.)  Most people think that there were a lot of funny “marks” on the books during the crisis that weren’t properly investigated; we’ll see if this is the start of a trend.

BBX had sued Dick Bove for defamation for suggesting in 2008 that the bank was troubled.  No matter what you think of Bove, most management complaints about analysts turn out to be nonsense.  (And, as the Grumpy Old Accountants have noted, more subtle forms of analyst coercion and retaliation continue to be an issue.)

You can see above how the stock exploded in 2003 as the Florida real estate market went into hyperdrive.  But look at the valuations.  (The series are truncated at the points at which they became meaningless.)

Growth financials sometimes get bid up to silly numbers like this.  While they never last, how quickly they fall away depends on what got them there.  A solid acquisition strategy can keep things going quite a while, but aggressive lending can come crashing down in a hurry.

Keep this picture handy for the next time around.  (Chart:  Bloomberg terminal.)