Shrewd Bank Analyst Sued by Interesting Florida "Group"

22 October 2010. Examples such as these effortlessly draw one to the conclusion that banks are often run very little more than a series of banana republics, as well as together, the banking elites really are a force whose power may put your run of the mill Caudillos to shame. Like several strongmen, bank chairmen are equally thin-skinned, combative and able to eliminate whomever they believe intends their reputation or their notions of “honour”. And with those institutions called courts, that needs Death Squads?

Take what happened to Richard X Bove, a bank analyst who likes to take what he calls “extreme positions.” He occasionally moves the stock market, which has earned him a certain amount of prestige as well as notoriety — but has also gotten him fired several times.

One current Tuesday morning, for instance, Mr. Bove opined from his bright-orange home office, within this town just north associated with Tampa, Florida, that new government rules would curb mortgage profits and, therefore, financial institution profits, too.

It wasn’t an especially extreme pronouncement, by Bove standards. Yet shares of Wells Fargo, the actual nation’s largest mortgage lender, started to drop, and his phone lit up.

“That’s what makes the sport fun, right?” he says.

But for the last two years, Mr. Bove has been involved in a lonely legal battle to retain his ability to say whatever he likes, an ordeal that he says has been anything but fun. BankAtlantic, a Florida bank, sued him, blaming him of defamation after he wrote a report concerning the banking industry in This summer 2008, just as the financial crisis was starting to boil over. The financial institution contended that the report wrongly suggested that the institution was at trouble.

The case was resolved three months ago , and Mister. Bove didn’t pay a dime to BankAtlantic. Still, it was hardly a definite victory for Mr. Bove or even, for that matter, freedom of talk on Wall Street, where some say the need for independent, probing voices has never been much more apparent.

Although Mr. Bove is among the best-known experts on Wall Street, the majority of his colleagues deserted him or her after BankAtlantic filed its match. None of the professional associations which represent analysts or the securities industry rallied to his aspect, and his employer ultimately abandoned him. And Mr. Bove, 69, is stuck with nearly $800,Thousand in legal fees.

“Even though from the legal standing I won, from a real-world point of view I misplaced big,” he says.

The Bove report that resulted in the lawsuit, titled “Who’s Next?,” ranked 107 bank businesses from riskiest to least risky, using two financial percentages as benchmarks on 2 lists. BankAtlantic Bancorp, the publicly traded keeping company that controls BankAtlantic, was ranked 10th on one checklist, 12th on the other.

Alan B. Levan, the chairman and C.E.O. of BankAtlantic Bancorp, has frequently clashed with disgruntled investors and critics in his 40-year career within Florida real estate and financial. He says he filed his suit against Mr. Bove to protect his bank’s reputation.

“In the last three years, every business in America continues to be under extreme pressure because of the economy,” says Mr. Levan, Sixty five. “In that kind of a scenario, whenever rumors begin that are incorrect or portray a business in a light that is not true, after that, in times of stress, companies have to correct those misconceptions instantly because otherwise it can turn out to be quite dangerous.”

As it turns out, however, Mr. Bove’s rankings possess proved to be largely correct. Around the first set of rankings, Eight out of the 20 companies he explained were most at risk have failed, and most of the others’ stock prices possess spiraled downward and remain low. Around the second list of rankings, Nine of the top 20 banks are gone.

BankAtlantic Bancorp’s stock deals at just under $1, down from its record high of $100 at the end of 04. The company continues to struggle underneath the weight of its huge Florida real estate holdings, and some analysts say tighter banking regulations will only add to financial stress at the company.

While it is not uncommon for bank executives in order to grumble about analysts, it’utes highly unusual for them to sue. To begin with, many lawyers believe that it is hard to successfully sue someone more than his or her opinions. It’s also a challenge to prove that the report from a single analyst really hurt a company’s business.

But the BankAtlantic suit, closely watched in the banking industry, seemed to catch the angst that many bank leaders felt in 2008, when even some of the most venerable establishments faced the precipice.

Mr. Levan was not the only real bank executive to blame other people as his company’s inventory tanked. A chorus of banking chiefs at the likes of Lehman Brothers and Morgan Stanley publicly blamed skeptics and investors betting towards them as the reason their own shares fell.

Few banking executives, however, have pushed their own complaints as far as Mr. Levan.

IF Mr. Levan is sensitive about his bank, it may be because he constructed it from a sleepy cost savings and loan into Florida’s second-largest bank, behind BankUnited. He controls the bank and the holding company along with a small group of associates, including his son, Jarett Levan, who had been named chief executive of the bank in 2007.

The ownership structure is complex: Alan Levan and the associates control a company known as BFC Financial, which owns gives in BankAtlantic Bancorp, the company that, in turn, owns BankAtlantic. Mr. Levan and his affiliates control BFC and BankAtlantic through unique classes of voting shares.

“All of us don’t like different courses of shares,” says Paul Hodgson, senior research associate at the Corporate Library, which screens corporate governance practices. “All of us don’t think they are great for public shareholders, and our reasoning behind that is which it’s too easy for the controlling shareholder to run the company for their financial benefit rather than the benefit of public shareholders.”

Mr. Levan states that he doesn’t agree with this kind of criticisms. His company’s stock structure has allowed him to remain impartial while many other Florida banking institutions have been absorbed by out-of-state banking institutions or gone out of business. He notes that the stock structure is similar to that of The New York Times Company.

Mr. Levan moved to Florida after a brief stint upon Wall Street and started within the real estate business. In the mid-1980s, he entered banking by buying upward shares of BankAtlantic, then the Ocean Federal Savings and Mortgage Bank. By 1987, he or she was running the place.

As D.E.O., Mr. Levan oversaw 20 years of expansion. He renamed BankAtlantic as “Florida’s most convenient bank,” keeping branches open upon weekends. The bank’s strong branch network is one of the company’s best assets, analysts state, providing it with a steady source of funding.

Along the way, Mr. Levan has often gone to excellent lengths to protect his bank’utes fortunes and his own reputation.

In the 1980s, for example, after several quarters of losses, BankAtlantic was in such dire straits that Mr. Levan had to scramble financially to keep it afloat, according to court documents.

Mr. Levan, who was running partnerships that invested in Florida property, persuaded thousands of small investors in his deals to swap their stakes for financial debt in BFC. He then turned around and sold that real estate, giving him money to bolster BankAtlantic’s finances, court records show.

Some of the investors later prosecuted Mr. Levan, arguing that they had already been cheated. A judge in a associated case supported that view, writing that the transactions had been a deal that “a person actually mildly familiar with investments might conclude was unfair.”

ABC News broadcast a critical report on Mister. Levan’s real estate deals, and he sued the network, blaming it of slander. ABC ultimately won, after the Supreme Court rejected to hear the case.

More recently, because BankAtlantic’s loan portfolio was battered in the recession, Mr. Levan took several steps in order to shore up the bank’s financial situation and to appease regulators, such as an announcement this month that the bank was seeking to increase $125 million in capital.

He has additionally shifted troubled assets through BankAtlantic to its holding company. Because regulators don’t require the holding company to be as monetarily sound as BankAtlantic, the move around appeased regulators while transferring the burden to the holding organization.

In 2008, Mr. Levan sold $101.5 million of distressed industrial loans from the bank to the holding company for 93.5 cents on the buck. Since then, the loans have forfeit half their value, but the transfer prevented that recession from more seriously undermining BankAtlantic.

Legislators as well as regulators, as part of the recent monetary overhaul, are planning new regulations that would require holding businesses, as well as their subsidiaries, to be more financially sound.

As his career ascended, Mr. Levan was in the news over a individual matter. In 1988, three gun-toting thieves broke into his Coral Gables home, kidnapped his first wife and their daughter and demanded nearly a quarter of the million dollars in ransom. Mister. Levan paid the kidnappers, and his family was later found unscathed in the trunk of their Mercedes-Benz, based on the Miami Herald.

A former colleague at BankAtlantic says that while Mr. Levan includes a friendly, slow-talking demeanor, he is quick to size up situations and try to ready to jump into combat. He doesn’t respond nicely to criticism and has a tendency to continue battles for too long, states this person, who requested anonymity because he didn’t want to push away Mr. Levan.

Mr. Levan disputes that declaration. “If anything has become clear through recent events, it is we have encouraged and tolerated dissenting sights almost to a fault,” he says. “We survived the last banking crisis, when giants failed, by being flexible in our approach to complex issues and in front of the curve.”

Mr Bove, who grew up within New York City, is a bit of an anomaly among bank analysts. He is two times as old as many of his competitors and relishes talking to the news media. He has been covering banking for about three decades, even as many of his contemporaries have moved on to professions in money management and other more profitable work.

Even in the midst of the BankAtlantic lawsuit, Mr. Bove continued to create at least one report a day and sometimes as many as five. He says he tries to capture the big picture rather than focus on the granular financial details found in earnings statements.

“What’utes the reason to pay me to become the 14th guy to tell you what is going to happen in the second 1 / 4 at Citigroup?” he says. “There’s simply no utility for a man at a boutique that operates pretty much on his own to replicate the work of other analysts.”

A higher point in Mr. Bove’s profession came in 2005. That August, he issued an eight-page statement titled “This Powder Keg Is Going to Blow.” He argued which loose lending standards experienced created the housing bubble which was going to come to an abrupt or painful end. After correctly parsing the looming banking crisis, Mister. Bove felt that by the spring of 2008, the worst had passed. He made a major blunder by encouraging investors to buy up bank shares at the time and remained bullish through the summer.

Even as he offers bounced from one firm to another, he has maintained a healthy list of clients. Banks and mutual funds are his biggest customers, followed by hedge funds, he says.

Some bank executives who have known Mr. Bove over the years hold him in high regard.

“We certainly haven’t always decided with his assessments,” says Steve A. Allison IV, the former chief executive of BB&T, the major regional bank based in Winston-Salem, N.D. “My experience was that he gave a very thoughtful overview. I would rate him highly.”

Mr. Bove has his share associated with detractors, too, who condemn him for ubiquitous press appearances and a predilection for changing his views too quickly. Several suggest that Mr. Bove is inconsistent, making a brilliant insight one week, a mediocre one the next.

But Andy Kessler, a former Wall Street analyst, states it’s common for analysts to change their style to cater to their clients. “If your customers are mostly hedge funds, you’lso are going to give lots of short-term evaluation,” he says.

THE oddity of the BankAtlantic lawsuit, Mr. Bove says, is that he was actually trying to show that he had been more bullish on banks than other analysts, that turned out to be a mistake, given the financial crisis that followed. The subtitle of “Who Is Next?,” in fact, is “Less Many Candidates as One Would Think.”

After the report had been filed, it took simply eight days for BankAtlantic to file for its lawsuit. Mr. Levan said in a statement at the time: “If there is anyone who knows ‘Who Is Next?,’ it would be the folks at the F.D.I.C., with mountains of detailed monetary information about every institution enjoying deposit insurance. They, however, keep what they know to themselves — for good reason.”

The bank wanted Mister. Bove to correct his report, which in fact had ranked the holding organization, not BankAtlantic itself. Mr. Levan proposes that the media misinterpreted the report and reported the bank, rather than the holding company, was in trouble. The distinction is essential, he said, because the bank has always been well capitalized. Those capital levels kept regulators happy, even as some analysts questioned the health of the holding company.

To a particular extent, Mr. Levan is simply splitting hairs: it’s the keeping company that is publicly traded, and it is assets are almost completely made up of BankAtlantic assets, so the prospects of the two entities are firmly linked.

Mr. Bove said that if he hadn’t fought the suit, he and other analysts would find their work and careers undermined by constant flurries of suits.

“I’m trying to protect my ability to do my job,” he says. “Any company could direct my research basically had allowed this to go through.”

Still, apart from a few pundits, no one stepped forward to help him, Mister. Bove says. Mr. Bove’s former employer, the investment bank Ladenburg Thalmann, made a decision to settle its end of the case by paying BankAtlantic $350,000, with out admitting to any wrongdoing, and departing Mr. Bove to defend himself; he explained he quit the company in February because of arguments over the lawsuit. He now works for Rochdale Securities.

The Financial Industry Regulating Authority, an independent securities watchdog, started an investigation of Mister. Bove in 2008, demanding their records on BankAtlantic and questioning him for half a day. He was never penalized.

Ladenburg declined comment, as did the expert, which also declined to say the reason why it began its analysis of him.

John C. Espresso Jr., a law professor at Columbia University, likens Mr. Bove to a news reporter who is prosecuted over an article. But, he states, the press typically rallies around reporters whose First Amendment rights are challenged, while investments analysts are a much less cohesive group.

Nonetheless, Mr. Coffee states the stakes in the Bove situation were high because a negative outcome could “chill free and robust debate.”

“Anyone who needs to settle in a case like that increases the chances that a combative C.E.O. will prosecute the next analyst who problems him,” Mr. Coffee provides.

As part of his lawsuit towards Mr. Bove, Mr. Levan maintained which BankAtlantic was financially healthy. While it’s true that BankAtlantic has met its regulator’s financial requirements, the actual holding company, which has absorbed a large chunk of BankAtlantic’s stressed assets, has lost cash for the last 12 quarters. Also it was the holding company that Mr. Bove was position, not the bank subsidiary housed inside of it.

Although Mr. Levan said in an interview that their bank didn’t apply for government bailout money during the financial crisis, the bank’s own financial filings show that it did apply. Inquired about this, Mr. Levan sent an e-mail clarifying the matter: “We filed an application to keep our options open but withdrew it prior to the time it was acted upon. At no time did we ever make a determination to accept federal monies.”

In Feb this year, Mr. Levan approached some of BankAtlantic’s debt holders as well as asked them to sell their own securities back to the bank for 25 cents on the dollar. Investors balked, led by a New York hedge fund called Hildene Capital Administration. Instead of asking the debt holders to accept a discount, Mr. Scannell states he suggested that Mr. Levan and his son take large pay cuts. Mr. Levan states he doesn’t recall details of his conversations with Hildene, however says the firm didn’t influence his decision in order to ultimately give up on the debt trade offer.

Last month, a government judge in a shareholder lawsuit against BankAtlantic’s holding organization questioned Mr. Levan’s ethics, ruling that Mr. Levan had made false statements in 2007 about the extent of bad loans. The litigants argue that Mr. Levan did so intentionally in order to artificially bolster the stock price.

Mr. Levan denies that accusation and doesn’t agree with the judge’s assessment, either, but on Thursday the actual judge turned down Mr. Levan’utes request to reconsider the matter. The case is pending.

Mr. Levan, meanwhile, is dueling with investors of other companies in which his organization owns stakes — Benihana, the restaurant chain, and Woodbridge Holdings, formerly known as the Levitt Corporation, the home contractor famous for building Levittown on Long Island.

BankAtlantic entered into settlement talks along with Mr. Bove in his case within March. In the case, Mr. Levan said Mr. Bove’s report experienced damaged the bank’s status.

But “at the end of the day, that may not have been a strong case for them,” says Thomas F. Holt Jr., a lawyer for Mr. Bove. If the situation had gone to court, Mr. Holt stated, he planned to counter-top BankAtlantic’s argument by placing the bank’s reputation upon trial.

Mr. Levan disagrees with that evaluation. “There was nothing Mr. Holt stated he was going to say or even do that had any bearing on our view of the case against Mr. Bove,” he says.

Mr. Levan says he or she and BankAtlantic got exactly what they wanted out of the lawsuit against Mr. Bove. As part of the settlement, Mister. Bove issued a statement reiterating which his rankings didn’t include BankAtlantic. (But they did include it’s holding company.)

Yet Mr. Levan may not have won everything he searched for. For one, he said the bank didn’t sue Mr. Bove for money; nevertheless, e-mails from BankAtlantic’s lawyer reveal that the company sought as much as $650,Thousand from the analyst. In addition, BankAtlantic had sought a much more strongly worded statement than Mr. Bove ultimately issued, the e-mails show.

Regardless, Mister. Levan remains upbeat about their bank. He and his son rang the bell at the New York Stock Exchange last month, and Mr. Levan suggests that his company is “a fantastic banking story of a financial institution that really did extremely well in this recession.”

Mr. Bove, meanwhile, says their feud with Mr. Levan was mainly dispiriting. He’s particularly frustrated along with government regulators, whom he or she believes ignored red flags from BankAtlantic for years.

As he continues to turn out opinions about bank stocks, Mr. Bove says he has no intention of opining on BankAtlantic Bancorp again. Nothing personal, he says, but the financial company is simply too small to interest his clients.

“It’s the purely economic decision,” he states.

Hee En Ming

Guest Editor

EconomyWatch.com