BankAtlantic Bancorp is suing Richard Bove, a respected bank analyst, for
for defamation and negligence stemming from a widely distributed and frequently republished report by Bove and Ladenburg
Bove printed a list of possible bank failures, entitled “Who’s Next.”
What followed was a list of 107 banks, ranked according to two measures of their financial strength. The share prices of some of the banks promptly collapsed.
But No. 10 on the first list, BankAtlantic Bancorp of Fort Lauderdale, fired back. The bank said Mr. Bove’s numbers were wrong — and sued him and his employer, a small brokerage firm called Ladenburg Thalmann, for defamation. Mr. Bove would not comment on the suit. A lawyer for BankAtlantic said the bank planned to ask the judge to expedite the case.
According to the NYT, the crux of the matter is that BankAtlantic claims that
Mr. Bove based his analysis on incorrect figures — he should have used the capital of the bank’s holding company, rather than of the bank itself, BankAtlantic said — Mr. Bove sent a note to clients explaining BankAtlantic’s view. BankAtlantic is not among the 27 companies that Mr. Bove regularly covers.
The first response of outsiders to the banking industry may be: “Hey, BankAtlantic is right. Bove’s list may well create a false run its bank.” My wife’s response was just that.
But before, you jump to that conclusion, consider the following:
- Ladenburg Thalman Ladenburg Thalman and Richard Bove are highly respected in the industry.
- How Bove arrived at his numbers and what interpretation he gave them. (In effect, he calculated what banks were above, in, or below the danger zone. As far as I can tell, he did not say if particular bank would fail.)
Unfortunately, I do not have access to the actual Bove report. Nonetheless, BankAtlantic’s suit raises interesting questions.
First, there is the question of potentially creating a false run on a bank.
Second, and on the other hand, there is the question of industry transparency. That banks may have packaged and sold toxic products does not exactly create an air of trust.
Third is the relationship between this holding company and the bank in question. Will the holding company dump its child if it becomes unprofitable?
Fourth, and perhaps most interesting, is: Can an analyst safely forward his own analysis and not risk the threat of lawsuit? In short, can banks muzzle honest and fair analyses?
Jane Wells quotes Bove as saying:
“All of the actions are to deepen the trend. It really is beyond inexcusable for top policymakers to argue that large financial institutions should be allowed to fail. It is, of course, just as inexcusable to look the other way while excesses are driven through the system.”
And, from 24/7 Wall St.
Frankly, this is shocking that a bank would sue a brokerage firm and such a respected analyst on Wall Street over their analysis. Everyone conducts their own analysis and has their own methodology. If Bove would have reported the firm IS going under or IS imploding or if he attempted to cause a scare with no data to point to then we’d understand, but the fact that BankAtlantic is going after a right to an opinion or a right to openly present data is one which very few large firms ever attempt.