Should Bank Analysts Hire Headline Writers?
July 24, 2008
This week’s news that BankAtlantic Bancorp filed suit against Ladenburg Thalmann banking analyst Richard Bove, accusing him of defamation and negligence over a recently published research report, makes me uneasy.
Sure banks are feeling a bit sensitive right now, understandably. And little doubt exists that public chatter—whether in the form of media reports, research analysis or gossip on the trading floor—can send shares tumbling.
But that doesn’t mean companies should be allowed to silence that chatter as they see fit. In the case of public figures, which one could argue a public company is, the law differentiates between words of malice and words of good faith. An analyst’s report is only his or her opinion. And as long as analysts do their homework and present their opinions in good faith, they’ve done their job.
In Bove’s case, the problem doesn’t seem to stem from what he actually said in his report about BankAtlantic, but from a poorly written headline. The July 13 report was titled “Who Is Next?” and dated two days after federal regulators seized IndyMac Bancorp. It considered the possibility of further troubles for financial institutions based on various metrics, including nonperforming assets to total outstanding loans, and nonperforming assets to capital.
Alan Levan, BankAtlantic’s chairman, said in a statement following the report that in light of the bank’s capital levels and ratios, “no one would ever conclude” that it belongs to any list of lenders that might be next to fail.
OK, but Bove didn’t say that. What he said was that when he used one of his two approaches for identifying troubled banks, one of BankAtlantic’s two holding companies, BFC Financial Corp., was above his “danger zone” threshold.
“The problem we face,” BankAtlantic said in the release, “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.”
And there you have it.
On the day of publication, Bove issued a clarification for the report, which he said some had “misinterpreted,” believing the report suggested significant problems exist in the financial system. Instead, he said, the main thrust of the report is that “banks are in better condition than is generally perceived.”
So why then use the headline “Who Is Next?” Most who follow the banking sector would have little doubt that a respected analyst like Bove had done his homework and presented his opinion in good faith. So it seems to me that maybe he simply needs a headline writer.
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