Is your Money Safe? Part One: Earthquake Proof your Deposits
Last week, I posted a Blog that examined a report titled “Who is Next?” written by seasoned Ladenburg Thalmann Banking Analyst Richard Bove. In his report, not to be confused with a classic rock album of a similar name, Bove identified several financial institutions that he considers to be in the “danger zone,” or seriously at risk of failure.
Making a List … Checking it Twice
In light of breaking developments and in the spirit of freedom of speech, I’ll repeat which Institutions made the cut on Bove’s now-infamous list: Downey Financial, Corus Bankshares, Doral Financial, FirstFed Financial, Oriental Financial and BankUnited Financial. Bove even adds Washington Mutual to the mix when he divides non-performing assets by reserves and adds common equity.
Now, he’s being sued. And I wish I could find a stable link to the report so you could view it in its entirety online. I had two such links, but it seems that they’re no longer active. Is this a coincidence? What do you think?
Goliath’s Legal Team Takes on the Numbers Cruncher
Bloomberg reports that BankAtlantic, a unit of BFC Financial Corp., has filed a lawsuit against Ladenburg Thalmann that alleges defamation and negligence in connection with Bove’s report. When the complaint was filed in Florida state court, Fort Lauderdale-based BankAtlantic prices spiked as much as 31 percent. Not a bad rebound considering that their prices plunged 25 percent last Monday when news of Bove’s report hit the wires.
Perhaps BankAtlantic’s complaint would be better vented in appointment with Dr. Phil. This suit comes on the heels of an April North Carolina appeals court ruling that found analysts couldn’t be sued for expressing opinions. As the TV shrink likely would say: “Ahhh, BankAtlantic, how does that make you feel? Is this working for you?” (Does anyone out there know if Dr. Phil actually has any medical training?)
But seriously, this is bad news for consumers. Think about it: For better or for worse, without the analysts, what resources do we have on which to base our banking decisions? Astrology? IChing? Craps? Could it possibly be it be any less accurate that the cryptic Magic Eight Ball answers we’re we’re getting from our financial system’s leaders?
SEC Takes an Aggressive-Passive Approach to Short Sales Regulation
Last week, it was widely reported that U.S. securities regulators issued an emergency rule to restrict the increasingly popular practice of short selling among 19 major financial institutions including:
- Fannie Mae,
- Freddie Mac,
- Lehman Brothers,
- Goldman Sachs,
- Merrill Lynch,
- Morgan Stanley,
- JPMorgan Chase and
- Citigroup.
Promptly upon the release of Bove’s viral report, Wall Street cried like a teething baby and the rule stuck. For a few days.
Short Sales OK Sans Nudity
In this context, short selling is a legal practice that allows investors to borrow shares they may consider to have an inflated price so that they can profit when the price drops. A naked short sale however, is when an investor sells stock before it has even been borrowed. Such practices, the SEC says, can endanger the markets. WIth these types of short sales, companies can loose control over their shares.. At that point, they’re at the mercy of anyone who has the mustard to exploit their vulnerability.
According to Reuters, the emergency rule is a strategy to tackle short-sale based market manipulation, which analysts, companies and lawmakers have blamed for free-falling financial stock prices.
A few days following the announcement of the emergency rule, the Securities and Exchange Commission (SEC) gave in to Wall Street’s sobbing and assured that a strong dose of relief would be delivered to help, as Reuters puts it, “maintain order and liquidity in the markets.” In other words, market makers affected by the emergency rule would not be required to pre-borrow shares before shorting the stocks. That effort however, went far to appease Wall Street and the markets. Now if there were only something that could be done to stabilize oil and gas prices.
Next Post: Are Your Deposits Earthquake Proof?
Combine stories like this with images of traffic stalled around IndyMac branches last week with motorists gawking at the at the long lines of desperate folks trying to salvage their deposits is enough to cause worry — even among decaf drinkers. This is a great time to take stock of what protections your deposits may (or may not) have in today’s “shaky” banking landscape. In my next post, you’ll get the scoop — from a Californian’s earthquake-proof perspective. Please stay tuned. You won’t want to miss it.
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