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‘Trouble In Arkansas’: This Cycle’s Countrywide Financial Just Imploded

Bank of the Ozarks headquarters in Little Rock, Arkansas. PHOTO: Bloomberg/Bank of the Ozarks

By Harris Kupperman | 23 October 2018

ADVENTURES IN CAPITALISM — During every credit cycle, there is one national lender that all other lenders try to emulate. This is because a combination of rapid asset growth and elevated net interest margins leads to rapid earnings growth and share price appreciation. Unfortunately, in order to do that, you have to make a lot of risky loans and pretend they’re totally safe. Remember Countrywide Financial? They were the ones who’d lend to you no matter what; no income, no job, no assets — you’re approved!!! Anything to show growth. Everyone in the financial industry emulated them because they were growing so fast. Besides, when you have a fixed cost structure, you cannot exactly stand still and let others steal your market share. That brings me to what may be this cycle’s Countrywide Financial, Bank OZK (OZK – USA), formerly known as Bank of the Ozarks.

It was a bit of a head scratcher when I first heard of these guys a few years back; why were a bunch of guys in Little Rock, Arkansas so focused on funding risky Miami condo developments? Aren’t there plenty of local banks who are perfectly willing to lose globs of money at this game?

I reached out to a friend in hard money lending for a perspective, “I wouldn’t touch the crap they’re lending on at twice the interest rate.” Interesting …

I filed this all away in my head and forgot about Bank OZK until my hard money lending friend sent me this article in July. “Aggressive” and “innovative” lenders always blow up — especially when rates increase. If I shorted stocks, this would be at the top of my list. […]

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