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Shares plunge 25%

You probably haven’t heard of Bank OZK. It was formerly called Bank of the Ozarks but it’s best known as a major US commercial real estate lender, growing dramatically in the past 20 years.

Today, there’s been a reckoning with shares down 25% to the lowest since 2013.

This is a brazen lending company that was taking on loans that others wouldn’t, amassing a huge portfolio and — for a time — huge profits.

The longer term charts tells the story:

Shorts, including Muddy Waters, have recently targeted the company, saying it was lending beyond its means. Today that bet is paying off.

You have to wonder how bad it can get. Bloomberg did a profile on the company and its chief executive George Gleason back in July. It’s a cringe-worthy example of a lack of hubris including lines like:

“It’s almost impossible for it to end badly.”

The company missed badly on profits at 65-cents compared to 91-cents expected and took a $45.5 million charge off. That was related to loans made in 2008 but they were secured by a mall who is losing or fears losing anchor tenants JC Penny and Sears.

Without getting into the details, it could be nothing or it could be the start of the pain in the commercial real estate sector that Boston Fed President Eric Rosengren has been warning about for more than two years.

“While I do not expect that a downturn in commercial real estate prices
would by itself cause a significant problem for the economy, in some
past recessions such an occurrence has propagated an initial adverse
shock – and by constraining financial intermediaries, made the extent of
the subsequent economic downturn more severe for a wide range of
households and businesses that depend on intermediaries for credit,”
Rosengren said last year, echoing themes he has stressed in prior analysis.

“We’re starting to see a pretty ebullient commercial real estate market,”
he continued. “There are leveraged institutions that provide a lot of that
lending.”

               



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