I know there was some talk re: the state of construction lending and BOZK in particular on this form a little while ago. So, I thought I'd share this new Bloomberg article for those who haven't seen it yet.
Some disturbing factoids:
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Q3 earnings down 23%
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Changed their name to "OZK" officially in July as an effort to rebrand from its repuation as a risky lender...
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Said rebranding cost the company $11 billion
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Their credit losses rose 439 percent to nearly $42 billion due to two bad loans going bad (they were on their balance sheet for over a decade).
Would love to hear some peoples' thoughts on this and how much speculation is warranted on this for the greener people like myself.
The name change to OZK to present themselves as non risky lender is pure speculation. According to insiders at the bank, the name change has to do more with the fact they are no longer a Arkansas based community bank but a bank with a nationwide lending business, so they wanted the name to be sorta geographically ambigious. Personally, I would not fret about the legacy loan losses, when people give them shit, its about their construction lending from 2010-2017 and I am yet to see evidence that any of their loans during that period were bad loans. And while they might do a ton of volume, their median loan to cost is ridiculously low , something like 45-50%. Developers have a ton of skin in the game for their loans and I think they are well protected. So their severity of loss in case of default is not terrible. Going forward, their lending IQ will be further tested during a downtown and only time will tell how they will perform but the crap they get for their 2010-2017 loans are just silly because every bank is now looking back and saying that they should done the loans during 2010-2017 that they didnt do.
Not the show with Jason Bateman?
they may pull back a bit now but i dont see them being in trouble in the near future.
Bloomberg ran a really interesting feature on Ozarks back in July. When I was in office these guys were the only ones who were willing to lend on spec on a lot of projects. They were just way ballsier than anybody else out there in terms of risk profile. I don't think any of the projects I saw them on were inherently risky (spec office with minimal pre-leasing, but in a core market/good location with good public transit proximity), but I wouldn't be surprised if they were to get burned on a few deals.
And in addition, their median loan to cost is something like 45-50%, it's ridiculously low.
Corus bank part two electric boogaloo
Wait. Were their credit losses $42 billion or million?
What an absolute hatchet job of an article. They had two big impairments in 3Q for a regional mall loan and a multi-phase residential loan they made 10 years ago, and all of the sudden that means that their 50% - 60% LTC condo / MF / Office portfolio is showing signs of weakness?The next thing Bloomberg should do is publish an article about how Wells / JP / BofA took massive loan losses on 90% LTC construction loans in 2010 - 2012 from 2005 - 2008 originations and that means their loan book is going bad. Plain shit journalism.
And for the record I don't work for OZK nor borrow from them.
What they should have said is that it’s normal for a bank like ozk to take little to no losses until all of a sudden they are bk.
That is what happens when you do non recourse high total ltv condo lending with 500 million hold sizes.
My point is that the title / first paragraph is extremely misleading perma-bear clickbait. What you said above is true, but inserting it into the article Bloomberg published wouldn't make any sense.
They said that recent results may spell trouble for OZK and the broader lending community. That is demonstrably untrue.
If they wanted to publish an article about how OZK's loan book is full of risky (albeit reasonable LTC) construction loans, fine. More power to them. I would agree with that article. Don't say that their recent impairments are cracks in the ice. That's dishonest and lazy
Just to be clear it was $11Million not billion....that'd be a lot of brochures, especially when their market cap is only 3.25B
Although the article tries to imply this is the beginning of the next financial crisis, this was tucked in later in the article.
"For OZK, its $40 million lending loss means that just 0.23 percent of its core loans (those it originated itself) are now nonperforming..."
I don't really see a huge problem here. It is nice they decided to try and come to their own conclusion on why the bank re-branded. Just because Carson Block says something doesn't mean it is true.
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