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One Bank in the "Danger Zone" Says Not So Fast

Monday, 14 Jul 2008 | 10:13 PM ET

After I blogged about Ladenburg Thalmann's Dick Bove using two ratios of bad loans to other assets to figure out which banks may be in trouble, I heard from one of the banks classified as in the “danger zone.” I got an email from a PR firm which says it represents Oriental Financial.

“You quoted Richard Bove of Ladenburg Thalmann’s report as saying that Oriental, which is based in San Juan, Puerto Rico, had a ratio of nonperforming assets divided by reserves plus common equity of about 40% which put Oriental into the 'danger zone'," the email says.

Actually, the bank says the ratio is 26 percent (nonperforming assets of $73,286,000 divided by reserves and equity totaling $281,850,000). "These are very sensitive times for banks and we don’t want incorrect information to lead to misperceptions."

They are correct in pointing out that Oriental Financial was NOT in the "danger zone" by this ratio. However, the ratio I actually blogged about concerning the bank was a different one dividing nonperforming loans by all loans.

That did have Oriental Financial in Bove's “danger zone”, with a ratio of 6.12 percent (anything over 5 percent suggests “danger”). My mistake was to then move onto Bove's second ratio and lump Oriental in with that group as well, when, in fact, by that metric it is NOT in the “danger zone.”

The Bank Danger Zone
A look at the IndyMac failure and whether more banks will follow, with CNBC's Jane Wells.

Meantime, Bove himself is trying to "clarify" his report using the two ratios. He says he meant them to show that the banking industry is actually not so bad compared to 1990. “This data, we thought, indicated that banks were in better condition than generally perceived,” writes Bove.

"Apparently, it has been misinterpreted to suggest that there are significant problems in the financial system. This is not my point at all.” Addressing concerns by clients about specific big banks, Bove says only Washington Mutual is “on the edge of danger,” adding that “We are definitely not suggesting that National City or First Horizon, (which he has Buys on) is in dangerous condition at the present time.”

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  • Based in Los Angeles, Jane Wells is a CNBC business news reporter and also writes the Funny Business blog for CNBC.com.

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