Friday, August 24, 2012

Oops. We were wrong, but we're a bank, so what?

Thanks to Jesse Felder for pointing out that Bank of the Cascades lied (misspoke? made an error?) about its results in the last half of 2011.

The " had overstated the amount of capital it had on hand relative to its assets.

The error meant the bank incorrectly reported to investors and regulators that it was in compliance with the order's Tier 1 leverage capital ratio during the last six months of 2011.

The bank in 2009 agreed to shore up its capital as part of a "cease-and-desist" order with the Federal Deposit Insurance Corp. and the Oregon Division of Finance and Corporate Securities." THE OREGONIAN

I don't know why, but I've always been dubious of this bank, especially since it was riding so high during the bubble, that I couldn't imagine how they were escaping the consequences.

They are downplaying the "incorrect" reporting; and the way the regulators are handling banks, they'll no doubt skip right past it.

Still...I've been wondering for a long time how they are really doing....


Duncan McGeary said...

I know it's petty, but when I was being careful during the boom, this bank was getting loads of rave press ...and it seemed to me they were way overextended. (which is why they looked to be doing so well -- classic.)

So it is a local example of how the banks seem to be getting away with misbehavior that the rest of us would pay dearly for...

Duncan McGeary said...

To me it's a small case of "moral hazard."

Let me explain. So, sometimes, I'll have competitor who seem to be doing much better than me -- and taking away some of my business, and it hurts and I don't like it, but....I know that there are certain things you can and you can't do in business and if the competitor is breaking those rules, that it will eventually catch up to them.

There's a saying: "Success is the best revenge." O.K. Let's say, "Success is the best confirmation." You want to believe that by doing things right, you will be rewarded in the end.

A "moral hazard" would be seeing your competitor doing things wrong, and getting away with it.

That seems to rarely happen in business -- at least not for long.

But banks seem to be a different story.

So Cascade Bank people were being interviewed at the height of the boom, and it was very clear to me that they being extremely aggressive and -- dare I say, foolish -- in their growth strategies. Not only that, but they were getting awards and a huge stock run-up and I'm assuming bonuses based on being so risky.

So the moral hazard is that, if that strategy backfires, they pay the price.

A business will not survive this kind of behavior.

But I believe the management managed to retire with the reputations intact, the bank just kept going, and it doesn't seem that anyone paid the price. (Well, the stock has gone way down, so the stockholders have...)

There was someone in the era of the bubble blogs who was saying he was shorting Bank of the Cascades -- and boy, it I'd had the money, I would've too.

So if you are a local, or regional bank, and you're being careful, but you're watching BOTC's just grow and grow, and get awards and on on on....

And then be bailed out, basically.

That's your moral hazard. And that your reason to do it THEIR way next time....

Duncan McGeary said...

Anyway, that's how I interpret "moral hazard." BOTC's had little to do with me, it was just their public relations that rubbed me the wrong way.

H. Bruce Miller said...

Has The Bullshittin reported this? If not, do you think it will?

Duncan McGeary said...

As far as I can tell, the Bulletin didn't report this.

Or if they did, it was passed off as of little consequence.