Land of Oz is Made for the Bank OZK

Financial Justice Ideas and Issues

Little Rock      Acting as station manager of KABF in Little Rock, Arkansas, means that I now roll up there ten times a year over the last eight or ten years.

Getting around the state, especially up in the mountains, I see the names of a lot of little banks that aren’t the big ones that I’ve heard of before like Bank of America or Wells Fargo or Citicorp or whatever.  We did a monthly show for Bancorp South for example.  It was a new one to me, but they are headquartered out of Tupelo, Mississippi, and have branches in places in south Arkansas that surprise me.

In the northwestern part of the state, same thing.  One sign I noticed on some small banks was Bank OZK.  I had figured it was a litty-bitty thing just in the Ozarks area.  What else could OZK stand for, right?

And, that’s true as far as it goes, but all of a sudden, I’m reading a story about Bank OZK in the Wall Street Journal.  Maybe that’s where a story about a little downhome Arkansas bank should be found, but there’s an even bigger surprise in store, because the article was claiming that Bank OZK was the big-time financier of huge multi-gazillion dollar skyscraper projects in New York City.  You have to be kidding, I’m thinking.  Is this on the up and up?  Something’s not right, I’m sure of it.  Who should I call?

Reading the article more carefully wasn’t much comfort.  Bank OZK is a leader in big, risky construction loans:

OZK’s $7.7 billion in construction and land development loans made up 42% of all loans on its balance sheet as of September. That is the highest percentage for any bank with more than $5 billion in assets, and more than 10 times the weighted industry average. The Little Rock lender holds more construction debt than Citibank, which is about 65 times as large, in terms of assets.

What could go wrong?

The bank is run by George Gleason, who this minute is worth a lot of money, because these loans are out-the-box, and he’s making a lot of them.  Supposedly, less than 1% are nonperforming, which means the notes are being paid.  Gleason claims that not asking the developer to pledge personal resources is popular, and unlike many, he keeps the loans on his books, rather than selling the paper.  He says no worries, because OZK is only in a development for no more than half and is dealing with experience developers.  Someone should whisper to Gleason that Trump would qualify as an experienced developer, but meanwhile his auditors are now claiming that none of the numbers add up.

To a worrier like me, who sat with all of the sub-primes in 2006 and 2007 before they crashed the entire economy, that’s little comfort when we’re talking about a $600 million project that OZK has going in Tampa and a $558 condo development in Sunny Beach Isles, Florida, although I’m not even sure exactly where that is.   In New York City, they’re the big hitter in “a $410 million loan to Rabina, the developer of a roughly 1,000-foot-tall Manhattan office and luxury residential tower on Fifth Avenue.”

This just all seems whack to me.  The only big construction in Little Rock I see is the massive disaster where they are trying to build a new bridge over the Arkansas River.  If OZK likes to do construction loans, we could line up thousands of families right around their headquarters who would love to get a loan without personal collateral and would swear on a Bible and their first born that they would pay.

What do I know about construction finance at this level, but someone needs to be watching this closely at the FDIC, Federal Reserve, and Office of the Comptroller of the Currency, because the answer to what could go wrong is straightforward:  everything!