According to FDIC Chairman Sheila Bair, she cannot comment on individual institutions or any type of pending litigation. Click here to watch the CNBC video.

I found it difficult to believe Chairman Bair did not comment. Of course she didn’t publicly state her support for BankAtlantic or her support for Dick Bove. But listen to what she said….”I think it is very important for people, if they talk about individual institutions, to be very careful in what they say.” To me, that sounds like a comment. A comment that sounds something like a warning, admonition or threat (you decide). It certainly didn’t sound like she was being impartial. For instance, she could have said that she trusts investors and depositors to decide whether analyst comments are full of crap or whether bank execs are full of crap. Now that would have been impartial. Instead, she sent a message.

Chairman Bair went on to say that depositors should “not worry about all the market noise and other information, some of it probably inaccurate about which bank is healthy and which bank is not.” Once again, do you really think she was not commenting about Dick Bove? Do you think she was commenting that execs at one of her depository institutions were being “inaccurate” about which bank is healthy.

On another outlet, Chairman Bair decided to make some other comments about bloggers being out of control…I guess these kind don’t break any federal laws.

Regardless of what is said publicly in either warning analysts or bloggers to not say anything negative about the financial institutions she “oversees”, I would hope that she could do some things in private. Like maybe making sure that the FDIC doesn’t run out of money or that it can cover all depositor losses if everyone gets their accounts structured properly. And while she is at it, maybe she and Chairman Cox and Secretary Paulson and Chairman Bernanke can very quietly go about their business to make sure that the financial system they have been running doesn’t give any analyst or blogger any reason to speak negatively about the dollar, fiscal policy, monetary policy, bank failures, investment banking failures, massive government bailouts, the nationalization of our financial system, or any of those things that they might find offensive.

In light of the BankAtlantic vs. Dick Bove lawsuit, I decided to have some fun and dig around the Internet to see if I could find any stories over the past few years where BankAtlantic may have received some positive speculation about their stock by an analyst or the media. Since the stories would be old, we have the chance to use hindsight and find out whether the analyst was right or wrong. After all, BankAtlantic is apparently suing Bove because they said he was wrong and he refused to adopt their opinion and “correct” his view to match their own. So it appears that accuracy of analyst speculation is very important to BankAtlantic.

After a few seconds, a Google search provided a few old stories to evaluate (provided after this paragraph). When you read the following links, ask yourself whether the analyst was correct that BankAtlantic would be a good M&A candidate. Just look at the actual results and the positioning of their operations in the few years that have passed. I think it is safe to say that the analyst would have had a belief that the bank was sound back then and didn’t suggest that they would be where they are today. Was he right? Remember BankAtlantic is upset enough about an analyst being wrong that it is willing to sue.

March of 2004

December of 2005

Did BankAtlantic sue anyone when there were rumors that they were going to be acquired or merged? I looked and could not find any mention of the bank suing the analyst, can you?

When a rumor is supportive to stock prices, it seems that it is very convenient for a company to make itself unavailable for comment or to just say “We don’t comment on rumors”. Those seem to be acceptable actions as long as those rumors pump up the stock price. I have never seen a company sue to stop wrong speculation when it helps the stock. No surprise there!

I realize there is a difference between speculating about who might go the way of IndyMac and who might be acquired. It’s a big difference. It’s a difference between stocks going up on speculation which most people seem to love and have no problem with versus stocks going down on speculation which people seem to hate and are willing to fight. It’s part of human nature I guess. It’s part of human nature to be hypocritical. If the issue for BankAtlantic management is the accuracy of an analyst, then I suggest their prior actions with regards to analysts that were wrong are relevant. Has an analyst ever been wrong about BankAtlantic? Does it matter what the analyst is wrong about? Does it matter if the analyst being wrong makes the company look good or makes it look bad? Did they ever sue an analyst before?

Where do we draw the line with analysts? If being wrong is the standard, there will be a ton of lawsuits. What if a company doesn’t like the analyst’s downgrade? Sue? What if a company thinks the analyst’s price target is too low? Sue? What if a company thinks the analyst’s estimate is too low? Sue? Would they sue for an upgrade, a ridiculously high price target, or an estimate they didn’t like if those things made the stock go up or made the company look good even though management knew it was wrong?

How many banks in desperate need of capital bought back their own stock in 2006 before this crisis began?

How many banks in desperate need of capital bought back their own stock in 2007 after this crisis began?

How many banks in desperate need of capital bought back their own stock in 2008 while we are in the middle of this crisis?

Take Wachovia for instance in reverse chronological order:

In the first quarter of 2008, they bought 539,694 shares at an average price of $37.86 per share. It’s at $18 now.

In 2007, Wachovia purchased 22 million shares at an average price of $54.35. $1.195 billion now worth $396 million.

In 2006, Wachovia purchased 82 million shares at an average price of $54.96. $4.5 billion now worth $1.476 billion.

A few billion down the drain. Does anyone really care?
Don’t stop with Wachovia, just pick any bank and look through their 10-Ks and 10-Qs.

What does it matter? Does it matter that these guys are getting bailout after bailout of taxpayer capital when they couldn’t manage their own capital? I guess it doesn’t matter to them, or to the government or to many investors who cheered the buybacks a few years ago and cheer the bailouts today.

But it matters to me. And it’s really going to matter to me when I see how many shares a bank bought in the second quarter of 2008. Better yet, I wonder how many banks were buying shares in advance of being told by the government that they intended to bailout Fannie and Freddie or that there was going to be a selective short squeeze on 19 financials.

FOLLOWUP 3:15pm 07/23/08 About a minute after posting, I saw a story that Bank of America approved a 75 million share buyback plan. It’s not a surprise. How about the government lends them a few billion so they can buy a few billion dollars of their stock? Nice.

This from Treasury Secretary Paulson yesterday morning:

I have and will continue to encourage financial institutions to strengthen their balance sheets by raising capital, de-leveraging and reviewing dividend policies so that they continue to play their vital role in supporting economic growth.

Apparently, this is a new concept that he didn’t encourage Wachovia to do last spring. Here is what former CEO Ken Thompson said in April.

We had no regulator at any time approach us and ask us to raise capital (or) to cut our dividend; zero, not one conversation.

Maybe it was not necessary to hear from Paulson in April, but I am guessing that the message eventually found its way to Wachovia. Nevertheless, when former Treasury Undersecretary Robert Steel and now CEO of Wachovia reported their $8.86 billion loss a few hours later, the market cheered when it was explained that the company would not need to raise additional capital through an equity offering. Nope, it isn’t needed Mr. Paulson. According to CEO Steel…”lots of other options of what we can do.” They are going with the de-leveraging, cost cutting and dividend policy part of Paulson’s encouragement. They are cutting the dividend from 37.5 cents per share to 5 cents per share and they are going to cut about 10,700 jobs and they are looking at operations to sell to reduce leverage. Here’s the problem….they cut the dividend in April from 64 cents. They’ve also already cut a few thousand jobs already this year. This time it better work. You cannot cut dividends past zero. As for cutting employees and selling assets…good luck with that as a long term strategy. Oh and that part about raising capital through equity, there is a difference between we don’t need to and we can’t.

Washington Mutual apparently got the message too. Report humongous losses of $3.3 billion and have CEO Killinger tell the market….”The capital that we have in place is sufficient to manage through this period. We have no plans at this point to raise additional capital.” You might think it is time to cut the dividend. Well, the WaMu dividend is now 1 penny per share - they cut it from 15 cents last quarter along with about 3,000 job cuts and previously, in December they announced they would cut it from 56 cents to 15 cents along with about 3,000 job cuts. The market seemed to love the idea that Washington Mutual didn’t need to listen to Paulson’s plan to raise capital. After all, they have already raised $7 billion in capital just a few months ago. How did that work out? As Mish points out, there might be a difference between we don’t need to and we can’t.

Wells Fargo apparently didn’t need the message from Paulson….they decided to raise their dividend. The market loved it.

Pick any bank and evaluate whether they are really getting the message that Paulson says he keeps telling them to do.

Last week, I said that HEDGEfolios had become Less Negative. Since it was brief, here is the whole thing…

As I hinted this weekend, I gave quite a few UP signals this week (461) versus 98 new DOWNs. I was asked whether this meant I was calling for an intermediate term rally. The short answer is “NO” - not because I don’t believe it could happen but just because I don’t like calling bottoms or tops. It’s all about the probability of market direction and right now, I am still bearish. However, based upon the strengthening technicals I saw in so many stocks, I have become less negative in the short term (especially on those individual stocks). Obviously, the fact that the market has dropped another 2% since I decided on these signal changes doesn’t seem to validate my declining bearishness. Fortunately, I don’t measure performance based upon a few days and I am willing to give it some time to play out.

I gave it some time to play out and the rally reappeared. I only wish I had been even more aggressive last week.

Despite my opinion that I don’t think the impetus for the rally was earned by the bulls, when I went through all the charts this weekend the reversals were overwhelming in both stocks and ETFs. So while the bulls may not have started it, they sure are providing a lot of momentum to keep this thing going. I don’t like rallies begun through government interventions or short squeezes or crappy earnings spun as beats or crappy earnings ignored in exchange for positive guidance from execs who have been consistently wrong with the same promises in the past or many of the things that are going on right now. But they are what they are regardless of what I like.

This week’s signals are the strongest bullish reversal ever recorded at HEDGEfolios. I gave more UP signals than I have ever done in 1 week. 1056 new UPs. And the ratio of new UPs to new DOWNs was also an extreme I have never done. 21-to-1. Normally, I try to avoid making a lot of signal changes through earnings season. Obviously, I made an exception this time.

Additionally, I had a massive reversal in ETFs with 188 new signals (183 new UPs vs 5 new DOWNs)

If you missed what these things mean to me, please read my take on Measuring Volatility. Additionally, you might want to see what is going on with the HEDGEfolios Timing Indicator and it’s move to a bearish bias. The reversal from an extreme bearish reading to an extreme bullish reading in a matter of a few weeks is something that I have never seen before. So until I have had a chance to think this occurrence through, I am not going to speculate whether it has any additional meaning other than this is one strange reversal.

For the record, I don’t expect this bear market rally to last BUT I do expect the volatility to continue. Remember, next time it will be painful in the other direction.

In the meantime, if you are long….enjoy the fun while it lasts. For all the shorts, good luck!

I am not a Dick Bove fan and I get really tired listening to his back-and-forths on financials. Other than his desire to appear on CNBC or any other media outlet that is willing to put his mug and comments on air, I am not sure what makes Bove (or any other individual analyst) an authority on stocks. Let me clarify, I am not a fan of Wall Street analysts in general. I am “analyst agnostic.” I don’t love them…I don’t hate them..I don’t believe them much. Certainly there are a few good ones. Certainly there are a few terrible ones. Certainly there are a bunch of overpaid ones who are irrelevant and may be either good or bad, but irrelevant anyway.

However, I do care about freedom of expression and the right to have an opinion, whether right or wrong, as an analyst or as an American. Last week, Dick Bove wrote a piece based upon his own analysis of banks that may be at risk for failure (a la IndyMac.) I haven’t read the report and I find it irrelevant for what I do. Personally, I think it is irrelevant just like I used to think it was irrelevant when analysts pumped up stock prices a year ago by creating lists of stocks that would be acquired by Private Equity. But I do hope that he did better with his list than the FDIC did with their list, especially considering that the group that is responsible for protecting depositors found a way to keep IndyMac off their list.

Regardless of whether Bove was right or wrong about who is in trouble, he has a right to have an opinion and a list. Just as a bank and their management team has a right to be wrong about how they manage their bank. In both cases, shareholders have a brain (or should have a brain) and an ability to do their own analysis and determine whether a company is worthy of their investment.

I remember Colin Devine of Smith Barney being critical of Conseco and all the threats he had to endure. For the record, Devine turned out to be right about a stock that became worthless and a company that went down as one of the largest bankruptcies in American financial history. Bove is in good company….if he turns out to be right. If he turns out to be wrong, he is in the same company as he exists now. Herb Greenberg commented on this topic a few months ago in this very good article.

But where is the damage to BankAtlantic? Did they get their feelings hurt? Poor babies. As for the stock…on the day that Bove put BankAtlantic on his list (July 13, 2008 was a Sunday), the stock opened at $1.20 per share (on Monday July 14, 2008) ….now it’s at $1.89 per share…ABOUT 60% HIGHER! Seems to me that investors decided that Bove was wrong. That is what they should do with any analyst. Make their own decision regardless of what the analysts say and regardless of what the company says.

For the record, maybe it would have been better if Bove had published his list over a year ago in January of 2007. BBX, BankAtlantic stock was about $13 per share back then. Sorry to point out the obvious here but who the hell should be sued for causing BBX to go from $13 to $1.30 per share? I don’t think Bove or any other analyst did that. Let me get this straight…Bove makes a list and the stock goes up almost 60% in a week and that is harmful to BankAtlantic, their management and their shareholders. Meanwhile….someone else went without being sued as the stock dropped 90% in 18 months. Okay….I got it.

For the record, I had an UP signal on BBX from 6/23/08 until Bove’s list came out. I was wrong on that to the tune of -33% in 3 very bad weeks. I didn’t get a thank you for my optimism and didn’t want one. What I think is going to happen to BBX has nothing to do with Bove.   I make up my own opinion as everyone should.  We are right sometimes and we are wrong sometimes. All of us. Investors, analysts and yes, executive management.

Analysts analyze. If they are wrong, their employer and the market holds them accountable. That’s the way it should be. Companies manage their business. If they are wrong, the market holds them accountable. That’s the way it should be. I just don’t see how Bove defamed anyone. If he was wrong or sloppy, his reputation and the reputation of his firm will receive the appropriate punishment by the market.

I suspect companies have been emboldened by the SEC and other government support to blame short sellers and anyone who dares be negative. I get that, but when we attempt to stifle any critics, we are running down a very dangerous path. I’d really like to see the company find a diplomatic way to remove the lawsuit and get back to managing their bank. As for Bove, I really don’t care what he says.

Lately, I have been hammering on the analysts of financial stocks and their proclivity for dropping estimates in advance of the earnings reports and then allowing everyone who wants to claim that as a beat.  So my apologies to the analysts who cover American Express….you did not do that with their earnings and have held at around 84 cents per share for the past 90 days and I hope I didn’t insult you by throwing you into an unfair generalization.  OOPS!  Maybe you should have dropped earnings like the other guys.  AXP came out with 56 cents per share vs. 83 cents.  First point…..where was the preannouncement/warning from American Express management?  Second point….beware any stock that did not benefit from a massive decline in analyst estimates over the past few weeks or months.

The regulators all seem concerned about Naked Short Selling these days…well, at least they are concerned about it in a select list of 19 companies.  I hear they don’t like the idea of placing bets that far exceed the ability to deliver the product they are speculating upon.  If that is the sole criteria….I find the “crackdown” on Naked Shorting against a small percentage of outstanding shares to be interesting relative to the lack of concern about CDS contracts that are many multiples of the debt outstanding.

Bank of America doesn’t intend to guarantee Countrywide debt - nice.   I wonder who will help things out if the debts don’t get paid at maturity?

My opinion on BAC earnings??????…..see the previous post. Nice pattern by the analysts of financials….pump up estimates at the onset of a quarter…then drop them significantly before the earnings season and a few nice things happen 1) companies do not preannounce / warn and 2) everyone that wants to can claim that the companies beat estimates. Great Stuff!

Earnings estimates were whacked from about 90 cents per share 90 days ago… only 30 days ago, estimates were hovering at about 71-73 cents per share. Go ahead and call it a beat when they come in at 72 cents per share today.

I was impressed by a few tactics I saw/heard…

Make sure you don’t close the Countrywide acquisition until the quarter closes so you don’t have to lump their crap into yours….Great Stuff!

Then say how you expect the Countrywide losses you didn’t want to include this quarter will be less than you had expected in future quarters….Great Stuff!

Then say how you expect Countrywide will be accretive in 2008….Great stuff!

Then say how you are not going to cut your dividend….Great stuff!

Then throw in a few nice comments about an economic recovery in 2009….Great stuff!

Best of all….this from CEO Ken Lewis “We are not in denial.”