The Bancorp: Oversold Says Richard Thaler's Behavioral Finance Fund

Sep. 20, 2016 12:12 AM ETThe Bancorp, Inc. (TBBK)2 Comments
Larry Abrams profile picture
Larry Abrams
188 Followers

Summary

  • On September 29th, The Bancorp will hold a special meeting of stockholders to vote on a $74 Million secondary offering.
  • The terms and conditions are an insult to existing institutional investors and there is evidence that The Bancorp genuinely fears that a NO vote might win.
  • If a NO vote wins, critical votes will come from a hedge fund run by the famous behavioral finance theorist Richard Thaler.
  • If a NO vote wins, we predict that the stock will pop up 10% or more.

In response to the subprime mortgage meltdown a decade ago, the US Congress passed the Dodd-Frank Act of 2009-2010 which, among other things, required FDIC-insured banks to maintain a Tier 1 leverage ratio (capital / average assets) greater that 5%.

This means that a relatively small (e.g. 5%-10%) mark down of a major asset class -- whether it be loans outright or collateralized debt obligations -- could wipe out a third or more of a bank's capital. This would almost always cause a bank to fall below the Dodd-Frank standard for a "well-capitalized bank".

Falling below the Dodd-Frank standard would trigger an existential crisis for the bank, forcing a merger or a private placement, often coupled with a massive shake-up of management and the board.

The Bancorp (NASDAQ:TBBK) has a two and a half years running history of erratic mark-to-market accounting of troubled commercial loans, followed by a series of moves to avoid falling below the Dodd-Frank standard for a "well-capitalized bank."

We have documented The Bancorp's problems in three previous articles for Seeking Alpha: The Bancorp: Bad Moon Rising (January 2015); The Bancorp: Continuing Problems with a Discontinued Operation (March 2015); and The Bancorp: Why the Continuing Delays in Filing Its 10-K (May 2015).

We have also published a recent accounting article called The Bancorp: A Test for Post-Enron GAAP that analyzes its late 2014 decision not to consolidate an LLC formed to buy the most troubled portion of its discontinued commercial loan portfolio.

Even though approved by its outside auditor Grant Thornton LLP, we believe that this decision is not in compliance with GAAP and have requested another review by the FDIC and the Federal Reserve Bank.

On July 28, 2016, The Bancorp announced a $31 Million loss for 2Q16, largely due to an unexpected $32 Million in loan mark downs / note

This article was written by

Larry Abrams profile picture
188 Followers
Ph.D. Economics, Central California, retired

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Recommended For You

Comments (2)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.