Carson Block Is Short Bank Of The Ozarks, Calls Model 'Ass Backwards'

Shares of Bank Of The Ozarks Inc (NASDAQ: OZRK) were trading lower by around 14 percent percent Wednesday afternoon after Muddy Waters' Carson Block presented the bank as a short idea at the Ira Sohn conference.

According to Block, the Arkansas-based bank's earnings are unsustainable at best and its balance sheet is under a lot of pressure.

"We are short the stock," CNBC quoted Block as saying at the conference.

MW is short $OZRK. At best, unsustainable earnings; at worst, inadequately capitalized. #sohn2016

— MuddyWatersResearch (@muddywatersre) May 4, 2016

He added that the bank's stock is trading at a "growth stock valuation" and is poised to re-rate lower as its earnings growth deteriorates.

Block also highlighted the fact that the bank has an extremely high concentration of real estate lending at around 90 percent. At the same time, the bank's construction lending as a percentage of its total book is 35 percent which is much higher than other banks.

"Construction loans are really risky. When things stop, banks will get stuck with unfinished projects. If this happens, Ozark will take losses," he also said. "Their balance sheet could come under severe pressure in the worst case," Block concluded.

Block also noted that the company could see large losses as it doesn't require personal guarantees from developers.

Finally, Block argued that the bank will need to raise capital in 2016 and 2017.

Carson Block gets laughs at #sohn2016 when he refers to Bank of the Ozark's "ass backward business model." Picture helps to visualize.

— Alexandra Stevenson (@jotted) May 4, 2016