Three years ago it seemed inconceivable that a company as high-flying as Nara Bancorp Inc. could lose 20% of its market value on news that its accountant had resigned.
But that's exactly what happened last week as investors dumped millions of shares first and asked questions later.
All is forgiven now; Nara, of Los Angeles, announced late Friday that it had hired another accountant, the stock price is creeping back toward $20 a share, and analysts are once again upgrading the stock.
But the wild ride is evidence that, in the wake of corporate scandals, even the mere mention of the word "accounting" can spook investors.
The selloff started Sept. 15, a day after the $1.4 billion-asset Nara said in a Securities and Exchange Commission filing that Deloitte & Touche LLP had resigned as its auditor Sept. 8. Though Nara officials said there had been no disagreements with Deloitte over accounting practices, investors still panicked. Nara's stock fell more than 20% in three days, to $16.91, with more than 4 million shares traded.
Speculation about why Deloitte resigned ran rampant on Internet message boards, as investors questioned whether Nara's performance figures over the last six years were accurate, or just accounting hocus-pocus.
Lana Chan, an analyst at Mony Group Inc.'s Advest Inc. in New York, speculated in a Sept. 17 research note that Deloitte & Touche could have resigned because it was not satisfied that Nara's internal audit controls were compliant with the Sarbanes-Oxley Act. Deloitte would have had to sign off on Nara's work before the yearend deadline.
The selloff was short-lived, though. After Nara announced that it had hired the accounting firm Crowe Chizek & Co. LLC, its stock rose 8% on Monday, to close at $18.26. By midday Tuesday, it was trading at $19.05.
In a press release Monday, Nara's president and chief executive, Benjamin Hong, reiterated that Deloitte's resignation "had nothing to do with the integrity of Nara Bancorp's financial statements or any disagreement" with Nara. He also said Crowe Chizek should be a "better choice" as its accountant, because of its depth of experience with community banks.
Nara Bank caters to Korean-Americans. Though based in Los Angeles, it has branches and loan production offices in Korean-American communities throughout the United States, including New York, Chicago, and Seattle.
Like other banking companies that focus on Asian-Americans, Nara Bancorp has enjoyed a multiyear run-up in its stock, largely because of its stellar earnings. The stock has split three times since January 1998, and a $1,000 investment then would be worth close to $10,000 today.
On Monday, after the speculation subsided, Brett Rabatin, an analyst with First Horizon National Corp.'s FTN Midwest Research Securities Corp. in Nashville, upgraded the stock to a "buy" rating, from "hold." Meanwhile, chatter on Internet message boards was more upbeat. A message posted Monday on one board congratulated those who "bought on the dip."
In a Sept. 20 note, Ms. Chan wrote that Nara "appears to be only slightly behind most banks" in meeting its Sarbanes-Oxley requirements. If it accelerates its efforts and files its third-quarter earnings on time, the stock should rebound even more, she wrote.
Joseph Gladue, an analyst at Cohen Brothers & Co. in Philadelphia, said Nara has experienced a phenomenon familiar to other companies with "richly valued" stock. "The stock is priced for perfection, so when's there a chink in the armor of any sort, those who were the last to jump in are the first out."
Manuel Ramirez, an analyst at Keefe, Bruyette & Woods Inc. in San Francisco, said the stock is still overvalued and should be trading at between $16 and $17. However, he is bullish on Nara's earnings over the next year, even if the Federal Reserve Board does not raise rates as much as the company would like, because Nara is one of the country's most asset-sensitive banks.
"The fundamentals are pretty impressive at Nara, and that's not going to change anytime soon," he said.
