Hindenburg Research: A Short Report on Axos Financial ($AX)
Hindenburg Research, renowned for its in-depth financial investigations, has scrutinized Axos Financial ($AX), a regional bank heralded for its tech-driven approach and impressive market performance. Despite its $3.1 billion market cap and a 35% P/TBV premium, Hindenburg’s findings suggest that Axos may be on shaky ground.
Key Findings
High-Risk Exposure
Axos has significantly increased its exposure to the volatile commercial real estate (CRE) market, with CRE loans surging from $5.5 billion in March 2021 to $9.9 billion in March 2024. This now constitutes 53% of the bank’s loan book, far exceeding the 16.5% average among regional banks.
Lax Underwriting Standards
Hindenburg’s investigation revealed that Axos has been stretching its underwriting criteria, accepting borrowers with criminal histories and poor credit scores. Former employees described practices like loan “evergreening,” raising concerns about the bank’s risk management.
Problematic Loans
Hindenburg identified several distressed projects funded by Axos, including:
- Queens Apartment Project: A $97.5 million loan with zero units leased.
- Brooklyn Apartment Block: A $48.2 million loan for a site with no construction activity.
- Harlem Medical Office: A $34.7 million loan for a vacant project.
- Manhattan Apartment Building: A $35 million loan for a derelict property.
- Manhattan Office Building “The Six”: A $105 million loan for a building with less than 50% occupancy.
Questionable Metrics
Axos’ loan-to-value (LTV) ratios are 17% lower than the median of its peers, and non-performing loans have remained flat. Despite the increasing economic stress, provisions for potential losses have inexplicably decreased.
The Road Ahead
With $1.1 billion of CRE loans coming up for renewal in the next year, $AX faces significant challenges. Hindenburg’s findings suggest that the bank’s exposure to high-risk asset classes and lax underwriting standards could lead to substantial stress.
For a detailed analysis, read Hindenburg’s full report on Axos Financial here.
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