BOFI Rally Set To Unwind: Fundamentals Point To Material Headwinds Out Of Trump Election

Nov. 17, 2016 11:00 AM ETAxos Financial, Inc. (AX)127 Comments
The Friendly Bear profile picture
The Friendly Bear


  • In our conversations, investors attribute two themes to the recent surge in BOFI: a) higher rates, and b) less regulatory scrutiny…in this note, we show both theories are dead wrong.
  • The idea that BOFI will benefit from higher rates is the financial markets equivalent of the idea that Superman would benefit from more kryptonite.
  • Regulatory interest into fraud allegations (established in pending litigation), do not magically disappear due to Trump’s ascension – unless you believe the rule of law no longer holds.
  • No upside to BOFI from looser regulations: it already operates on the “edge”– yet market acting as if BOFI’s primary bank examiner is transitioning from Elizabeth Warren to Angelo Mozilo!
  • While BOFI’s CEO has vehemently attacked short sellers, he has still yet to come out publicly and outright deny ongoing SEC Enforcement interest into his affairs, rendering BOFI un-investible.

This article covers two important and fundamental topics relating to BOFI.

BOFI shares have rallied ~30% since Trump's election, in our view due to investors mistakenly assuming that BOFI is "similar to other banks". We think this trade is likely to not only fully reverse as BOFI fundametals prove otherwise, but to ultimately result in materially negative headwinds for BOFI that punish both the company's bottom line and investors who have bought into the "BOFI is a normal bank" narrative.

The two main factors that have driven bank shares, including BOFI, are: expectation for lower regulations, and higher rate expectations.

On the former, any upside in BOFI due to looser regulations is farcical given that BOFI has already been operating as an essentially unregulated and gun-slingin' cowboy.

On the latter, we expect BofI Holding (BOFI) to not only not get any help from rising rates, but to actually get smoked by them. While it makes sense for most banks that largely fund themselves through low rate checking accounts to be bid up, BOFI is categorically and unambiguously NEGATIVELY impacted by rates, as we show in this article.

#1: How to Interpret Loosening Regulatory Environment?

In our view, BOFI has already been operating as if it was unregulated for the past seven years. The bank has (had?) a felon running its lending business, has made countless loans to people with awful credit and criminal backgrounds, made a loan to a pedophile who set up shop across the street from a school, continues to gamble on money laundering rules with aggressive loans to foreign nationals and shady LLCs, regularly rents out its charter to suspect off balance sheet boiler room operations, and has already dabbled in every predatory business line out there - i.e. structured settlements, small business pay day loans, tax refund loans (

This article was written by

The Friendly Bear profile picture
Short only research

Disclosure: I am/we are short BOFI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am/we are short BOFI. All information for this article was derived from publicly available information. Investors are encouraged to conduct their own due diligence into these factors. Additional disclosure: This article represents the opinion of the author as of the date of this article. The information set forth in this article does not constitute a recommendation to buy or sell any security. This article contains certain "forward-looking statements," which may be identified by the use of such words as "believe," "expect," "anticipate," "should," "planned," "estimated," "potential," "outlook," "forecast," "plan" and other similar terms. All are subject to various factors, any or all of which could cause actual events to differ materially from projected events. This article is based upon information reasonably available to the author and obtained from sources the author believes to be reliable; however, such information and sources cannot be guaranteed as to their accuracy or completeness. The author makes no representation as to the accuracy or completeness of the information set forth in this article and undertakes no duty to update its contents. The author may also cover his/her short position at any point in time without providing notice. The author encourages all readers to do their own due diligence.

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