Problems at Axos Financial (AX)
Axos Financial (NYSE: AX — $2.27 billion) describes itself as “a technology-driven financial services company that provides innovative banking products and services to customers nationwide.” Formerly known as Bank of Internet, Axos Financial is one of the best-performing banks of this century, up roughly 13-fold since its 2005 IPO. Underpinning Axos’s success The Bear Cave believes are risks in the firm’s culture, loan portfolio, and crypto ventures not fully appreciated by the market.
With the exception of Tesla, perhaps no company has endured as much criticism from short-sellers as Axos Financial.
In April 2014, Kerrisdale Capital published on risks related to the bank’s stretched valuation and new competition for deposits from other online banks.
In July 2014, Citron Research published on risks related to the bank’s prepaid card business.
In 2015 and 2016, Marcus Aurelius Research published a total of 13 articles ranging on issues from “exotic loans to high-risk foreign nationals,” exposure to payday lenders, and “a phantom ‘full service branch’ in the Nevada desert.”
In 2015 and 2016, The Friendly Bear also published a series of five articles regarding potential whistleblowers and “high-risk brokered loans.”
In June 2017, Roddy Boyd at the Foundation for Financial Journalism published a collection of three articles about Axos and, most stunningly, alleged that the firm attempted to engage prolific short-seller Marc Cohodes as a paid consultant to “better understand how short sellers developed their opinions and how they shared their views.”
Mr. Cohodes, who has exposed numerous frauds in recent decades and was one of the earliest critics of the now-defunct Silvergate Bank and Signature Bank, has also recently tweeted very critically about Axos, its leadership, and its potential bad loan exposure.
Along a similar vein, anonymous crypto researcher Cryptadamus published a September 2023 article titled, “The Axos Of Evil.” The article highlights that Axos provided banking services for crypto-exchange Binance U.S. based on evidence from SEC and CFTC lawsuits. One exhibit from the SEC’s litigation against Binance appears to suggest that Binance’s U.S. division held roughly $350 million in deposits at Axos.
In a March 2023 podcast interview, Axos CEO Greg Garrabrants commented on the crypto banking industry and said, in part,
“I think that there is regulatory scrutiny that is probably disproportionate to the risk right now in crypto because of what’s happened with Silvergate… So I think you have to look at this on a risk-based approach and make sure you are appropriately diligencing the companies and accounts. It’s just unfortunate it got tarnished with the whole FTX debacle, because it did paint a picture that I think is not really fair to the rest of the industry.” (32:06)
On Axos’s earnings call last month, Mr. Garrabrants appeared to change his tune and said, in part,
“Due to recent regulatory changes in the landscape for U.S. banks and digital asset companies, we completed our previously announced exit of our small incubator deposit gathering business that's focused on selected digital asset companies such as exchanges, brokers and firms engaged in activities related to nonfungible tokens.”
As part of its now ended foray into the crypto banking business, Axos previously launched an Axos stablecoin currency called AXX, launched a 24/7 payment network called AxPay, partnered with a blockchain-based payment platform, and even hired its Digital Asset Vice President from Silvergate.
The Bear Cave believes Axos’s appetite for higher-risk business extends beyond its crypto ventures. For example, on the Axos wholesale portfolio lending webpage the firm boasts,