Axos Financial, Inc. (AX) High-Risk Lending Practices Case

• On June 4, 2024, Hindenburg Research released a report, accusing Axos of $9.9B exposure to the riskiest asset classes with lax underwriting standards.

• On it, $AX fell 4.2%, losing $125M+ in shareholder value.

• Investors may have grounds to suspect Axos of hiding its high-risk business practices, which led to their losses.

On June 4, 2024, Hindenburg Research claimed in its report that AXOS was exposed to the riskiest asset classes, and had increased its total exposure to the deteriorating commercial real estate (CRE) market, while other regional banks backed away from the sector.

Hindenburg based its claims on the following facts:

• In March 2024, Axos’ exposure to the deteriorating CRE market was $9.9B, or 53% of its total loan book;

• Distressed U.S. commercial properties rose from $56.9B in 2022 to $85.8B in 2023;

• 37.5% of Axos’ CRE loans were in New York, where commercial realty foreclosures are increasing 65% year over year.

Axos’ lax underwriting standards expose it to major added risk:

• A former regional leader claimed that Axos’ customer base in commercial and multifamily revolved around “borrowers who couldn’t get loans from other banks”

• Axos had a practice of loan providing loans to non-performing or doubtful borrowers to avoid recognizing problems

Following the release of Hindenburg's report, $AX fell 4.2% and lost over $125 million of its market capitalization, seriously damaging shareholders.

Considering all the information, investors might have grounds to suspect AXOS of hiding its risk exposure, which led to their losses.