Spruce Point questioned the credit quality of Axos's specialty lending book, the adequacy of loss provisioning, and governance and disclosure practices at a bank whose growth outpaced comparable digital lenders.
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Growth that outruns disclosure
A bank can print earnings growth for years by lending into segments where losses arrive late.
Findings
- Concentrated exposure to specialty and structured lending with limited borrower disclosure
- Provisioning assumptions optimistic relative to the risk profile of originations
- Related-party and litigation history raising governance questions
The conclusion
Earnings quality dependent on assumptions the market had not stress-tested.
subsequent events
- 2019-04-02Report published; shares decline
“Earnings quality rests on provisioning assumptions the market has not tested.”
- 2020-03-31Shares trade materially lower amid credit-cycle stress
Source — https://www.sprucepointcap.com/
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