Market Overview

Why The Most Shorted U.S. Bank Might Be A Buy


BofI Holding, Inc. (NASDAQ: BOFI), short for Bank of Internet USA, claims in its own words to be the "oldest and most trusted internet bank." The stock is the most shorted U.S. bank, according to Gadfly's Gillian Tan.

Tan noted that short sellers have been pilling into the bank since it targets clients that are riskier than the typical lender. Moreover, past approved borrowers include clients who have received prison sentences for operating a Ponzi scheme and Medicare and Medicaid fraud.

Needless to say, the not-so-attractive profile has led to the short interest as a percentage of free float nearing 40 percent and is a higher short profile compared to Banc of California Inc (NYSE: BANC) whose business has been allegedly linked with known fraudsters.

However, Tan stated that BofI's earnings report (released on Monday) was highlighted by figures that "larger commercial banks can only dream of." In addition, the bank's ratio of non-performing assets to total assets read 0.4 percent which is lower than "industry stalwarts" including JPMorgan Chase & Co. (NYSE: JPM).

Overhang Removed

In addition, a major overhang surrounding the stock may have eased. Back in October 2015, a former internal auditor of the bank filed a lawsuit which alleged regulatory violations including false and misleading financial statements although the company denied any wrongdoing.

However, Tan pointed out that the company's president and CEO Gregory Garrabrants told investors in conjunction with the earnings report the bank mains a "strong regulatory standing" with no enforcement actions, fines or recommendations for modifying business practices.

"Now seems to be a good as time as any for shorts to reconsider," Tan concluded.

Posted-In: Bank Of Internet Bank Of Internet USA Bloomberg Gadfly GadflyLong Ideas Short Ideas Media Trading Ideas


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