Trump lender Axos plunges 15% after short-seller report flags real-estate loan risk

• Axos Financial fell as much as 15% on Tuesday after Hindenburg Research announced a short position.
• The short bet stems from Axos' large exposure to commercial real estate.
• Despite more exposure than its peers, Axos' valuation trades at a premium, Hindenburg said.

Shares of Axos Financial dove as much as 15% on Tuesday after short seller Hindenburg Research announced a bet against the California-based bank.

In a note, the research firm outlined that it's taken a short position in the lender, citing Axos' rising exposure to commercial real estate. Despite brewing uncertainty in the sector, the bank has been building a portfolio around it, the report said.

"Contrary to many peers who backed away from the deteriorating commercial real estate market post-covid pandemic, Axos doubled down, increasing its total exposure from $5.5 billion in March 2021 to $9.9 billion in March 2024," Hindenburg said. "Now, 53% of Axos' total loan book is exposed to these segments."

Between higher interest rates and a declining demand for office properties, analysts are waiting for a loan crisis to eventually swamp the real estate market. With over $2 trillion in debt coming due in the next few years, lenders have been shrinking their exposure to the space — sometimes at a loss.

To compare with Axos, the noted cited that the average direct commercial real estate exposure among regional banks is 16.5% on loan books.

But not only has Axos increased its position, the bank trades at a 35% price to tangible book value premium to its peers, Hindenburg said. That implies outsized growth, a low-risk loan book, and years of upside ahead of it, the note argued.

But instead, Hindenburg's research "indicates a company exposed to the riskiest asset classes with lax underwriting standards and a loan book filled with multiple glaring problems," it said. According to sources who spoke with Hindenburg, issues include a client base of doubtful and non-performing borrowers. 

Axos did not immediately respond to Business Insider's request for comment. However, CEO Greg Garrabrants has previously told Bloomberg that commercial real estate fears are overdone, and the risk is already reflected by Axos' stock price.

Though not mentioned in the report, among the bank's former borrowers are president Donald Trump. Axos has previously refinanced a $100 million loan on Trump Tower, and lent funds to a Florida resort.