Sell-Side Has Issued Favorable BOFI Reports

I generally read bear SA reports while taking s heavy dose of Hydrochlorothiazide. This drug is a diuretic which helps reduce excess fluids.

Let me strongly recommend you read the articles for yourself and come to your own conclusions. For me it was quickly evident that I was one of the little guys at the tail of the whip. If your one other. In any case, here’s the article:

Summary

•Amidst a variety of recent allegations, sell-side analysts have rushed to defend BOFI and recommend that investors purchase the stock.

•BOFI has been the single largest seller of its own stock since 2013. BOFI has sold 1.7 million shares (including several particularly well-timed sales) under an ongoing At-The-Market Offering Program.

•As distribution agents for the program, BOFI’s primary sell-side research firms have received over $3 million in total combined payments directly from BOFI over the past three years.

•An enormous conflict of interest, the research firms have profited from selling BOFI’s shares in the open market while, in some cases, simultaneously issuing glowing reports touting the company’s prospects.

•Anecdotal evidence indicates that BOFI may be using the ATM program as a tool to reward favorable research. As such, the objectivity of BOFI’s sell-side research may be compromised."

“There is a belief by most American investors, who may be unsophisticated but remain a critical part of the Nation’s capital markets, that analysts are somehow on their side. That an analyst is your advocate. They are impartial. They are bringing you information as your advocate.” -The WatchDogs Didn’t Bark: Enron And The Wall Street Analysts. United States Senate Hearing. February, 2002.

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I am shocked, SHOCKED, that there are conflicts of interest in the financial industry.

KC

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Here is the whole article.

http://seekingalpha.com/article/3584756-sell-side-has-issued…

Andy

All of this is nothing new to those who read the RB BOFI board.
As mentioned in the story,

BOFI adopted an ATM program starting in March 2013. For those unfamiliar with the program, it is exactly the opposite of a stock buyback program. In an ATM offering, the company sells newly issued shares into the secondary market at prevailing prices. Serving as an ongoing capital raise, BOFI has used the ATM proceeds to help fund its fast-growing balance sheet and exotic loan portfolio.

Just like doing a secondary thru brokers, they get a nice fee for handling it.

JT

Hello Andy,

You have to give the shorts credit. They have organized and executed a very successful attack. While much of what the author here says is true, I believe that there is much that is also not being said, because it is not supportive of the short thesis:

A small bank rapidly growing bumps up against capital constraints. There are options to raise that capital, but if great growth is to be maintained, the capital must be raised. In BOFI’s case, as the author points out, they have raised the capital at a brokerage cost of about 2.5% (vs. the 6% of a conventional underwriting). More importantly, the ATM option allows them more flexible timing which if effectively employed reduces the shareholder dilution suffered from the issuance. A key point here is that it eliminates the front-running discount that occurs when a conventional syndicate is put together and the price of the security is reduced to make the offering attractive. The author says that BOFI is rewarding the analysts by payment of the ATM offering fees (or penalizing the analyst who doesn’t write an appropriate report by withholding such fees). It seems to me that this would again work to reduce dilution of the offering and thus, benefit shareholders. The author fails to mention the analysts that write bullish reports on the company whose firm does not participate in the ATM stock issuance.

It will be interesting to see just how much permanent damage this bear raid has caused BOFI. I still believe that the shorts will close their short position before the coming cc. The stock is not heavily owned by institutions which has aided the shorts. As the price has been pushed back this far, it will become more attractive for institutional investment. If that occurs, it will make future bear raids less attractive to the short community. There is a certain amount of investment appeal in a security that has a significant growth runway and is priced around 12 times projected fiscal year earnings.

Best regards,

Mike (long BOFI)

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Hi Mike,

You have to give the shorts credit. They have organized and executed a very successful attack. While much of what the author here says is true, I believe that there is much that is also not being said, because it is not supportive of the short thesis:

I agree with you. They just keep dredging up the same old stuff and the same people jump out and then when someone calms there fears they get back in. LOL. This has been a great stock to buy when these short attacks happen. I have made a lot of money off the people jumping out. I agree that we should see a nice rise going into the conference call.

Andy
Long Bofi (Greedy when others are fearful)

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Hi Andy,

What’s your opinion of BOFI at this point?

Mykie

Hi Mykie,

What’s your opinion of BOFI at this point?

I am still invested in it Mykie and haven’t sold a share. I bought more on the way down. On October 19th, Bofi sued Mr. Erhart and asked for a jury trial. From what I understand, Mr. Erhart’s position at the bank as an Auditor gave him access to a lot of information at the bank. His job was to make sure the bank didn’t do anything to impugn their reputation. It looks like he tried to use the information to make the bank look bad instead, but it was investigated by the OCC. That is what I am focused on. The OCC investigated his claims and found nothing, and then they investigated again before Bofi could take over H&R Blocks bank business. I just can’t see Bofi having any major problems after those two investigations. I could be wrong, and have been before, but I just haven’t seen anything that hasn’t been hashed out time and again. They report on the 29th of October and that will tell me exactly where they stand. If they have another blow out quarter we could start climbing back up. We will see.

Andy

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I am surprised that BOFI didn’t publicized their countersuit, maybe they are waiting to discuss it during their 3Q conference call.

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Hi Bull,
I am surprised that BOFI didn’t publicized their countersuit, maybe they are waiting to discuss it during their 3Q conference call.

Yea they didn’t say anything at their investor meeting but I did see it on Seeking Alpha. Hopefully we will learn more on the CC.

Andy