(Reuters) – Short seller Hindenburg Research took a short position in digital bank Axos Financial (NYSE:) on Tuesday, citing lax underwriting standards and apparent problems with its loan book, sending shares down more than 7%.
Hindenburg, a forensic financial research firm, said the bank had exposure to the riskiest asset classes and increased its overall exposure to the deteriorating commercial real estate (CRE) market while its peers retreated from the sector.
The bank’s stake in CRE was $9.9 billion at the end of March, up from $5.5 billion three years earlier, Hindenburg said.
Axos’ customer base in the commercial and multifamily segments included “borrowers who were unable to obtain loans from other banks,” resulting in problem loans for the bank, the short seller’s report said.
Hindenburg said the bank’s price/tangible book value is 35% higher than its peers.
California-based Axos Financial did not immediately respond to a request for comment.
Shares of the bank, whose borrowers include former US President Donald Trump, have fallen about 11% this year.
Axos is the 10th largest regional bank shorted, according to S3 Partners. The short interest in Axos is $319 million, or 11.84% of its outstanding shares.
Trump has two outstanding mortgages worth more than $100 million with Axos Bank, according to a public financial disclosure report filed with the U.S. Office of Government Ethics last year.
Two 10-year mortgages allowed Trump to finance Trump Tower and the Trump National Doral golf course in Miami, documents show. They were issued in 2022 at 4.25% and 4.9% respectively.
Hindenburg is best known for betting against companies that have been linked to allegations of wrongdoing. It was founded in 2017 by Nathan Anderson.
Among his high-profile bets was a short position in electric truck maker Nikola (NASDAQ:) in September 2020. Company founder Trevor Milton was sentenced last year to four years in prison after a jury found him guilty of fraud.
Reuters could not independently verify the claims made in the Axos report.
The CRE market, impacted by higher interest rates and declining occupancy, has become a source of concern for bank investors after New York Community Bank (NYSE:) recent turmoil.
NYCB posted a surprise quarterly loss in January and cut its dividend due to the impact on commercial real estate, while also stripping billions of dollars of its market value.
Last month, Starwood Real Estate Income Trust also temporarily limited share repurchases to avoid a forced sale of its real estate assets.